The army of lawyers advising Steinhoff will have to do something more persuasive than constantly remind the 90 claimants that they will all lose out if they can’t reach an agreement.
In particular, they will have to address the suspicion that the proposed global settlement sees former chair Christo Wiese getting far more than his fair share.
By one estimate, Wiese’s recovery rate is between eight and 15 times more than that of Steinhoff shareholders who bought in the market. The parties behind that estimate, who speak on behalf of at least 20% of Steinhoff’s shareholders, last week vowed to continue fighting the proposed settlement.
Seven months after the settlement was initially announced it appears few of the claimants are quibbling with the total sum available for allocation – almost €1 billion (R17.7 billion) versus €10 billion of claims – the battle is about who gets what in the allocation process.
Failure to reach agreement could lead to liquidation, which would leave shareholders with nothing.
While an agreement would likely be followed by a rights issue, it would be done at such a heavily discounted price there would be little incentive for current shareholders.
Last week the fickle Steinhoff share price spiked briefly, after the company announced what looked to be a sliver of progress towards finalising the settlement agreement announced in July 2020.
Steinhoff informed shareholders it had launched the Dutch arm of the ‘suspension of payments’ procedure and had also launched a statutory compromise process under South African law.
That announcement followed news that agreement had been reached with US finance group Conservatorium, which had lodged no fewer than four legal challenges to Wiese’s R59 billion claim against Steinhoff.
Conservatorium claimed it was the legal successor to a group of financial institutions that had extended a €1.6 billion loan to Wiese in 2016. As security for the loan, which was used to buy Steinhoff shares, Wiese had pledged the Steinhoff shares acquired and other Steinhoff shares he had purchased in 2014 in exchange for his Pepkor shares.
In June 2019 Conservatorium purchased these claims against Wiese at a small fraction of their face value.
It then instituted legal proceedings to ensure it would be paid out before Wiese.
Given its expertise in fighting these sorts of legal battles, it was unsurprising that Conservatorium was one of the first litigants to reach a settlement with Steinhoff. No details of the settlement agreement were released but Steinhoff did say that Conservatorium had agreed to withdraw its request – to the Amsterdam District Court – to appoint a restructuring expert. That withdrawal enabled Steinhoff to apply for a ‘suspension of payments’ procedure.
But far from creating a degree of certainty, the settlement with Conservatorium has proved to be reminder of just how difficult it will be to secure agreement with all the litigants.
Preferential treatment raises liquidation risk
And while many accept a failure to agree could see Steinhoff being liquidated, the suspicion that Wiese is set to enjoy preferential treatment is encouraging them to continue a legal battle and risk that liquidation.
“It’s difficult to shake off the feeling that Wiese is being favoured by Steinhoff and its legal advisors,” one Steinhoff shareholder told Moneyweb.
Days after Steinhoff released its Conservatorium statement, Hamilton BV and Claims Funding Europe (CGE), a litigation funding company based in Ireland, released an update on the damages litigation being pursued on behalf of Steinhoff shareholders.
(The Hamilton/CFE case is being run in the Netherlands by Dutch law firm BarentsKrans and is backed by most of Steinhoff’s large institutional shareholders.)
Fairness concerns have escalated
In its update on Friday, Hamilton/CFE said its initial concerns about the fairness of the proposed global settlement had increased now that Steinhoff had formally launched its proposal in the Netherlands and South Africa.
“Hamilton represents the clients of the major asset managers and pension funds in South Africa, amongst others, and we are in a good position to prevent the proposal in its current form from being approved,” said CFE in its update.
It added that Steinhoff’s proposal sets up a dichotomy between so-called ‘market purchase claimants’ (MPCs) who bought shares on the open market, and so-called ‘contractual claimants’ such as Wiese’s various entities.
“Steinhoff uses a number of different mechanisms to favour contractual claimants and discriminate against MPCs,” said CFE, noting that the overall impact of the various mechanisms is striking.
“The contractual claimants [are] set to receive a rate of recovery that is between 8 [and] 15 times more than that proposed for MPCs. Entities associated with Mr Wiese stand to gain well over half of the approximately €1 billion that Steinhoff is proposing to pay in compensation.”
Hamilton/CFE said that if Steinhoff did not resolve these concerns it would formally reject the global settlement proposal.
Listen to this MoneywebNOW podcast with Simon Brown: