Auditing firm Deloitte would be the most likely source of funds to compensate Steinhoff shareholders in the class action gathering steam in the Netherlands.
“I think the auditor is possible for funds. Then insurers, then the banks,” said Paul Coenen, in-house attorney of VEB, the Dutch nonprofit organisation that has launched the class action.
The retail company imploded in December, when it admitted to shareholders that its financial statements could not be trusted. This was due to executives allegedly overstating profits and assets over the course of several years.
Its market capitalisation had been just shy of R200 billion. Now it is in the region of R13 billion and the company is selling its good assets to raise cash.
“We are not out to bankrupt Steinhoff,” said Coenen.
“It is important to get the company alive again. We are building a pressure … It is the only way to force them to come to the table and try to settle this case.
“The worst thing Steinhoff could wish for is a declaratory judgment on its liability.
“That would then be the standard for every conversation. In order to save the company, they would want to avoid that.”
It is impossible to recover the R180 billion that was lost. With Steinhoff selling good assets just to stay afloat, the question arises as to how there could be any money for compensation.
“The ideal outcome is adequate compensation,” said Coenen.
“We started with the company. We will continue later, after the outcome of the various investigations, to litigate against the supervisory directors, the auditors and maybe the banks that accompanied the company at its introduction. They have pockets, deep pockets.
“The directors are of course insured. As soon as you litigate against them, they will turn to the insurance companies.
“There is the ritual dance to find the balance – which partners can bear up to what costs and is it, in total, enough to give adequate compensation for large stakeholders to say okay, let’s get the past behind us?”
What exactly constitutes “adequate” compensation will ultimately be a negotiated outcome.
VEB likes to compare Steinhoff to Fortis – the largest previous settlement for investors in a Dutch class action.
Fortis was a financial services group based in Belgium which, in 2007, merged with Dutch competitor ABN Amro in the biggest bank deal. In the 2008 financial crash, Fortis went bust and had to be bailed out.
VEB participated in the lawsuits that followed, which culminated in an enormous $1.3 billion (R15.3 billion) settlement years later, in 2016.
The damage done to shareholders was, however, closer to $6 billion, meaning investors got back about 22c of every dollar they lost, said Coenen.
Steinhoff shareholders should definitely expect any settlement to be in that range, he added.
If shareholders were to recover just 20% of the lost value in Steinhoff, that would be around R35 billion.
Other cases, like one against oil giant Shell, ended in settlements for less than 8%. The Shell case VEB got involved in revolved around misstated oil and gas reserves.
“This claim should be dealt with in maximum two years which, of course, could be appealed,” said Coenen.
VEB officials were in South Africa this week to meet Steinhoff shareholders.
“A lot of them say to us that this is the first time something like this has hit us. Even though they are institutional investors, there is a feeling of shock, disbelief and frustration,” Coenen told City Press this week.
VEB spokesperson Armand Kersten said even institutional investors were completely unfamiliar with the Dutch system.
“The world of Dutch class actions is completely foreign to them.”
Dutch company law creates a very simple mechanism for investor class actions.
VEB does not need to sign up any investors for its case. It has legal standing simply because Steinhoff is a Netherlands-registered company, said Coenen.
VEB takes a success fee of 9% if there is a settlement. In the Steinhoff case, that could amount to a significant amount of money.
VEB staff, however, get no share in it and simply receive their salaries irrespective of the outcome, said Kersten.
It is uncertain if Steinhoff executives like Markus Jooste and directors like Christo Wiese could face personal liability.
Coenen said VEB would make a call about this once all the information is on the table.
“In the end it is up to us to decide if the information is enough to institute a legal claim.
“It won’t be necessary to prove fraud. Directors are also held to a standard of conduct.
“You cannot hide and say ‘I did not know’. There is a joint liability. We could tell them you will either go bankrupt or we will tell you what to contribute – it is more symbolical, but it is good for the markets to see that if you commit fraud there is a penalty.”
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