A United Kingdom private equity firm, Leapfrog that bought Resolution Insurance for Sh1.7 billion in 2014, has lost Sh346.5 million after trying to sell its part in the bankrupt company in a deal that required it to lend money to new owners Linkham.
Resolution Insurance was on the verge of bankruptcy if its owners couldn’t raise Sh4.3 billion to recapitalise the company after years of losses.
Linkham agreed to bring on Leapfrog and Resolution founder Peter Nduati as additional shareholders and refinance the business gradually.
The Insurance Regulatory Authority (IRA) approved a Sh1 billion initial investment from new owners.
LeapFrog would assist pay the acquisition with a $3 million loan, according to court filings by Linkham Services directors Michael Cranfield.
Linkham would put in $7 million, for which they would later receive $2 million from Pine Creek and Peter Nduati.
Despite consenting to the deal, LeapFrog’s partners failed to fulfill their obligations, leaving the PE company with losses.
LeapFrog lost approximately Sh2.4 billion at the insurance after purchasing a controlling stake for Sh1.7 billion and putting in a Sh346.5 million loan to recapitalise the business.
LeapFrog lawyer MMAN attorneys wrote to the IRA to clarify the company had provided their end of the contract of $3 million, which is now lost as the insurer failed while their partners blamed each other for failing to provide the remaining funds.
In a court filing, Nduati claims that the buyers, Linkham Services Ltd, were meant to invest $6 million (Sh692.8 million) in the business after acquiring a 55 percent ownership from LeapFrog but only put in Sh346.5 million.
However, Linkham claims that after conducting their due diligence, they decided to alter the sale agreement so that they could only put in $3 million as an initial deposit, rather than the $7 million.
On February 8, 2021, they claim to have sent the funds to the Resolution Insurance account at Middle East Bank.
They cite a letter from LeapFrog partner Raimund Snyders dated January 13, 2021, which states,
“We reaffirm our assent to the proposed adjustment of section 6.1 to indicate that the purchaser’s (Linkham’s) investment into Resolution Group shall be $3 million, rather than $7 million,” read part of the letter.
A letter by IRA to shareholders also indicated that they had agreed to invest Sh1 billion in the company, which they then reduced to Sh600 million, only for the regulator to learn that the shareholders had not done so.
The letter signed by the partners was validated by LeapFrog as a commitment to refinance the business and support the arrangement, which culminated in them performing their part.
“The letter in question demonstrates our commitment to allowing the new shareholders to focus on the business’s future capitalization,” Stacey stated.
While operating on negative working capital for one-and-a-half years, Resolution Insurance stockholders played games with the regulator by promising to inject money that never arrived.