Deminor Recovery Services is one of the shareholder representatives that could be suing Steinhoff for damages incurred by shareholders. In this interview, Moneyweb discusses the questions the firm has submitted to Steinhoff with partner Edouard Fremault and legal advisor Julide Bredee, ahead of the AGM on Friday, and what they expect will come from it. – WT
WARREN THOMPSON: Joining me is Edouard Fremault, a partner at Deminor Recovery Services, along with the firm’s legal advisor, Jülide Bredee. They join me on the phone now from Luxembourg. They have sent a series of questions to Steinhoff ahead of the AGM on Friday and they are on the telephone to talk to me about the questions they have submitted, as well as what they anticipate happening on Friday at the AGM. Good to speak to you. Edouard and Jülide.
EDOUARD FREMAULT: Hello, Warren.
JÜLIDE BREDEE: Hello.
WARREN THOMPSON: The questions that you furnished the company with now – I’m just casting my eye through them. The first series of questions relate to the announcement by the company regarding accounting irregularities, which came out on December 6 and which came out at the same time that Steinhoff’s previous CEO, Markus Jooste, resigned. Just give us your reasons for posing this question around when the company became aware of accounting irregularities.
EDOUARD FREMAULT: I think that’s important because when the news was disclosed to the market in December, it came like a shock to investors, a terrific surprise for them. So, if you look at the magnitude of what you can probably call fraud, we cannot exclude that maybe the company was aware of more information compared to what was disclosed in December. We are not saying that that’s the case. I just think that might be a possibility. And I think the objective of the AGM this Friday will be to get as much clarity as possible on what went wrong.
The question is not only about the past but also about the future. Is it possible for the company to fix what went wrong? We believe that the only way for the company to regain the trust of investors is to come with a clean sheet about its past.
WARREN THOMPSON: Okay. Are you expecting the company to be forthcoming?
EDOUARD FREMAULT: Well, let’s say, based on experience we do expect the company might give some pieces of answers. Probably the answer will not be super-accurate. What they will say, again based on experience, is sorry, but there are a number of investigations ongoing; we cannot jeopardise these investigations. But I think it’s not good, it’s not right. The expectations of the investors – clearly they want to know what went wrong. The only way for a company to regain the trust is they need to answer. They need to provide answers to this question. If you look outside the… I think that’s exactly what investors are looking for, transparency. Every day if you read the news there is more and more information about what went wrong. But we don’t know exactly how this thing has been made possible. We don’t know exactly.
Yes, it’s the board of directors. Were these working, were they making controls and checks about things that were happening at the company? I think as of today there are a lot of things which are uncertain and we believe that small or big shareholders all deserve answers to their questions from [the] board.
WARREN THOMPSON: One of the other questions you started talking to, is the idea of throwing back and then looking forward and ensuring that similar failures don’t take place. You mention that in the financial year 2015/16 the company reported that the board of directors assessed the design and effectiveness of the group’s internal risk management and control systems. Tell us about the question relating to that.
EDOUARD FREMAULT: In 2015 and 2016 they reviewed all the risk management policies, which is good on paper. But the reality three years after – it was a complete failure. And we just want to know if this assessment had been done correctly at that time. We just want to know if the company was assisted by Deloitte, and what was the word of the auditors in reviewing the risk management. The reality today is that this didn’t work out because, if the risk management would have been top notch, well, there would have been no disclosure of accounting irregularities. So we just want to know [and] make sure that this risk management back in the day was done correctly by the board of directors.
WARREN THOMPSON: You also then get into a series of questions relating to just what is going on with PwC, who have been hired by the firm to conduct the forensic investigation. You mention that there are 14 work streams underway, led by a gentleman called Louis van Strydom. Are you expecting that each of those 14 reports will be released by the company?
EDOUARD FREMAULT: Well, on our side, the company must disclose the result of these investigations. I don’t think it would have been possible for the company to justify the fact that ah, well, this is the outcome of the… of those investigations and we don’t want to disclose this information. It would be a complete nonsense by the company. Clearly until we are up close, pushing the company PwC to disclose as much as possible information, again, in order for the company to be transparent with its shareholders.
