Jayendra Naidoo’s investment vehicle, Lancaster 101 (L101), which borrowed billions of rand from the Government Employees Pension Fund to buy shares in Steinhoff, has lodged a court application to obtain documents from the Reserve Bank. This comes ahead of Lancaster 101’s application to overturn Bank approvals enabling the expatriation of the global furniture retailer’s asset base.
It was not evidently clear from the application how a reversal of the Reserve Bank’s decisions would strengthen Lancaster’s hand in the settlement negotiations currently under way with Steinhoff.
As part of the furniture retailers’ international strategy, Steinhoff undertook a restructuring in 2014 and 2015 before its listing on the Frankfurt Stock Exchange five years ago that substantially altered where and through which subsidiaries its assets were held.
The court papers describe how Steinhoff was required by exchange control regulations to seek approval from the Bank’s Finsurv department for three separate transactions that required providing information on its financial position. By Lancaster’s estimate, the central bank’s approval of these requests led to Steinhoff’s local asset base shrinking by about €19bn (R332bn).
Approval for a fourth transaction, granted only late in 2020, gave the local arm permission to expatriate funds for the purposes of meeting Steinhoff’s global settlement with creditors. That deal is now being negotiated with a range of counterparties affected by the precipitous decline in the company’s share price as revelations of the epic fraud surfaced.
Lancaster points out that the accounts supplied by Steinhoff to the Reserve Bank for the purpose of obtaining its consent were false and misleading given the size of the fraud perpetrated over a number of years going back as far as 2009.
Significant benefits
“The approvals were thus made based on incorrect material facts and fraudulent misrepresentations in relation to Steinhoff’s financial position to the prejudice of a number of Steinhoff’s investors and creditors, including L101,” Naidoo states.
By allowing Steinhoff to externalise its asset base, says Lancaster, the Reserve Bank’s approval has now led to “foreign investors enjoying significant benefits in relation to the enforcement of their claims as compared to SA investors, including L101”.
But why this was the case is not described in the papers.
Lancaster has instituted a claim of more than R12bn against Steinhoff for the destruction of value in the shares it borrowed money to acquire, but the offer tabled by Steinhoff in compensation only amounts to €13m (R227m).
To pursue its application to have the Reserve Bank’s approvals reviewed and set aside, Lancaster applied through the Promotion of Access to Information Act (Paia) in December 2020 to obtain various relevant records. After much legal exchange between lawyers representing the parties, the Bank said it would notify Lancaster about its Paia decision by March 31, which appears to be far longer than the mandatory 30-day window prescribed in the act.
“The SARB [Reserve Bank] has failed to respond to the [Paia] request within the stipulated statutory time period in terms of [the act], and I am advised that the SARB’s failure in this regard amounts to a refusal of the [Paia] request,” Naidoo states.
The Reserve Bank said in response it has briefed its lawyers on the matter and “plans to oppose the application”.
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