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Recompense for Steinhoff investors looks grim

Investors who lost billions when Steinhoff International’s share price collapsed might recoup as much as 20% from their initial investment.
Picture: Waldo Swiegers/Bloomberg

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.

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Only people gaining of out this class-action will be the lawyers. 25% out of R199B is a lot of money. Makes you wander whose interest they really have at heart??

As one reads this article, Steinhoff is negotiating to sell some of it’s real estate properties to the tune of $907 million. As are also well known by now, Steinhoff have already sold-off some of it’s business operations and a portion of it’s stake in some affiliates.

Facts are that as we speak, Steinhoff is trading insolvently and to be able continue to keep the doors open, they have to rely on capital realised from the sale of more of it’s business operations (stores), shareholding interests in retail groups and real estate properties to fund the month to month shortfall in operational running costs, the huge accounting fees and the exorbitant and inescapable legal fees. This, of course, is without servicing their astronomical debt.

Now work out for yourself what the chances are of retail investors (shareholders) getting back maybe five cents to the Rand or 5% of their previous investment value prior to the free-fall cliff-dive of Dec 2017.

Eleven months after the tragic, self-inflicted crisis, Steinhoff has as yet not quite implemented the emergency cost cutting measurements required to stop the free-flow bleeding of growing cash-flow deficits – such as placing a moratorium on all bonus payments, cutting the over-bloated remuneration of the top 33% of earners in the company, renegotiating the above-market lease rates of their various stores, retrenching surplus staff, or closing down of loss-making stores, operations and affiliates.

Snort!! How on earth will they get 20% back – there isn’t going to be anything left after they have paid the debt, paid the lawyers, sold Pepkor, etc. If you read the Amabhungane article it is very obvious that they overpaid for every single asset in Steinhoff – and most of this is sitting in Jooste’s offshore bank accounts. Their only chance of seeing a cent is to get some of the stolen loot back.
This fraud goes back forever. This is definitely Enron all over again.

Liquidate Steinhoff ……. the current management was part of the old board who are responsible. They are going to “milk the cow” of all assets and pay themselves for as long as they remain in their positions.

There is no interest for shareholders.

You are quite right regarding what they will do. It appears that some of the companies sold to Steinhoff were sold at hugely overvalued prices. Unless they are closely watched they will buy them back at prices closer or far less than the actual values. A huge win – win for the people involved. Liquidation may well suit them. I would rather get a preservation order and lay criminal charges. That should keep them involved in defending themselves instead of stealing the assets. In any event, they need to be charged criminally. I do not see Wiese’s name on the list……..why not?

Which List do you refer? If Weise is not on the “List” of defenders, then the lawyers need to be questioned as to why not. Could be that Weise has engaged with the lawyers and “struck a deal”. What’s new, that how Weise operates.

He is busy with Invicta (another Steinhoff scheme)- restructuring and listing overseas to move his assets out of RSA.

Watch this space!

Just thinking aloud, would that mean that all their retail stores would shut down or get sold off understanding the impending doom. Need an expert view on this.

End of comments.

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