Dutch base gets Wiese off the hook
Activist Bolha says situation ‘incredible’ Steinhoff prepaid €325m just before it collapsed
The benefits of registering Steinhoff in Holland became apparent once more as it emerged on Wednesday that Christo Wiese’s egregious self-dealing does not represent a contravention of Dutch company law.
On Tuesday, Steinhoff stunned investors and corporate governance analysts when it confirmed media reports that the company had prepaid Wiese €325m during October and November 2017 for Shoprite shares, just weeks before Steinhoff collapsed.
Unlike South African company law, there is no provision in the Dutch law requiring oversight of the provision of loans or financial assistance to directors. Section 45 of the South African Companies Act requires a board resolution and also requires that shareholders agree to any payments made to directors.
Dutch law allows companies to make loans to their directors and merely requires that the management board approves the loan.
In addition, the Steinhoff articles of association do not deem a loan to a director to represent a conflict of interest.
A Dutch legal expert said it was staggering that someone in Wiese’s position was able to conduct these sorts of transactions with the company.
Shareholder activist Theo Botha described the situation as incredible, saying: “Wiese was not just a director, he was chairman and he was the biggest shareholder in Steinhoff.
“What sort of processes were followed to ensure this was an arm’s-length arrangement?” On Wednesday, Steinhoff would not say which members of the management board approved the payment to Wiese.
Reports of the payment are likely to fuel rumours that the former CEO, Markus Jooste, exercised almost unlimited authority in the company.
Steinhoff also refused to disclose what the company’s “normal governance and disclosure processes” are in this situation. Although Steinhoff appears to be out of the reach of the Companies and Intellectual Property Commission (CIPC), which oversees adherence to the South African Companies Act, Asogaren Chetty, head of governance, surveillance and enforcement at the CIPC, told Business Day on Wednesday that the matter would be raised at meetings that were arranged with Steinhoff
after the recent parliamentary hearing.
Chetty said Steinhoff was now an “external company” and therefore allowed to contract out of obligations imposed by the local Companies Act.
However, during the parliamentary hearing Chetty said the CIPC did have some authority as it was evident the events of December 2017 had their origin in an earlier period when Steinhoff was still a South African company.
Wiese, who was chairman of Steinhoff at the time the prepayments were made, said he needed the funds to reduce the overall levels of debt on his balance sheet.
The prepayment was in anticipation of Wiese selling his Shoprite shares to Steinhoff, which were then to be injected into Steinhoff Africa Retail (Star). Wiese was to receive Star shares in exchange for his Shoprite shares.
He said he believed that Steinhoff’s management board had the authority to enter into this sort of agreement and that it was normal procedure and followed protocol. “I’m not sure why the company has labelled the transactions as having not followed normal governance and disclosure processes.”
On Wednesday, Steinhoff announced it was selling 6% of Star in a bid to settle its remaining South African debt. The sale will be implemented through a bookbuild of up to 200-million Star shares, “subject to acceptable pricing being achieved and certain additional conditions”, the company said.
Steinhoff owns 77% of Star and intends to retain the remaining 69%.
Analysts said there should be little difficulty in placing the shares as Star contained an attractive collection of African retail assets. The business is dominated by the Pep and Ackermans operations.
The Star stake is the latest in a string of valuable assets that Steinhoff has had to sell to pay debt.
Steinhoff’s share price reached a low of R2.09 on Wednesday before recovering to close at R2.41. Star dropped below R19 a share before recovering to close at R19.26.