Local empowerment group Lancaster 101 has approached the Pretoria high court to review and cancel decisions by the South African Reserve Bank to allow Steinhoff to take R334 billion out of the country since 2014.
According to the founding affidavit earlier this month, the South African Reserve Bank (Sarb) is the first respondent and Lesetja Kganyago is the second respondent in his official capacity as Sarb governor. The third respondent is Steinhoff International Holdings and the fourth is Steinhoff International Holdings NV, registered in the Netherlands.
Jayendra Naidoo, director and chairperson of Lancaster 101, said in the founding affidavit Steinhoff started a restructuring process in 2014 that resulted in it moving “a significant portion” of the Steinhoff group’s South African assets overseas, diminishing the asset base by about €19 billion.
The Sarb approved this under the relevant exchange control regulations and, according to the affidavit, could only have been done based on the financial and other company information provided by Steinhoff or that was available to Sarb at the time.
Four decisions challenged
Four main decisions are the subject of the review application. The first three, taken in 2014 and 2015, were required for the restructure, while the fourth, taken in 2020, was necessary to permit Steinhoff’s South African entities to settle claims by foreign investors.
Naidoo said in the affidavit this was to the detriment of the South African economy and investors, including Lancaster 101.
“The Sarb approvals were required for Steinhoff to issue two guarantees which had, and continue to have, the effect of benefitting a number of foreign investors over South African investors which hold convertible bonds under those guarantees.”
According to the affidavit, Steinhoff made repeated fraudulent misrepresentations regarding its financial affairs in its financial statements and other company information directly or indirectly to investors.
This incorrect and misleading information was the information available to the Sarb at the time the relevant exchange control approvals were made. “Sarb did not consider and could not have considered the true and correct financial information relevant to the decisions at the time.”
Therefore the approval decisions were made based on incorrect material facts and fraudulent misrepresentations, it claims. Naidoo says in the affidavit these approval decisions were unlawful, unreasonable, irrational and stand to be set aside on review.
Lancaster 101 is an investor and shareholder in Steinhoff International Holdings NV after it entered into a subscription agreement in September 2016 to subscribe to 60 million shares for a total amount of R4.5 billion.
The Government Employees Pension Fund owns 50% of Lancaster 101, represented by the Public Investment Corporation (PIC), while the Lancaster Group owns 25%. The remaining 25% is owned by the Lancaster Foundation, a not-for-profit company established to promote black entrepreneurship and black-owned enterprises in South Africa.
After signing the agreement, it was found Lancaster 101 was “fraudulently” induced to subscribe and the company was forced to institute legal proceedings against Steinhoff NV in 2019.
Steinhoff proposed settlement
Steinhoff has in the meantime proposed an overarching settlement with several foreign and local claimants, including Lancaster 101, but according to Naidoo this will incur a “substantial loss”.
He argues the restated financial statements, overview, JSE report and an expert opinion all reveal that the Steinhoff group was factually and commercially insolvent since 2014.
He further states that Steinhoff used the approval of the first three decisions to “effectively strip” capital and assets out of South Africa to the tune of about €10 billion to the detriment of its South African capital base and ultimately its South African investors, shareholders and creditors, as well as the South African economy as a whole.
Steinhoff received approval from Sarb in November 2020 to do cross-border payments as part of the proposed settlement, but Naidoo believes this was not in the interest of local claimants, as Steinhoff’s foreign creditors have effective control of all its assets.
Naidoo asks in the founding affidavit that the decisions be set aside. “The only remedy that will adequately protect the South African investors is to unwind the restructure and not to permit a settlement that will benefit foreign investors over South African investors.”
He also argues that the assets must be returned, the guarantees not enforced and investors treated on an equal footing, as a number of institutional investors represent the interests of pensioners and other individuals whose investments were diminished.