Will Steinhoff turn gun on itself?

AS IT COULD BRING MORE LEGAL PROBLEMS By pursuing legal action against execs and directors, there’s a good chance it would open a Pandora’s box.

Steinhoff introduced two new resolutions at its most recent AGM, seeking to absolve management board directors and members of all liability in the exercise of their duties for the financial year ending September 2016.

To the untrained eye of SA investors, these resolutions are bewildering – they seek to absolve the management board, which includes senior executive directors like the CEO and CFO, of “all liability” for the applicable financial year. The same resolution was sought for the members of the supervisory board.

Both resolutions were overwhelmingly approved by shareholders.

Given what we now know about Steinhoff, this move would appear to be highly suspicious. But this isn’t the case says Joeri Klein at Deminor Recovery Services, one of the firms representing shareholders in Steinhoff losses sustained.

Listed parent company Steinhoff International was incorporated in the Netherlands and according to Dutch company law, the discharge relates to what Klein terms an “internal liability or responsibility” – directors and execs must fulfil their responsibilities in a “generally accepted”, “professional” manner.

As standard practice, the discharge is designed to bring closure to directors’ responsibility for that particular year, thereby preventing them from carrying open-ended liabilities. But it doesn’t remove the liability of directors and execs towards third parties like shareholders and creditors.

“The possibility of discharging members of the management and supervisory board is a standard clause of the statutes of almost all listed companies in Europe, and generally the discharge is given at the AGM through a vote by shareholders,” says Klein.

“Generally, if there are no problems, the AGM grants the discharge. If there are problems that are apparent at the time, the AGM does not grant a discharge. If later on – after the vote – new information comes to light, the granted discharge does not apply to these new facts.”

With Steinhoff admitting to “accounting irregularities” that will lead to the restatement of the 2016 annual financial statements presented to shareholders for adoption at this specific AGM, it’s clear new information has come to light.

This means it has every right to argue the discharge should fall away and it can follow its rights in pursuing legal action against directors and execs implicated in the accounting scandal. So will it?

Klein believes it’s probably unlikely. By pursuing legal action against current and former execs and directors, there’s a good chance it would open a Pandora’s box, that might result in disclosure of wider corporate malfeasance that could bring further legal ramifications for a company that’s already facing legal challenges, penalties and lawsuits.

Steinhoff was noncommittal on this. A spokesperson said: “Steinhoff is fully committed to uncovering the truth.”