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Proposed Settlement Of Litigation Claims Arising From Legacy Accounting Issues
Steinhoff International Holdings N.V.
(Incorporated in the Netherlands)
(Registration number: 63570173)
Share Code: SNH
ISIN: NL0011375019
Steinhoff Investment Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1954/001893/06)
JSE Code: SHFF
ISIN: ZAE000068367
Proposed Settlement of Litigation Claims Arising from Legacy Accounting Issues
Steinhoff International Holdings N.V. (“SIHNV” or the “Company” and with its subsidiaries,
the “Group”) and the former South African holding company for such subsidiaries, Steinhoff
International Holdings Proprietary Limited (“SIHPL”), announce a proposed settlement to
conclude the complex legal claims, and ongoing and pending litigation proceedings,
arising from the legacy accounting issues first announced in December 2017.
In the Company’s presentation to shareholders at the general meeting on 30 August 2019,
the Company’s Management Board expressed its view that resolution of the litigation
proceedings and legal claims was in the best interests of all stakeholders. The possibility of
such a settlement had been agreed with the Company’s financial creditors as part of the
financial restructuring concluded in August 2019. While the Group continues to make
tangible progress with its business restructuring efforts, most recently reaching agreement
to dispose of the Conforama businesses in France, providing compensation to those
shareholders at December 2017 who suffered financial loss represents the next phase of the
Group’s restructure.
Any settlement needs to be considered against the background of the financial position of
Steinhoff and its significant levels of financial indebtedness. In addition, as previously
reported, the Group’s underlying businesses have been impacted by Covid-19 which,
together with the effect of adverse currency movements, is likely to negatively impact
current valuations. Notwithstanding those issues, the proposed terms represent an increase
in the amount contemplated under the 2019 restructured financings and therefore will
require financial creditors’ consent.
The Group has been working hard for many months to manage the competing interests of
its stakeholders and at the same time protect the Group’s businesses and their employees.
These competing interests and the Group’s financial limitations constrain what is achievable
in balancing the interests of all stakeholders. It is an extremely challenging task, but it is the
Steinhoff Board’s intention to resolve the outstanding claims on a fair basis, to provide
closure for the claimants, and to deliver stability to the underlying businesses and their
employees.
The Company’s development of a settlement proposal has progressed sufficiently to a
point where the Group is today announcing the terms of a proposed settlement to resolve
substantially all of the relevant claims and proceedings.
Louis du Preez, Chief Executive Officer and Management Board member, said:
“Settlement of the outstanding litigation was identified as being the second step in our plan.
Compensating shareholders who suffered losses in December 2017 has been one of our key
objectives together with protecting the livelihoods of our employees and recovering value
for creditors. The proposed settlement terms being announced today are the culmination
of 12 months of intensive effort. Although there is no certainty yet that we will be able to
conclude this settlement, in our view these terms are firmly in the best interests of all
stakeholders. We urge all claimants to engage positively with us and support our proposal
to resolve the outstanding legacy claims.”
The Group’s Approach to a Global Settlement of Legacy Claims
The Group faces complex, multi-jurisdictional claims initiated by multiple parties relating to
the alleged accounting irregularities announced in December 2017. Approximately 90
separate legal proceedings have been commenced against the Company and SIHPL in
the Netherlands, Germany and South Africa. Not all claimants have yet sought to quantify
their alleged damages, but the combined claims of those that have sought to do so are in
excess of ZAR136 billion (EUR7 billion at a ZAR/euro rate of 19.5). In addition to proceedings
against Group entities, claims have also been made against, amongst others, former
directors and officers of Group entities.
All claims against the Company and SIHPL are being disputed in ongoing litigation
proceedings and there remains material uncertainty as to the outcome of all of these legal
proceedings. If all such claims were ultimately established in the amounts asserted, it is clear
that the net asset value of the Group would fall far short of the amount required to satisfy
them in full. In such circumstances, liquidation proceedings would ensue which would, in
the Company’s view, materially impair the value of assets available for distribution and
adversely affect the timing and amount of the claimants’ recoveries relative to the
proposed settlement.
