The former owners of Tekkie Town have thrown the proverbial cat among the pigeons with Wednesday’s news that they have applied for the liquidation of Steinhoff.
In hindsight, this type of action should have been expected from any one of a number of parties as the company attempted to push through its global settlement through multiple jurisdictions and various claimants.
The former owners of the discount retail footwear and apparel company made much of what they consider an unequal settlement offer from Steinhoff to aggrieved shareholders left with worthless shares after the accounting scandal of late 2017 that almost led to the collapse of what was once Europe’s second biggest furniture retailer.
Why, for instance, will former chair Christo Wiese, who lost a big chunk of his fortune when the fraud was exposed and Steinhoff's shares slumped more than 90%, get a higher amount than other claimants when he was both on the board of Steinhoff at the time the “irregularities” occurred, and who still owes the company a substantial amount of money?
The global settlement distinguishes between three types of parties: financial creditors, and two types of claimants. The settlement proposed intragroup creditors (subsidiaries that lent money to Steinhoff) and financial creditors will be paid in full.
The “claimants” category comprises, first, market purchase claimants. These are individuals and entities that bought shares on the market and held them at the time the “accounting irregularities” came to light. Naturally these people have suffered from the precipitous decline in the share price.
Then there are contractual claimants. These are parties that entered into transactions with Steinhoff directly that resulted in payment or transfer by way of the delivery of Steinhoff shares. The former Tekkie Town owners fall into this category.
At a basic level, the former Tekkie Town owners believe they exchanged a business for shares in Steinhoff at 100c in the rand, and now they are being offered the equivalent of 5-6c, at a maximum, as part of the global settlement.
The variance in the range of outcomes is useful to project who else may be unhappy with the current settlement offer and who would be willing to join Tekkie Town shareholders in applying for the liquidation. They not only think they could get a better deal out of a liquidation, but more importantly, their case for restitution will be preserved.
In essence, should the liquidation application be successful, it will be a court-appointed liquidator (or group of liquidators) that will be appointed to verify and quantify the various claims and creditors, realise value from assets, and distribute the proceeds to creditors — as opposed to Steinhoff’s executive team.
There is one other aspect to a court-sanctioned liquidation that Steinhoff might be averse to — at the request of the liquidator, a court may sanction a 417 inquiry which would aim to establish why the company failed and whether there was wrongdoing. This might be more illuminating for the broader public than the morsels Steinhoff has provided by way of a summary of the PwC report it commissioned and which it refuses to release.
We still do not know how such an enormous financial crime — which in addition to losses suffered by investors, including government workers invested through the Public Investment Corporation, also damaged SA’s reputation — was perpetrated by apparently so few individuals over such a long period of time.
But there could be a sting in the tail for market purchase claimants should a liquidation be approved. When a group of shareholders approached the courts in 2020 to launch a class-action lawsuit against Steinhoff for damages as a result of negligence, it was thrown out. The judge in the matter ruled that under SA law, shareholders have no claim against a company for negligence.
On this basis, you could argue Steinhoff is being charitable by attempting to compensate shareholders for what transpired in December 2017. Would they fare better in a liquidation?
The fundamental difference with a liquidation taking place under local law is that it won’t be Steinhoff calling the shots. And that might itself be a good thing.
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