Steinhoff shares plummet on investor concern
Court ruling could jeopardise proposed settlement, and ability of the company to continue as a going entity
STEINHOFF International’s shares plummeted more than 16 percent on the JSE yesterday morning after the Western Cape High Court ruled that a key aspect of the settlement plan was legally void.
The court on Friday ruled in favour of Trevo Capital in a matter involving the Steinhoff International Holdings Proprietary Limited (SIHPL) contingent payment undertaking between the group and Global Loan Agency Services, as void in terms of section 45 of the Companies Act.
This sent its shares into freefall as the market digested the news.
Christele Chokossa, a consultant at Euromonitor, said the ruling dealt the international retailer a major blow, as it jeopardised its proposed settlement arrangements, which were pivotal to buying Steinhoff time to restructure its activities while navigating the challenges raised by the pandemic.
“Besides, the court’s decision is also likely to question the group ability to continue as a going concern beyond 12 months, because positive outcomes from litigation judgments were key assumptions to determine forecast cash flow in the latest report,” Chokossa said.
The court action was launched by Trevo, which entered into a forward contract to purchase Steinhoff shares in 2015. Hamilton, which acted on behalf of South Africa’s largest institutional shareholders, later joined the litigation.
Chokossa said Steinhoff could still be able the extend the claims until December 2022 if approved by the majority of creditors, an option that was viable in the circumstances. “Nevertheless, divestment from business units that perform relatively well might be considered, with Pepkor Africa likely to attract existing competitors,” she said.
The ruling has threatened Steinhoff’s
€943 million (R15.94 billion) proposed settlement resulting from the December 2017 admission to accounting irregularities, which caused its share price to decline by more than 95 percent.
Steinhoff is facing a number of litigations from market purchase claimants, contractual claimants and financial creditors.
The group indicated that if the litigation settlement proposal process failed, the company would collapse by the end of the year.
Zoë Wort, a junior director and corporate law attorney at Barnard Incorporated Attorneys, said the ruling was in favour of the applicants, Trevo Capital and others.
Wort said Steinhoff International Holdings gave financial assistance in breach of the provisions of section 45 (loans and other financial assistance to directors) of the Companies Act, which was more bad press for Steinhoff.
“From a Companies Act perspective, the implications of the board resolution being declared void in terms of section 45(6) is that in terms of section 45(7) of the Companies Act, a director of the company can be held liable to the extent that and if the director – (a) was present at the meeting when the board approved the resolution or agreement, or participated in the making of such a decision; and (b) failed to vote against the resolution or agreement, despite knowing that the provision of financial assistance was inconsistent with this section or a prohibition, condition or requirement in the company’s memorandum of incorporation,” Wort said.
Steinhoff shares closed 16.34 percent lower at R1.69 yesterday.