During the last 12 months, the Company and SIHPL, assisted by the Litigation Working Group,
have been engaged with a number of stakeholders with differing claims pending across
multiple jurisdictions. The Company’s objective throughout has been to achieve a
comprehensive global settlement.
The Group has formulated proposed settlement amounts for various claimant groups in light
of the characteristics of, and risks affecting, their claims, the Group’s ability to continue
trading and to maximise the asset values available to it, and the likely outcomes for
claimants if the Group was unable to do so, assuming the claimants succeeded in
establishing their disputed claims, and liquidation ensued. The proposed settlement terms
also have regard to the adverse impact of the Covid-19 pandemic on the value of the
Group’s underlying businesses and the effect of currency movements.
A global settlement of litigation claims was contemplated when the Group’s financings
(which as at 30 September 2019 and excluding operating company financings, stood at
EUR 9.24 billion and which continue to accrue interest) were restructured and extended by
agreement of its financial creditors in August 2019. The proposed terms of the settlement
provide for payments materially in excess of the permission granted by financial creditors in
2019 and will require fresh consent from financial creditors. The financial creditors are being
asked to make additional concessions including the extension to the maturity of their loans
to the Group.
Against this background, the primary objectives of the Company’s Management and
Supervisory Boards and the SIHPL Board in formulating the proposed settlement have been:
• to achieve a settlement of litigation claims that allocates the available value and assets
of the Company and SIHPL fairly and equitably among the parties who have claims
against the Company and SIHPL;
• to achieve a settlement that fairly reflects the compromise of legal issues, priorities of
payment, availability of alternative recoveries and other issues faced by the litigants on
their own account and in relation to others;
• to further stabilise the Group to maximize the value available to be distributed to its
stakeholders by marshalling cash, preserving the going concern value of the Group’s
businesses and avoiding further litigation costs;
• to ensure the continuity of the Group’s operations in order to safeguard the jobs of the
thousands of employees of Steinhoff’s underlying businesses and, by preserving the
value of those underlying businesses, to protect the broader universe of stakeholders;
and
• to conclude and to implement the settlement of the legacy claims on the proposed
terms as soon as possible.
The proposed settlement reflects the necessary balance of competing interests and the
financial limitations on the Group, including the negative outlook and implications for all
stakeholders if the proposed restructure fails and assuming the claimants succeeded in
establishing their disputed claims.
Benefits of the proposed settlement
The proposed settlement will, if successful, offer significant benefits to the Group and its
stakeholders, including the litigation claimants. Notably:
• it will provide litigation claimants with certainty of outcome relative to the cost and
uncertainty associated with protracted, expensive and unpredictable court processes
in pursuing their claims;
• it will largely resolve the material contingent liabilities faced by SIHNV and SIHPL as a
result of the ongoing litigation;
• it will thereby help the ongoing work to stabilise and support the continued operations
of the Group aimed at preserving business value for its stakeholders and employees;
• it will save the Group (and other parties) the very material costs of litigating the
numerous legal proceedings across multiple jurisdictions;
• it will avoid the need for Steinhoff management (and litigants) to commit material
time to the supervision of the conduct of the legal proceedings; and
• Steinhoff management will be able to devote their full attention to the continued
improvement of the underlying businesses and the development of plans to realise
value and de-leverage the Group’s balance sheet.
Nature of Legacy Claims
The litigation claimants can be categorised into three broad groups: (i) “market purchase
claimants” – being those parties that acquired Steinhoff securities on the market; (ii)
“contractual claimants” – being those parties who sold their businesses to Steinhoff in
consideration for shares in Steinhoff or otherwise acquired shares in Steinhoff pursuant to
agreements with Steinhoff; and (iii) “non-qualifying claimants” – being those parties who
have brought claims that are neither market purchase claims nor contractual claims and
are not proposed to be included in this settlement. In summary:
• Market purchase claimants: Market purchase claims (“MPCs”) arise in respect of market
traded securities. In respect of the period prior to the Company’s Frankfurt Stock
Exchange listing becoming effective on 7 December 2015, any such claims are in
respect of shares of SIHPL (the former holding company of the Group) (“SIHPL MPCs”)
and, following such event, any such claims are in respect of shares of the Company
(“SIHNV MPCs”).
