Nairobi's High Court has ordered directors of a failed startup to repay Ksh 23.8 million to investors after funds were mismanaged. The investors had provided Ksh 24.7 million to support the business's establishment and operations.
The lawsuit was filed on October 16, 2020, with investors seeking Ksh 24,708,000 plus interest and suit costs as of June 2, 2020. The court found that the directors received the funds in their personal capacity, though intended for business use. An audit revealed minimal profits and that most funds were not applied as agreed, with the startup not operated as promised.
One director resigned during the loan period but remained accountable for funds received in their role. The third defendant admitted partial liability and pledged to pay half the amount, noting the investors were his elderly parents who lost retirement savings. 'The third defendant filed a statement of defense dated February 4, 2021, later amended on May 9, 2022, admitting receipt of the funds as detailed and awareness they were a loan, though claiming they were investments in the company. He committed to pay half as the plaintiffs are his parents,' the court stated.
In its ruling, the High Court entered judgment for Ksh 15 million jointly against the second and third defendants, plus Ksh 8,848,391 against the third defendant, totaling Ksh 23,848,391. Interest accrues from the filing date until full payment. This case highlights risks in startup investments and the need for director accountability.