Settlement Agreement Reached
Stichting Steinhoff International Compensation Claims (SSICC), along with several other claimant groups, (SSICC, together with the other claimant groups and their participants are hereafter referred to as Active Claimants) have reached a tentative global settlement of its claims with the boards of directors of Steinhoff International Holdings Proprietary Limited (SIHPL) and Steinhoff International Holdings N.V. (SIHNV). The global settlement will be given effect to using two inter-conditional court proceedings: (i) proceedings under section 155 of the South African Companies Act 71 of 2008, which will generally be used to give effect to the settlement of claims against SIHPL (S155 Proceedings); and (ii) Dutch suspension of payment proceedings, which will generally be used to give effect to the settlement of claims against SIHNV (Dutch SoP Proceedings).
In short, Steinhoff has agreed to contribute a sum of EUR 266 million to the settlement fund for eligible market purchaser claimants to be paid 50% in cash and 50% in shares of Pepkor Holdings, a South African company that is part of the Steinhoff Group. In addition, Steinhoff’s auditors, Deloitte Accountants B.V. and Deloitte & Touche South Africa will contribute EUR 62.34 million to the settlement fund, of which, EUR 43.5 million will be ring-fenced for the Active Claimant Groups, while the rest will be used as contribution to costs incurred as well as for “other” eligible market purchaser claimants who file claims through the upcoming claims filing process. Similarly to the auditors, an agreement was reached with certain insurance companies underwriting Steinhoff’s (primary and excess) Directors & Officers insurance policies to contribute EUR 62 million to the settlement fund, of which EUR 43.5 million will be ring-fenced for the Active Claimants Groups, with the rest going to cost compensation and compensation to “other” eligible market purchaser claimants.
Implementation of the Steinhoff global settlement requires the requisite support of claimants and creditors. The implementation process is expected to take several months to approve and complete. Steinhoff has appointed Computershare as claims administrator to assist with the administration of claims for the purpose of the Dutch SoP/S155 Proceedings and, following approval of the settlement, to assist with the further administration of claims and the settlement and payment process.
The creditors’ meeting in the Dutch SoP Proceedings will be held on June 30, 2021. If the settlement is adopted at the creditors’ meeting, the Dutch court will then need to confirm the settlement, which will likely happen by July 21, 2021. Further, the creditors’ meeting in the S155 Proceeding is expected to take place at the end of June 2021 or beginning of July 2021. Following the creditors’ meeting, SIHPL will then apply to the High Court of South Africa for an Order sanctioning the approved settlement as soon as possible.
The full duration of the settlement implementation process, once launched, is estimated to be between 6 and 12 months. SIHNV and SIHPL intend to implement the proposed settlement with the objective of distributing the settlement consideration in respect of the undisputed claims during Q3 of the 2021 calendar year
The Foundation’s Purpose
Stichting Steinhoff International Compensation Claims (“Foundation”) has been established as a foundation under Article 3:305a of the Dutch Civil Code (“DCC”) in an initiative of institutional investors seeking a comprehensive, cross-jurisdictional recovery of losses suffered as a result of investments in various Steinhoff securities over the Relevant Period.
Investors (including nominee shareholder/custodians) are encouraged to join the Foundation, if they have purchased substantial amounts of any of the following Steinhoff securities (Stock: NL0011375019, ZAE000068367, ZAE000247995, ZAE000016176.) during the Relevant Period from June 26, 2013 to February, 28 2018 and either sold these after the various disclosures over the Relevant Period and thereafter or are holding those until now.
Steinhoff International Holdings Limited (“SIHL”) is a South African company which until December 7, 2015 was the holding company for more than 40 retail brands in over 30 countries, including MatressFirm in the United States, Poundland in England as well as Poco in Germany. It has been listed on the Johannesburg Stock Exchange since 1999 as SIHL but since December 7, 2015, it has its primary listing on the Frankfurt Stock Exchange as Steinhoff International Holdings N.V. (“SIHNV”), which became the Dutch holding company for the Steinhoff retail empire. Despite the legal company change, Steinhoff has maintained its headquarters and tax residence in Stellenbosch, South Africa, and most employees still work there under the new legal structure. Most of Steinhoff’s current and former directors are also residents of South Africa.