There are a large number of potential MPCs many of whom are represented by, or have
vested their interests to, active claimant groups (“ACGs”). The Company currently
estimates that in excess of half of the total MPC claimants are South African residents
or entities.
• Contractual claimants: There are a limited number of contractual claimants with
alleged claims against the Company and a greater number of contractual claimants
with alleged claims against SIHPL, but at both the Company and SIHPL the claim values
are material, albeit disputed.
• Non-qualifying claimants: Certain claims have been brought against the Company
and/or SIHPL that do not fall into either of the two categories detailed above as these
claimants did not purchase shares in the Company or SIHPL on the market or by way of
a contract with either the Company or SIHPL.
Settlement Proposal Details
The detailed terms of the proposal (“Settlement Term Sheet”) can be found on the
Company’s website at the following web-address:
https://www.steinhoffinternational.com/settlement-litigation-claims.php.
The terms of the proposal reflect key features of the parties’ respective claims, including:
• the legal basis for the claim;
• the laws of the jurisdiction in which the claim is brought;
• the nature and extent of the loss claimed;
• legal uncertainties affecting the claim and recoverability of loss; and
• the financial position of the Steinhoff entity against which the claim is asserted.
The terms of the settlement proposal are, in summary, as follows:
• Market purchase claimants: The Company will settle eligible SIHNV MPCs and SIHPL
MPCs for a total settlement consideration amount of EUR266 million. This settlement
consideration will be paid 50 per cent in cash funded from the South African sub-group
and 50 per cent in shares of Pepkor Holdings Limited (the Group’s South African retail
subsidiary, “PPH”), settled at a deemed price per share of ZAR15. No lock up restriction
on future sale of the PPH shares is required in respect of PPH shares transferred to the
MPC claimants. SIHNV estimates that approximately 173 million PPH shares (or 4.6 per
cent of the total PPH issued share capital) will be transferred to MPC claimants as a
result of the settlement.
Allocation of the settlement consideration as between the MPC claimants, including
the treatment of any unclaimed amounts allocated to MPCs, will be determined in
accordance with an allocation methodology proposed by the Company and set out
in the Settlement Term Sheet.
In addition, in order to facilitate recoveries to market purchase claimants the Group is
considering making available an amount of up to EUR 30 million to pay in respect of
certain fees, costs and work undertaken by the ACGs on the terms to be specified in
the settlement documents. The specific terms of the proposal remain under
consideration.
• SIHNV contractual claims: Contractual claims against the Company will be settled at
the same relative recovery rate as the MPCs against the Company. The Company
estimates the total amount required to settle such contractual claimants to be in the
region of EUR104 million. Such settlement consideration will also be paid 50 per cent in
cash and 50 per cent in PPH shares settled at a deemed price per share of ZAR15.
Consistent with the proposal in relation to the market purchase claimants settled by
SIHNV, no lock up restriction on sales of allocated PPH shares is required from the
Company’s contractual claimants.
The Company estimates that approximately 67 million PPH shares (or 1.8 per cent of the
total PPH issued share capital) will be transferred to Company contractual claimants.
• SIHPL contractual claims: SIHPL will settle the claims made against it by contractual
claimants from its own resources. SIHPL contractual claims (other than claims by Thibault
and Wiesfam) will be settled for a total amount of approximately ZAR1.5 billion (EUR76
million at a ZAR/euro rate of 19.5). The claims of Thibault and Wiesfam will be settled for
a proportionally lower recovery rate in the total nominal amount of approximately
ZAR7.9 billion (EUR406 million at a ZAR/euro rate of 19.5). The settlement consideration
will also be paid 50 per cent in cash and 50 per cent in PPH shares at a deemed price
per share of ZAR15. Subject as follows, SIHPL contractual claimants will be required to
agree to lock up PPH shares allocated to them for 180 days from the effective date of
settlement.
In respect of the SIHPL contractual claimants BVI and Cronje & others who are current
employees and managers of PPH, SIHPL proposes that their settlement consideration be
entirely in the form of PPH shares at a deemed settlement price of ZAR13.5 per share,
provided that they agree to a three year lock up restriction on the sale of those PPH
shares from the effective date of the settlement.