JÜLIDE BREDEE: And we believe the information needs to be published as soon as possible, as well. So if Mr Strydom is talking about these 14 work streams that will complete their reports piecemeal, investors have a right to view those reports as soon as they become available to PwC.
WARREN THOMPSON: Great. Perhaps then, just turning our attention to what’s recently developed with the company restating the value of its property portfolio, was that a surprise to you too?
EDOUARD FREMAULT: A complete surprise. How is it possible to have a mismatch of €1 billion? Yes, it’s a complete surprise. I would say it’s surprising, but not a surprise because when you are seeing all this bad information being disclosed to the market, you ask when this will stop at a certain stage? The company must now make a full disclosure of what went wrong. And the company must disclose the results of the PwC investigation. Again and again, it’s about transparency here.
WARREN THOMPSON: Okay. You’ve also got a question regarding whether Steinhoff will begin creating provisions for investor claims that have been initiated, or that could be initiated in the near future. I would assume that they would have to do that, Edouard, given what was going on. Surely they’ve got to start provisioning for that?
EDOUARD FREMAULT: They could do that. Surely it’s a decision to be made by the board of directors. Probably what they will say, based on the advice they will receive from their lawyers, is that, well, you know, these proceedings are too early, there are a lot of people talking, we don’t see any … It’s just the beginning so, well, yes, no, real visibility on what could be the outcome of all these investigations for the company. But again, it’s a decision to be made by the board and of course it’s their own liability to decide if they want to create provision for all these litigations.
WARREN THOMPSON: You also make a point regarding why Deloitte accountants were being reappointed as part of the proposals or the resolutions that will be presented at the AGM to remain Steinhoff’s external auditor for the financial year 2018. That would be quite surprising. Just give us your thoughts around why you think Deloitte might want to stay on as the auditor, given the fact that we’ve got, potentially, accounting irregularities extending to as much as €6 billion. Is that a fairly surprising view from your stance – that Deloitte would even want to remain the auditor of this company?
EDOUARD FREMAULT: I think that’s a very good question. I think also that, let’s imagine that Deloitte would say well, I don’t want to work anymore with Steinhoff. I think this would look suspicious. So probably Deloitte thinks that there are some very reasons to remain the external auditors of the company, and probably… as well as some good reasons to believe that Deloitte should stay as the external auditor. But again, I think it’s a decision made by the board of directors and, yes, it’s under their own responsibility.
WARREN THOMPSON: You make a very interesting question here regarding Deloitte – because you have series of questions for them as well – when they were informed of the investigation announced by German public prosecutors into former CEO Markus Jooste and other senior managers’ suspected accounting fraud in 2015. Sitting on the outside, when exactly did that investigation come to light? I suspect it was when the German Manager Magazine revealed that in August 2017.
JÜLIDE BREDEE: That is what we believe. However, we’d like to know… whether Deloitte then took additional steps to investigate even further whether their accounting reviews or Steinhoff’s consolidated financial statements were accurate, and didn’t put the brakes on Steinhoff at that point. We don’t understand why it was kept secret to this point, basically, that something larger might be wrong with the accounts.
WARREN THOMPSON: I think some very interesting questions here. Perhaps you can just round out, Jülide and Edouard, with just a few thoughts around the process that takes place at the AGM, and when, if any, opportunity will be given to investors and representatives of investors to ask questions, and what perhaps under Dutch law the company is obligated to do in that situation.
EDOUARD FREMAULT: Well, it’s easy. If you have shares you can ask questions. And if you have been able to register with the AGM, you can show up at the AGM and you can ask questions, and the board must answer the questions. Of course, there might be a debate about quality of the answers by the board. The board might say, well, the questions are like last-minute questions. I didn’t have the time to prepare the answer. On all sides we sent the questions more than two weeks in advance to the board, so we believe that the board – and Deloitte of course – should be fully prepared to give some answers to our questions. And I think that surely one of the basic rights of shareholders is just to be able to ask questions and receive a clear answer from the board, no matter if you are a big or a small investor. It doesn’t make any difference at all. Every shareholder deserves an answer to his question.
WARREN THOMPSON: We are going to have to leave it there. Edouard and Jülide, we will obviously look forward to getting your reaction to what transpires at the AGM after that event is held on Friday. But thank you very much for joining us today.