As lawsuits pile up against Steinhoff International, the prospect of ordinary investors recouping losses running into billions of rands from the retailer’s share collapse amid SA’s worst accounting scandal, is looking increasingly grim.
A consortium of law firms, that has launched a class-action lawsuit at the South Gauteng High Court on behalf of aggrieved Steinhoff investors, has joined the ranks of large fund managers – including Coronation Fund Managers – in saying that investors have little chance of recouping their losses.
Early estimates by the consortium, International Steinhoff Litigation Group, indicate that Steinhoff investors – mainly pensioners and savers – could get recompense of up to €12 billion (R199 billion at the time of writing). This is despite Steinhoff shares losing R205 billion in value since the former retail darling admitted to accounting fraud on December 6, 2017.
“It’s impossible to recover all the money. There are too many liabilities in Steinhoff. If Steinhoff had to pay for these damages, it would be bankrupt. There are also senior debtholders who have a claim on damages, which will make it less likely for anything to be available to investors,” said Maximilian Weiss, an attorney at German law firm TILP Litigation.
This is a blow for Steinhoff investors desperate for some recompense and arguably underscores the human cost of fraud committed by the private sector.
TILP Litigation has joined forces with Johannesburg-based class-action law firm LHL LHL Attorneys, Dutch firm Bynkershoek Dispute Resolution, loss recovery law firm DRRT and UK litigation funder Therium, in bringing the class-action lawsuit at the high court. These legal heavyweights are part of International Steinhoff Litigation Group, representing investors who bought shares between June 26, 2013, and December 5, 2017.
Weiss is in South Africa this week engaging with retail and institutional investors. He’s attempting to woo investors in supporting the International Steinhoff Litigation Group class action and not separate legal actions that have been brought against Steinhoff and related parties in recent months. These include class-actions brought by shareholder group VEB and law firm BarentsKrans, whose Netherlands-based lawsuits are also aimed at compensating investors.
So far, the International Steinhoff Litigation Group lawsuit has garnered support from 100 undisclosed institutional investors and 1 000 ordinary investors, based mainly in South Africa.
Even if the litigation group successfully achieves a claim of €12 billion from Steinhoff, the pool of money available for investors would be reduced by lawyers’ fees. The high court would determine a reasonable fee due to LHL Attorneys for example, which is capped at 25% of the class-action claim.
Steinhoff is battling to stay afloat, as it had to defer payments of more than €9 billion (R145 billion) to creditors and interest payments of over €1 billion (R17 billion) per year to the debt – buying management time to restructure the group.
Rescue proceedings for distressed companies usually prioritise damages claims for senior creditors while ordinary investors are left last to stomach losses. Given this, Alexander Reus, the managing partner of DRRT, said investors might be able to recoup as much as 20% of their money initially invested in Steinhoff.
Casting the net wide beyond suing previous and current Steinhoff directors, will ensure that the settlement to investors is supplemented by other players, said Zain Lundell, an attorney at LHL Attorneys. More than 30 current and former directors of Steinhoff and its subsidiaries have been cited, including former CEO Markus Jooste, former CFO Ben la Grange, as well as Steinhoff’s current CEO, Danie van der Merwe.
The application also names as defendants three banks and the auditors that assisted Steinhoff with its Frankfurt listing in 2015. These are Absa, Germany’s Commerzbank and UK-based Standard Chartered Bank, as well as auditors Deloitte and Rödl & Partner.
Although the class action concept in South Africa is relatively new and usually take time to resolve, it can improve access to justice by ordinary citizens as it reduces the cost of litigation. This was seen in the long legal battle between seven gold miners and mine worker afflicted with silicosis after working underground after they won a R5 billion settlement in a class action lawsuit.
Time is the biggest challenge for the International Steinhoff Litigation Group initiative. “We want to resolve this claim quickly while Steinhoff has assets. If nothing is done in the next year, then it might be difficult to recover money for investors,” said Reus.
It’s hoping for an out-of-court settlement with Steinhoff and its related parties.