The High Court deals a severe blow to Ste …

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(Photo: Waldo Swiegers / Bloomberg)

Steinhoff’s supervisory board, backed by a small army of accountants and lawyers, spent at least a year crafting a deal to settle at least part of the R135 billion in claims against the company. Obtaining approval from turbulent and competing creditors has been difficult, but progress has been made. The last blow could cause the entire offer to fail, forcing players back to the drawing board.

A judgment handed down by the Western Cape High Court on Friday afternoon dealt a severe blow to the efforts of Steinhoff International Holdings to settle its R135 billion debt problem with a greatly reduced payment of R15 billion to three different categories of creditors.

This offer is called the Section 155 Proposal and it has been criticized by several different groups of creditors, most recently the former owners of Tekkie Town, who have sought the besieged group liquidated.

In the latest complication, Judge Lee Bozalek ruled that an agreement reached in 2014, and renegotiated in August 2019 between Steinhoff and his financial creditors, was void under section 45 of the Companies Act.

This decision will undoubtedly be challenged by financial creditors and will be a further setback to efforts to settle massive debt.

As most readers are no doubt aware, all the mess came after appeared that Steinhoff was a huge house of cards, supported by some 6.5 billion euros in accounting scams. A sniff caused the whole house to collapse and the stock price fell to a fraction of its value in December 2017.

Following the resignation of former CEO Markus Jooste, a supervisory board was created which set out to restructure the company and its debt and settle the numerous lawsuits brought against it by hundreds of plaintiffs.

Mauritius-based Trevo Capital is one such claimant and has (in a separate claim) sought redress from the court, claiming more than R 2 billion, which it said it lost following allegations of intentional misstatements. or Steinhoff’s negligence. in its 2015 annual accounts. Trevo argues that, without such statements, it would not have purchased shares by way of a forward sale in October 2015.

Before tackling the current subject, a few details on the proposed article 155 which causes all the consternation.

Released on March 23, 2021, the proposal describes payout ratios to three categories of creditors: financial creditors, contractual creditors, and market buying creditors.

According to this, the financial creditors, most of whom bought Steinhoff’s debt from the original financiers for pennies to rand, are doing the best, earning 100 cents on their rand plus 10% interest; contract applicants, including the former chairman of Steinhoff Christo Wiese and the directors of Pepkor who share purchase agreements concluded directly with Steinhoff, should collectively receive 9.4 billion rand payable in different proportions in cash and shares of Pepkor Holdings; and market buy seekers, from large institutions to mom and pop investors, who have bought Steinhoff shares on the open market, are expected to receive between 4c and 6c on every rand invested.

As for the claims of financial creditors, almost all of them originate from a convertible bond of 465 million euros (7.8 billion rand) issued by the company in January 2014. Following the discovery of the accounting irregularities, Steinhoff a was forced to restructure its debt, including the 2014 bond, on pain of liquidation. In doing so, he modified or replaced the bond guarantee. It is these guarantees that are the subject of the present case.

Trevo argued that the original loan guarantee, as well as its replacement in 2019, violates the provisions of the Companies Act. Indeed, the Council had not applied the necessary solvency, liquidity and equity tests before providing the guarantee on the debt.

While the first guarantee was made before the accounting shenanigans were made public, the board was dominated by CEO Markus Jooste and CFO Ben le Grange, people who knew the company’s financial situation intimately. . In 2019, the going concern status of the company had been reported by the auditors and, as such, the board should not have been able to issue such a guarantee. According to the PwC report, in 2014 the company was already insolvent as its liabilities exceeded its assets by 700 to 1.3 billion euros.

Trevo is deemed to be part of the group of market applicants and, as such, it argues that its application is directly affected by the recognition or non-recognition of the financial category of applicants.

As a result, he also applied to the court for an order prohibiting Steinhoff from making any payment arising out of the 2014 warranty or the newer warranty, or any other compromise or arrangement proposed by Steinhoff under the terms of the company’s proposal. article 155.

In these cases, he was backed by Hamilton BV, which represents more than 14,000 small investors in an effort to recoup the losses they suffered as a result of Steinhoff’s actions.

Although the judge admitted that the guarantees were void, he did not go so far as to grant an order prohibiting Steinhoff from making payments to financial creditors under the section 155 offer. this he pointed out that as the section 155 process still has some way to go before it can be sanctioned by a court, applicants will have ample time to voice their opposition to such a proposal or to prohibit any prior payment they consider as illegal.

He decided that Steinhoff and the financial creditors would pay the applicant’s costs, including the fees of three lawyers. Steinhoff’s share price fell 16% on Tuesday, from very little to even less.

Meanwhile, the clock is getting closer and closer to December 2021, when the repayment on the 465 million euros the debt is due. BM / DM


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