The longer it takes to conclude litigation against Steinhoff by shareholders, the less chance there is that shareholders will be able to recover any losses.
This is according to attorney Alexander Reus, managing partner of international law firm DRRT. Reus and other representatives of the International Steinhoff Litigation Group on Monday briefed Steinhoff investors in Cape Town on the progress of the South African opt-out class action, which was filed in the South Gauteng High Court in August 2018.
The International Steinhoff Litigation Group is a group of law firms representing Steinhoff shareholders from the US, the Netherlands, Germany and South Africa.
The South Africa class action was filed against over 40 defendants including Steinhoff, Deloitte, Absa Bank, Standard Chartered Bank, Commerzbank and PSG Capital, as well as current and ex-directors of Steinhoff including former board chair Christo Wiese and former CEO Markus Jooste, and others. This is with the hopes to recover compensation for the shareholder losses of up to €12bn (approximately R185bn).
Stellenbosch headquartered retail conglomerate Steinhoff has lost over 90% of its shareholder value since early December, when Jooste abruptly resigned amid accounting irregularities. These irregularities are the subject of an independent forensic investigation by PwC.
The company has announced the restatement of financial statements, but said the PwC probe will have to be concluded before these can be made public.
In addition to the class action by the International Steinhoff Litigation Group, Steinhoff is facing two Dutch class actions. While it is headquartered in Stellenbosch, Steinhoff is domiciled in Amsterdam in the Netherlands. It moved its primary stock exchange listing to Frankfurt in late 2015.
Reus and his SA counterpart Zain Lundell of LHL Attorneys are of the view that a global settlement would be beneficial to all shareholders - retail and institutional - as opposed to engaging in competing individual cases being sought by institutional shareholders in the Netherlands or South Africa.
"A global solution that treats everyone the same way, will be the light at the end of the tunnel," said Reus.
He warned that private actions outside of the South African class action may "destroy the potential for any global solution" and may drive Steinhoff into bankruptcy. "Shareholders won't get anything if it reaches liquidation stage," said Reus.
Starting from zero
Reus said that shareholders should lower their expectations of what they could possibly get from Steinhoff as the retailer has limited assets. "Everybody has to start from the point they are at now – and the point they are at now is zero. And any way up from there, if a reasonable amount, is a good solution," Reus said.
Former chief financial officer Ben la Grange told Parliament in August that losses to pension funds invested in the retailer were permanent. He also said its share price would not climb back to levels it once was before the fallout in December 2017.
Reus said "it makes sense" for any pending class actions in South Africa and the Netherlands to be resolved quickly. “The more debt accrues for senior debtholders will make it less likely for anything to be available to shareholders. "If nothing is done in the next year or six to seven months, I think the chance to get money out of that is going to be very difficult," Reus warned.
Reus said that for the international class action efforts to work – none of the institutions should opt out and pursue individual claims, as it could "collapse any potential solution".
Recently, European Investors and Dutch shareholder association VEB have agreed to suspend a class action suit against Steinhoff until April 2019. However, the Dutch class action of the International Steinhoff Litigation Group remains active, Reus clarified.
Reus said that Steinhoff's Dutch attorneys Linklaters have not yet approached them. "We expect to be approached by Linklaters to stay the case as well. We will decide what we will do then. We are not sure whether we want to stay – we have just filed SA proceedings."
Reus said neither he nor the International Steinhoff Litigation Group have heard from the defendants if they want to settle either.
According to Lundell, they are hopeful to get a court date early next year. Lundell noted that he believed that the South Gauteng High Court had jurisdiction, and that he was confident in the court as the judges there are known for their experience in handling class action cases.
Investors – both institutional and public – will be briefed on Tuesday and Wednesday in Johannesburg this week.
In a statement issued on Monday, trade union the Public Servants Association (PSA) said it will meet with the representatives of the international litigation on Tuesday. This is in an effort to recover losses suffered by members of the Government Employees Pension Fund (GEPF). The PSA's legal team and representatives from the Public Investment Corporation will also be at the meeting.
“A South African class-action lawsuit offers the best possible avenue for litigation and dispute resolution by ensuring personal jurisdiction over most of the defendants who are based in South Africa and the associated claims, especially since some 70% of Steinhoff shares were traded on the Johannesburg Stock Exchange,” said PSA general manager, Ivan Fredericks.
Steinhoff's share price which opened at R2 on Monday was trading just over 1% weaker at R1.97 after 16:30.
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