AGM RESOLUTIONS Steinhoff investors voted to absolve directors of liability Ann Crotty Writer at Large crottya@bdfm.co.za

More than 98% of Steinhoff International’s shareholders voted to discharge all of the directors and supervisory board members from liabilities at the group’s annual general meeting (AGM) in March 2017.

The existence of the littleknown resolution has raised concern that shareholders may not be able to take legal action against board members.

The Public Investment Corporation (PIC), which is one of the largest shareholders in Steinhoff, has sent a note to fund managers who manage its investments, asking them to indicate whether they voted in favour of the resolution.

Given that 98.37% of shareholders attending the 2017 AGM backed the resolutions it seems inevitable that all of the fund managers holding Steinhoff shares on behalf of the PIC voted in favour.

But Amsterdam-based company law authorities say the resolutions will not absolve the directors of their liability. The protection granted by the resolutions is based on the assumption that shareholders can fully rely on the information provided by Steinhoff’s annual accounts and the annual report. This is certainly not the case with Steinhoff, whose annual accounts dating back to 2015 have been withdrawn and will be restated on completion of what is expected to be a lengthy investigation by PwC.

As for the group’s annual reports, at the top of every page of the 2015 and 2016 reports is a warning: “Information can no longer be relied on.”

Armand Kersten, head of European relations at the Dutch Investors Association, which initiated a class action against Steinhoff in December, said that liability resolutions are common in Dutch-registered companies.

“The Dutch Companies Act provides for the adoption of the annual accounts by the general meeting of shareholders but it does not imply a discharge of liability for the executive directors or the supervisory directors. This means there must be an explicit resolution dealing with the discharge,” Kersten said.

But he said the discharge was based on the information provided to the shareholders in the annual accounts, the annual report or through discussion at the general meeting of shareholders.

“In the Steinhoff situation Dutch case law dictates that a discharge does not condone management failures that have been kept under wraps.”

Kersten said members of the managing board (equivalent to executive directors in SA) and supervisory board (nonexecutive directors) should not rely on the discharge granted to them at the 2017 AGM so as to avoid liability for the proper fulfilment of their duties to the company.

The resolution put to the 2017 AGM states: “It is proposed to the general meeting of shareholders to discharge the members of the management board in office during the financial year that ended 30 September 2016 from all liability in relation to the exercise of their duties for such financial year ended 30 September 2016, to the extent that the exercise of such duties is apparent from the 2016 financial statements or has otherwise been disclosed to the general meeting of shareholders.”

One Steinhoff shareholder who balked at the resolution said that in terms of South African company law directors could not be excluded from liability. When he asked for additional information the shareholder received a curt note from the company secretary saying that he was no longer a shareholder in a South African company but in a Dutch company and that, in terms of Dutch law, directors were annually discharged of their liabilities.