In a statement released on July 27, 2020, Steinhoff International Holdings NV proposed to pay around $1 billion to settle more than $8 billion of legal claims that have been lodged against the retailer as a result of a massive accounting scandal. In the proposal by Steinhoff, claimants would receive a combination of cash and shares in Pepkor Holdings Ltd., a South African headquartered clothing retailer controlled by Steinhoff.
The proposal was put together after a year’s effort and will cover class & group action cases from the Netherlands to South Africa. Although the proposed settlement has not yet been accepted by any claimant group, it has been reported that negotiations were (and remain) constructive and likely to result in a resolution at some point in the near future.
The case against Steinhoff came to light on December 5, 2017. At this time, Steinhoff shocked the market by disclosing substantial accounting improprieties, which led to the delay of its 2017 financial results and the warning that it will have to restate its 2014, 2015, and 2016 financial statements. At the same time, long-standing Steinhoff CEO (and one of South Africa’s wealthiest individuals) Markus Jooste announced his immediate resignation.
These disclosures caused Steinhoff’s stock price to drop almost 85%, eliminating more than €10 billion of Steinhoff’s market value. Moreover, at this time, Steinhoff had outstanding liabilities of €10.7 billion, causing market concerns about its financial viability and dropping bond prices as well.
The above actions alarmed various regulators and enforcement agencies in Germany, the Netherlands, and South Africa. Immediate investigations began not only against Steinhoff, but also against Deloitte South Africa (Steinhoff’s auditor) and various former Board members as the investigation looked into a conspiracy to defraud the market and engage in illegal accounting practices from 2013-to-2017.
With significant investment losses, the accounting improprieties led to 11 different class & group actions filed against Steinhoff, including nine in the Netherlands, one in Germany, and the first-ever investor class action in South Africa.
While the $1 billion proposed settlement does not fully compensate investors for all of its losses, this amount is clearly significant and if accepted (and approved by the all required parties), the settlement would rank as one of the largest non-North American settlements of all-time. The only two settlements of this size outside of North America include Ageas (f/k/a Fortis) for €1.3 billion in the Netherlands in 2018 and The Royal Bank of Scotland Group for £800 million in the United Kingdom in 2016.
ISS Securities Class Action Services will continue to closely monitor this action and report meaningful updates to its clients.
By Jeff Lubitz, Executive Director, and Grace Meyer, Senior Associate, ISS Securities Class Action Services