Court blow for Steinhoff
SHAREHOLDERS: JUDGMENT COULD PROMPT CHANGES IN LAW
Ruling prevents a shareholder from launching a class action to get compensation for the losses suffered by individual investors.
Arecent court ruling has closed a door for disgruntled Steinhoff shareholders. “If politicians want shareholders to be able to hold directors to account they will have to change the law,” said one legal expert in response to last week’s decision by the High Court in Johannesburg in a Steinhoff matter.
The court’s decision prevents a Steinhoff shareholder from launching a class action intended to get compensation for the losses suffered by thousands of individual investors as a result of the R185 billion collapse in value of the group’s shares in 2017 and 2018.
The decision means that the first shareholder class action to apply for certification before a court has come to an abrupt, and possibly permanent, end.
The court’s ruling is being hailed as a victory by the 42 respondents – including Steinhoff, its directors, auditors and financial advisors – but is likely to incur the wrath of parliamentarians who have been tracking Steinhoff-related developments.
Widespread impact
In an unprecedented move, reflecting the widespread impact of the collapse in the Steinhoff
share price, representatives from the company and a number of regulators were called before parliament in January 2018 to explain the events behind the collapse. The same parties have been called back to provide updates on a regular basis to parliamentarians, who have exhibited increasing signs of frustration at the apparent lack of accountability at senior corporate level.
On December 5, 2017, Steinhoff issued a press release informing shareholders that information had come to light concerning “accounting irregularities”, that CEO Markus Jooste had resigned, and that publication of the 2017 results was being postponed indefinitely. Over the next few weeks the share price plummeted from over R50 to around R2.
Retired pensioner Anthea de Bruyn, who bought Steinhoff shares for R80 000 between 2013 and 2016, was hoping the court would grant her the authority to represent thousands of individual Steinhoff shareholders in a class action case against the parties alleged to have contributed to the ‘accounting irregularities’.
De Bruyn’s lawyers, financed by parties who will be paid a percentage of any funds recovered, opted to use Section 218(2) and Section 20(6) of the Companies Act. The former section reads: “Any person who contravenes any provision of this act is liable to any other person for any loss or damage suffered by that person as a result of that contravention.”
Section 20(6) also encourages the view that individual shareholders have claims against directors.
Ruling trumps arguments
Sadly for De Bruyn the court found that a ruling in a 177-year old English case trumped her legal arguments.
“That shareholders should seek redress, given the scale of their losses, is unsurprising,” said Judge David Unterhalter. “That this is sought to be done by way of a class action entails some novelty.
“The premise of the application is that many retail investors, who have suffered losses important to them, will not be able to bring their cases to court, if these claims are brought by each shareholder. Like Ms De Bruyn, their claims are too modest to justify the cost of complex litigation.
“A class action, however, would secure access to the courts and the prospect of redress for thousands of individual shareholders who lack the resources of institutional investors,” said the judge.