South Africa: Inside Steinhoff’s legal defence against fresh claims

By Xolisa Phillip, in Johannesburg
Posted on Monday, 26 July 2021 13:02

Steinhoff Chief Executive Officer Louis du Preez addresses a presentation to investors in Cape Town
Steinhoff Chief Executive Officer Louis du Preez addresses a presentation to investors in Cape Town, South Africa, August 13, 2019. REUTERS/Mike Hutchings

Retailer Steinhoff is appealing a South African court judgment that could unleash the floodgates of litigation against the company and jeopardise certain aspects of a carefully crafted global settlement proposal.

The Africa Report understands that Steinhoff filed its appeal papers in the Western Cape high court matter on Friday. Two sources confirmed the legal filing, but declined to elaborate further because of confidentiality concerns.

More cases are pending against the retailer in South African courts, while the company has upped the ante and added more euros to the pot of its global settlement proposal. But the ongoing litigation could drag out and delay the implementation of the global settlement proposal in some jurisdictions.

Steinhoff CEO Louis du Preez has appealed for a speedy resolution to the saga, and said: “We urge all claimants to support the revised settlement proposal and work with us to conclude the approval process as soon as possible.”

“The resilience of the group’s performance since our settlement proposal was first announced in July 2020 allows us to materially increase the total available pot for settlement to €1.2bn,” explained Du Preez.

“The revised proposal offers claimants a fair outcome, and the best opportunity to recover amounts in respect of any claims in the near term and with certainty,” Du Preez added.

The irregularities that started it all …

The retailer’s woes began in December 2017, when Steinhoff was hit by a bombshell scandal about the true state of its books. During that time, it emerged that the company had, for years, inflated its profits and misled the market about its financial performance by using opaque accounting and inter-company transactions.

The dual-listed company’s share price tanked and several heads rolled, including that of its disgraced former CEO Markus Jooste, the alleged mastermind behind the elaborate accounting ruse. Steinhoff’s accounting irregularities were soon followed by a deluge of legal claims from shareholders and investors, as well as creditors of different classes, in multiple jurisdictions, including South Africa and the Netherlands.

The creditors’ claims in large part stem from the fact that the accounting irregularities triggered instances of default on long-standing loan agreements.

Steinhoff has a primary and a secondary listing on the Frankfurt Stock Exchange and the Johannesburg Stock Exchange respectively. The integrated general retailer has a footprint on the continent, in Europe, the US, Australia and New Zealand.

The retailer first proposed the global settlement proposal in July 2020. It followed that up in February 2021 with a section 155 proposal in South Africa. A company can institute a section 155 proposal in terms of the Companies Act, which enables an entity to reorganise its financial affairs by obtaining buy-in from creditors.

One retailer, many court cases

Since Steinhoff established the section 155 proposal, it has been subject to disputes.

The case in the Western Cape high court was an indirect challenge to the section 155 proposal. Trevo Capital and Hamilton instituted the legal proceedings against Steinhoff in the Western Cape high court.

The case centres on a 2014 bond guarantee and a subsequent contingent payment undertaking made by Steinhoff in respect of a convertible bond maturing in 2021.

Trevo and Hamilton argued in the court that the guarantee and the contingent payment undertaking could be deemed financial assistance from the South African arm of Steinhoff to the international entity. This would be in breach of section 45 of the Companies Act.

Hamilton represents the interests of investors who have more than 14,000 claims against Steinhoff. The investors in question include South African pension funds and asset management firms.

At the beginning of July, the court delivered judgment to the effect that Steinhoff had breached section 45 of the Companies Act in terms of the contingent payment undertaking. However, the court did not find in favour of Trevo and Hamilton in respect of the 2014 guarantee.

“The overall net effect on … [Steinhoff] following the … [section 45] judgment is that … [Steinhoff] now faces greater uncertainty and further claims and, in absence of a successful appeal, a long and complicated series of multi-jurisdictional legal disputes,” the company said in a market note.

“[Steinhoff] …  intends to apply for leave to appeal the judgment before the time for doing so expires and believes it has reasonable prospects of success on appeal,” the company added.

The Africa Report got confirmation that the company filed its appeal papers on Friday.

The legal onslaught ahead

Other pending matters include:

  • A provisional liquidation filing, which is separate from the global settlement proposal, against Steinhoff instituted by parties related to the previous owners of Tekkie Town, which was acquired by the retailer in 2016. The case is scheduled for 1 and 3 September in the Western Cape high court.
  • In the Netherlands, a Suspension of Payments Committee is scheduled to hold a vote and consider Steinhoff’s proposal on 3 September.
  • In South Africa, from 4 to 6 August the Western Cape high court will hear a dispute about the composition of the classes proposed in the section 155 proposal.

“Those opposing the global settlement are working to delay its implementation despite the fact that delay will put at risk the interests of the large number of claimants who support the deal and who will otherwise face the prospect of waiting years for an uncertain outcome,” the company has warned.

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