Steinhoff has lost its ambitious bid to consolidate 12 South African-based claims that have been lodged against it, following the collapse of its share price in the wake of news of accounting irregularities reported in December 2017.
The loss comes with a hefty legal bill estimated to be as much as R60 million; the judge ruled that the international retail group must pay the costs of all of the parties and that such costs would include the costs of three counsel.
“I am satisfied that [given] the volume of the papers in the record and the importance of the matter to the parties, the employment of [three] counsel is justified,” said Judge Dolamo, announcing the dismissal of Steinhoff’s application last week.
Bernard Mostert, former CEO of Tekkie Town and one of the parties battling the consolidation attempt, told Moneyweb he was very pleased with the dismissal decision as well as the cost order, which he described as “quite punitive”. Mostert and other co-founders of Tekkie Town, which was bought by Steinhoff in late 2016, have launched a new retail chain called Mr Tekkie. They have instituted legal action in a bid to restore ownership of the Tekkie Town business to them. Mostert said he believes that action is close to being “trial-ready”.
The parties involved in the cases that Steinhoff attempted to consolidate have lodged claims of over R80 billion.
Much of that is down to former chairman and controlling shareholder Christo Wiese’s R59 billion claim. PIC-banked Lancaster is claiming R11 billion, former banker GT Ferreira is claiming R1.2 billion and Tekkie Town-related entities are claiming R1.8 billion.
In the court papers Ferreira argued the cases could not be consolidated because of the extensive disparities among the claims: “A bumper trial will inevitably entail the incurring of unnecessary delay and legal costs in relation [to] litigation in which the claimants have no interest and where the issues are neither common nor capable of convenient disposal.”
Many of the claimants believe the attempt at consolidation was a delaying tactic aimed at securing the interests of Steinhoff’s creditors who signed up to the company voluntary arrangement last August. A court-backed order to pay out any successful claimant could trigger Steinhoff’s liquidation to the disadvantage of the creditors.
The creditors, who owned claims of around €9 billion (R188 billion) of debt, agreed to roll over the debt until at least December 2021. In exchange they will receive annualised interest of 10%, which will be capitalised. Unlike the SA claimants, the creditors are represented on the Steinhoff board.
In his judgment Dolamo said the purpose of consolidation actions “is to have issues, which are substantially similar tried at a single hearing so as to avoid the disadvantage attendant on a multiplicity of trials”. But he said a court would not order a consolidation: “Unless satisfied that such a cause is favoured by the balance of convenience and that there is no possibility of prejudice being suffered by any party.”
Claims ‘similar but diverse’
The judge contends that the claims are similar in that they deal with misrepresentations made in the financial statements, but says they are diverse in nature and involve different claims of relief. And they are at different stages of progress. “At this stage it would not be convenient for all these matters to be consolidated,” said Dolamo, adding that any costs savings from consolidation would only accrue to Steinhoff, “while the respondents would be substantially prejudiced”. He said that only when all the cases were ready for trial could consolidation be considered.
Steinhoff CEO Louis du Preez said the company respects Dolamo’s ruling and accepts that the judgment may require each action to progress individually. “However we note that paragraph 27 of the [judgment] indicates that the suitability of a consolidation may be reconsidered by the court at a later date once matters have been set down and dates for trial applied for, providing an opportunity for us to re-assess this option at that point.”
Du Preez said that Steinhoff is engaged in a host of legal proceedings in South Africa and that while there are individual differences: “Steinhoff considers that there are sufficient overlapping issues and witnesses that renders it more efficient for these proceedings to be consolidated.”