The world is changing fast and to keep up you need local knowledge with global context.
On Friday, the Western Cape High Court declared that a key aspect of Steinhoff’s settlement plan was legally void. Following the judgment – which threatens Steinhoff’s €900m (R15.2bn) plan to settle the roughly €10bn (R169bn) of claims it is facing in various jurisdictions across the globe – Steinhoff issued a SENS announcement today saying the company is ‘considering the implications of the judgment.’ One of Steinhoff’s victims was retailer Tekkie Town. In 2016, Steinhoff bought Tekkie Town from founder Braam van Huyssteen for R3.2bn – paying with Steinhoff shares which imploded the following year. In May, Tekkie Town’s former owners launched an urgent application for the liquidation of Steinhoff. Bernard Mostert, the former CEO of Tekkie Town, joined the BizNews Power Hour to chat to BizNews founder Alec Hogg about the recent blow to Steinhoff’s proposed settlement plan and the development of Tekkie Town’s liquidation application against Steinhoff. Mostert notes that in the event of the settlement ‘essentially the benefit and the proceeds of this fraud would be distributed – via hedge funds in the US and Europe – to the likes of pension funds in the US and endowment funds in the US, etc.’ – Nadya Swart
Bernard Mostert on Steinhoff’s SENS announcement:
Yes, I think the announcement that you referred to was put out by Steinhoff on SENS relating to the judgment made by Justice Lee Bozalek in which he declared that two actions that Steinhoff took – post the announcement of the accounting irregularities and the unlawful conduct as identified by Steinhoff – and he declared void the financial assistance that a Steinhoff subsidiary SIPHL had extended to its holding company with the attempt to benefit what is termed ‘financial creditors’.
Now the financial creditors of Steinhoff – by and large – today are hedge funds that represent third parties and mostly they deal in distressed debt. So they acquired Steinhoff debt at a very deep discount. They are hoping to get a full recovery on the original value of those loans, plus a 10% interest rate on an annualised basis. And Judge Bozalek’s ruling put that recovery for them very much in doubt. But it also confirms the one thing that was most intriguing to me, and that is that Steinhoff acted outside of the South African Companies Act after the events of 2017.
We still don’t know if they acted outside of the scope of the South African Companies Act before, because Steinhoff sits on the PWC report that they don’t release. But Judge Bozalek’s today’s ruling says that the argument that the 2013 resolution that was also attacked was unconvincing. But the 2019 resolution definitely did not meet the required test, and therefore he declared it void.
On the Steinhoff scandal and the effect of the Western Cape High Court ruling:
I appreciate that, for us and others, this is our entire lives, and for your audience and the man on the street – it remains a fleeting episode. And one can only speculate about the intentions of those that are dealing (right now) with the Steinhoff fraud and addressing it. And I think in many ways, as the Zondo commission regarding state capture deals with what happened in South Africa over the last decade, I think people would want to see that the same thing happens in the private sector and arguably – no place [is] more relevant than Steinhoff.
So, what this judgment means is; seemingly the intention to get to a fair outcome, to make sure that all the criminals and the alleged criminal activity is addressed, was not the intention of those that structured the proposed settlement agreement. And this ruling obviously is a big step back in terms of that settlement process, because Steinhoff would have to go back to the drawing board to see how exactly they can achieve what they were chasing with the settlement.
On the frustration of Steinhoff’s lawyers couching everything in very careful legalese:
It is, but I think there’s a lot of people that are negative about the South African system and I guess it’s easy to be negative about South Africa – given what we’ve been through. But we are not. We believe in the system and we believe that there is a process. And often – and this has been an evolution for me personally – South Africa is built on resilience of people who wanted to do the right thing. And it took many years and decades, actually, to get to that point. And then, you know, we’ve had another hiccup. And the Steinhoff episode is such an episode for me.
I don’t think it can just be swept under the rug, because I don’t think it would be good for the country. And we do live in a beautiful place and we do conduct our businesses as entrepreneurs in this country and we believe in it. So I think part of this process for me is to have that fixed – hence the fact that we are not really interested in a settlement that benefits overseas financial creditors who stand to gain from the fraud that happened in Steinhoff pre-2017 by the company’s own admission.
The truth is, if you and if all of us knew the true state of affairs – certainly we would never have done our deal. I don’t think the JSE would have allowed the listing of Pepkor at that stage in September 2016. If Pepkor was scheduled to list in March of 2018 – after the events – I don’t think the JSE would have allowed it to proceed. Because all those assets are tainted. Christo’s Pepkor assets, questions around the JD Group which surfaced in this court case again. Certainly our business was put in there for zero value to us. And, you know, I think it’s a process that must run its course.
On the legal process against Steinhoff to get Tekkie Town back:
So Steinhoff refers to that in the papers many times; they say that no one that has brought legal action against them has got a case that’s trial ready. And I think a lot of that has to do with the fact that Steinhoff has played a very resolute delaying game in terms of actually making sure that we don’t get full insight into what happened pre-2017. So the trial readiness of various cases, including ourselves, is – in my view – delayed by actions on Steinhoff’s side. So, we’ve brought a liquidation application against Steinhoff.
That will be heard from the 1st to the 3rd of September and we’ll see what the outcome of that is. I think certainly Steinhoff would very, very much struggle to argue that they’re solvent on the basis of assets that were obtained through fraud. I think Steinhoff would struggle to argue that they are solvent today. I think that’s the next big step. We firmly believe that if the control of the company is in the hands of a liquidator, you would have a much more open, transparent process – and that would be better for the country on a whole, and we believe that would be better for us. Because it would allow us to continue our litigation in the way that we want, which is ultimately the restoration of our business from Steinhoff.
On the reason the PwC report has been kept under wraps:
I think it’s increasingly clear that the reason why the report is kept under wraps, if you read it carefully, is that those financial creditors that stepped into the shoes of old debt holders post the fact have got a massive sway on the Steinhoff board at the moment. And it doesn’t benefit the guys at all to come out and say, ‘We want to right these wrongs.’ I mean, the financial creditors, which have really only been publicly identified now in our liquidation proceedings, are not South African entities. So essentially the benefit and the proceeds of this fraud would be distributed – via hedge funds in the US and Europe – to the likes of pension funds in the US and endowment funds in the US, etc.
So it’s interesting to note, for instance, that listed in the financial creditors is Cornell University, which is obviously not an entity from which Steinhoff borrowed money originally. You know, they obtained that debt after the effect. And buying distressed debts at the risk that it was fraudulently obtained is a risk, and I guess that means the risk mandate would be these financial creditors. So we oppose that. And we think that the legal processes for everybody should run their course, not only civilly, but also criminally.
- Auditor report on alleged Steinhoff fraud will ‘make big difference’, says Batohi
- Tekkie Town’s Bernard Mostert – ‘We want our day in court’
- Life after Jooste, Christo Wiese opens up
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.