Steinhoff shareholders are looking to authorities in Europe for justice in what has been described as the largest corporate scandal in South Africa.
Shareholders mostly believe there have been few signs of a local criminal investigation against the people who were allegedly involved in the accounting fraud that saw the company crash from a core holding in most portfolios to barely surviving.
Disgruntled shareholders are demanding justice, but were disappointed once again when former Steinhoff CEO Markus Jooste did not turn up in a German court to face accounting fraud charges.
German connection
Steinhoff’s connection to Germany is important. The original Steinhoff was founded in Germany as a furniture importer and retailer by Bruno Steinhoff in 1964. Attracted to high-profit margins in SA, the business merged with the SA Gommagomma in 1998 and was listed on the Johannesburg Stock Exchange (JSE) with Jooste as managing director.
Another prominent German businessman active in SA, Claas Daun, merged and sold some of his German and SA businesses into Steinhoff and was appointed to the Steinhoff board as director.
Steinhoff was listed on the Frankfurt Stock Exchange in December 2015 with Steinhoff then proclaiming in a press release that it was the “largest German listing” of 2015.
The listing in Frankfurt and the backing of well-known German industrialists netted Steinhoff a big German shareholder base. It was also the passport to international deals and riches and easy debt.
Debt quickly increased to the current €10 billion.
Ironically, the German connection was also Steinhoff’s downfall.
It was German investment analysts who first started to ask questions about the accounting procedures – and then started to question the answers. The game was up by 2017 with Steinhoff admitting the fraud and Jooste resigning.
Now it is the German courts that are to decide on the allegations of accounting fraud, once Jooste is forced to attend.
Pressure
German shareholder group SdK (Schutzgemeinschaft der Kapitalanleger – meaning the protection association of capital investors) has become a thorn in the company’s side. The association got enough proxies from unhappy Steinhoff shareholders to vote down all the company’s resolutions at the recent annual general meeting, forcing through a debt restructuring.
SdK says it is one of the biggest and most successful shareholder activist groups in Europe, and that it has the motivation and resources to ensure justice is served.
This leads to the second European court shareholders watching. Steinhoff International Holdings NV is registered in the Netherlands and a Dutch court will need to approve the proposed transaction or accord, in which large creditors will gain all the value in the group – if any – and leave shareholders with nothing.
SdK has vowed to fight this, it being its mission to look out for minority shareholders from Germany, SA and the Netherlands.
SA authorities
SA authorities have acted against Jooste, even if a spectacular public investigation, or court trial like that of Gary Porrit, Oscar Pistorius or Hansie Cronje has not yet aired on television.
The JSE and the Financial Sector Conduct Authority (FSCA) have acted against Jooste, who is believed to be largely responsible for the creative accounting practices to inflate earnings and assets during his tenure as CEO of the international furniture company.
The JSE barred Jooste from serving as a director or prescribed official of any listed company for the next 20 years, while the FSCA hit him with a fine of R161 million for insider trading for warning a few investors to sell their shares before the share price tanked. This administrative penalty was reduced to R20 million.
In October 2022, the South African Reserve Bank announced that the Western Cape High Court issued an attachment order and that the bank could attach more than R1.2 billion worth of Jooste’s personal assets, or assets held in different trusts on grounds that Jooste and other respondents were suspected of contravening foreign exchange regulations.
These assets included financial assets of R1.21 billion, Jooste’s house in Hermanus, luxury vehicles, jewellery, art and the Lanzerac wine estate in Stellenbosch.
The Steinhoff saga was also discussed in parliament with promises of investigation, which never materialised.
Long road
Unfortunately, court cases do not go away quickly. The German prosecutors have indicated that they will apply for an arrest warrant for Jooste. They will probably get it, which might lead to a lengthy legal process.
Meanwhile, George Evans, accused together with Jooste, has appeared in court and pleaded his case.
He was fined €30 000 (approximately R600 000) and will not be prosecuted further, subject to certain provisions.
This article first appeared in Moneyweb and is republished with permission.
