Feathers fly at Steinhoff

Tekkie Town’s former owners set the proverbial cat among the pigeons with Wednesday’s news that they have applied for Steinhoff’s liquidation. In hindsight, this sort of action should have been expected from any one of a number of parties as the company attempted to push its global settlement through many jurisdictions and various claimants.

The former owners of the discount retail footwear and apparel company made much of what they see as an unequal settlement offer from Steinhoff to aggrieved shareholders left with worthless shares after the 2017 accounting scandal that nearly led to the collapse of what was once Europe’s second-biggest furniture retailer. Why, for instance, will former chair Christo Wiese, who lost a big chunk of his fortune when the fraud was exposed and Steinhoff’s share price slumped more than 90%, get a higher amount than other claimants. He was, after all, on the board of Steinhoff when the “irregularities” happened, and still owes the company a substantial amount of money?

The global settlement distinguishes between three types of parties: financial creditors, and two types of claimants. The settlement proposed is for intragroup creditors (subsidiaries that lent money to Steinhoff) and financial creditors to be paid in full.

The “claimants” category comprises, first, market purchase claimants. They are individuals and entities that bought shares on the market and were holding them when “accounting irregularities” came to light. Naturally, they suffered from the share price’s dramatic fall. Then there are contractual claimants. They are parties that entered into transactions with Steinhoff directly that resulted in payment or transfer by way of the delivery of Steinhoff shares. The former Tekkie Town owners fall into this category.

At a basic level, the former Tekkie Town owners say they exchanged a business for shares in Steinhoff at 100c in the rand, and now they are being offered the equivalent of 5c-6c, at a maximum, as part of the global settlement. The variance in the range of outcomes is useful to project who else may be unhappy with the settlement offer and who would be willing to join Tekkie Town shareholders in applying for liquidation. They not only think they could get a better deal out of a liquidation but more importantly their case for restitution will be preserved.

In essence, should the liquidation application succeed, it will be a court-appointed liquidator (or group of liquidators) that will be appointed to verify and quantify the various claims and creditors, realise value from assets, and distribute the proceeds to creditors — as opposed to Steinhoff’s executive team.

There is one other aspect of a court-sanctioned liquidation to which Steinhoff might be averse: at the request of the liquidator, a court may sanction a 417 inquiry to establish why the company failed and whether there was wrongdoing. This may be more illuminating for the public than the morsels Steinhoff provided by way of a summary of the PwC report it commissioned and which it refuses to release.

We still do not know how such an enormous financial crime was perpetrated by apparently so few individuals over such a long time. It harmed SA’s reputation in addition to losses suffered by investors, including government workers invested through the Public Investment Corporation.

But there could be a sting in the tail for market purchase claimants should a liquidation be approved. When a group of shareholders approached the courts in 2020 to launch a classaction lawsuit against Steinhoff for damages as a result of negligence, it was thrown out. The judge ruled that under SA law shareholders have no claim against a company for negligence.

On this basis, you could say Steinhoff is being charitable in trying to compensate shareholders for what happened in December 2017. Would they fare better in a liquidation? The fundamental difference with a liquidation under local law is that it won’t be Steinhoff calling the shots. And that might itself be a good thing.

IN A LIQUIDATION UNDER LOCAL LAW IT WON’T BE STEINHOFF CALLING THE SHOTS