Steinhoff’s Accounting Irregularities
Since at least June 26, 2013, Steinhoff and its management, with the help of Deloitte South Africa, has been misinforming its investors about the true value of its assets, certain illegal off balance sheet transactions and the overall financial transparency of its business transactions, thereby depriving investors of the ability to properly value the affected Steinhoff securities and inflating their values. In June 2014, Steinhoff informed the public that it was planning to restructure itself to access European capital markets, but kept its improper accounting practices a secret and even denied various suspicions of accounting irregularities between December 2015 and December 2017 (including rumors about criminal investigations and improper accounting in December 2015, August 2017, September 2017 and November 2017).
On December 5, 2017, Steinhoff finally started to disclose its accounting problems and until February 28, 2018 has disclosed various details about improper asset valuations, insider dealings and off-balance sheet transactions, which have led to the delay in the publication of its 2017 financial results and the acknowledgment that it will have to restate at least its 2015 and 2016 financial statements, likely also 2014.
With the December 5, 2017 surprise disclosure which shocked the markets, long-standing CEO Markus Jooste announced that he was leaving the company with immediate effect.
Both news caused a dramatic decrease in the value of Steinhoff equity. Particularly, the Steinhoff stock price dropped from €3.10 on December 5 to €0.47 on December 8, 2017, a decrease of almost 85%, eliminating more than €10 billion of Steinhoff’s market value. Moreover, as of December 14, 2017, Steinhoff had outstanding liabilities of €10.7 billion, causing market concerns about its financial viability considering that €2 billion of debt was to mature in 2018. In the meantime, Steinhoff has raised over €2 billion in capital from the sale of certain assets and has been negotiating with its creditors to renegotiate terms of its debt obligations. As of March 19, 2018, Steinhoff also considered selling other assets to shore up further funds to redeem certain convertible bonds and to have cash for operational needs.
On January 2, 2018, Steinhoff announced that its 2017 accounts would be accompanied by restated financials for 2015 and 2016, and that its previous figures for those years can “no longer be relied upon.”
On February 19, 2018, the Dutch Enterprise Chamber ordered that Steinhoff must restate its financial statements for extended book year 2015-2016 because of the inclusion of the value of certain assets belonging to a former business partner.
In the meantime, various regulators and enforcement agencies in Germany, the Netherlands and South Africa are investigating not only the two major Steinhoff entities, but also Deloitte South Africa and various former board members for a conspiracy to defraud the market and engage in illegal accounting practices since at least 2013.
On August 8, 2018, LHL ATTORNEYS INC., the leading South African class action and investor protection law firm, initiated a class action proceeding against Steinhoff and other defendants in Johannesburg, South Africa. The class action encompasses all investors that purchased Steinhoff shares during the relevant period, either at Johannesburg or at Frankfurt.
The class action is complemented by a Dutch Foundation complaint filed in Amsterdam on October 29, 2018 and a complaint filed in Frankfurt on December 19, 2017, which included an application for the start of a model procedure under the German Capital Market Investors’ Model Proceeding Act (KapMuG). This multi-jurisdictional approach binds all three potential jurisdictions together in order to ensure the maximum recovery for affected investors.
Investors interested in supporting the international recovery efforts can register their support with the Foundation. The registration with the Foundation is for free, as the Foundation is acting only in a supporting role in this opt-out class action proceeding in South Africa and not as a plaintiff. However, the overall goal of the Foundation is to serve all investors with relevant exposure in Steinhoff securities around the world, in order to ultimately achieve compensation for damages in either South Africa, Germany, or the Netherlands.