The Company estimates that approximately 345 million PPH shares (or 9.3 per cent of
the total PPH issued share capital) will be transferred to SIHPL contractual claimants
assuming BVI and Cronje & others take up their option to be paid entirely in PPH shares.
• Non-qualifying claims: No specific proposal is being made for the settlement of other
claims, and the Company or SIHPL will continue to defend them on the basis that any
liability in respect of the same is denied. If any such claim against the Company
ultimately succeeds, it will be entitled to settlement consideration at the same rate as
MPC and contractual claims against the Company. If any such claim against SIHPL
ultimately succeeds, it will be entitled to payment in full.
• Claim verification & disputes: The Company is contemplating establishing a new Dutch
stichting foundation together with supporting arrangements in South Africa (for South
African claimants) to act as the Steinhoff Recovery Foundation (“SRF”). The purpose of
the SRF will be to administer and distribute the settlement consideration paid by, or on
behalf of, the Company. It will be governed by a board of newly appointed directors
with majority independence from the Steinhoff Group. Claimants will be required to
submit their claims for verification prior to receiving settlement payments. SRF intend to
retain Computershare to assist it to administer and verify claims prior to payment of the
settlement consideration.
• Recoveries independent from other sources: The settlement consideration provided by
Steinhoff is independent from recoveries that claimants may make from other sources
and any such recoveries (if any) will be incremental to the settlement consideration
proposed by Steinhoff.
• Financial creditors: The SIHNV and SIHPL financial creditors holding contingent payment
undertakings (“CPUs”) (other than creditors holding Hemisphere International Properties
B.V. CPUs), will not be eligible to receive any distribution as part of the proposed
settlement in respect of their claims under the SIHNV CPUs and the SIHPL CPUs. Instead,
they will be asked to provide their consent for the proposed global settlement and to
waive any tortious (delictual) claims they may have against the Group, D&O insurers
and auditors. In addition, the financial creditors will be asked for a consent to extend
the maturity date of the CPUs and the underlying debt obligations by 18 months to 30
June 2023 with an option for a further 6 month extension on the approval of a lower
CPU creditor voting threshold. As part of these arrangements, effective from
implementation of the proposed settlement the Company will provide security to its
CPU creditors over its shares in Steinhoff Investments Holdings Limited (“SIHL”) and over
any outstanding loan claim payable by SIHL to SIHNV. This extension is an important
component of the overall settlement and of the continuation of the stable platform for
the Steinhoff Group. To the extent necessary, the Group will consider English law
schemes of arrangement to implement the consents required. Otherwise, the SIHNV
financial creditors will retain their contractual rights against SIHNV and SIHPL under the
terms of the CPUs.
• Post settlement PPH Holding & SIHPL balance sheet:
PPH: The Company estimates that the settlement will result in Steinhoff continuing to
hold in excess of 50 per cent of PPH shares.
SIHPL: SIHPL is the former South African listed entity prior to the 2015 scheme of
arrangement and share exchange and has no current trading activity. The proposed
terms of the SIHPL settlement include measures aimed at winding up the affairs of SIHPL
over time on a solvent basis. In addition to the proposed settlement of relevant MPC
and contractual claims it is proposed that with effect from the effective date of the
settlement:
• following implementation, SIHPL will receive the rights under the legacy loan owed
by Titan Premier Investment Pty Ltd (“Titan”) to Steenbok NewCo 2A (formerly
owed to Steinhoff Finance Holding GmbH) (“Titan Loan”) for deferred cash
consideration;
• the term for repayment of the Titan Loan to SIHPL will be extended by 5 years at a
PIK coupon of 5.04 per cent per annum compounding semi-annually and Titan will
provide security for the Titan Loan obligations in favour of SIHPL;
• as part of the consideration for the Company settling all MPCs, including those
against SIHPL, SIHPL will issue a loan note in favour of SIHNV in the amount of up to
EUR100 million (“SIHNV Loan Note”); and
• SIHPL CPU claimants are requested to agree terms to assist SIHPL to conclude its
affairs on a solvent basis in due course.
Further details in relation to the post settlement SIHPL balance sheet are set out in the
Settlement Term Sheet.
Implementation and conditionality
The competing stakeholder interests, the financial position of Steinhoff and the complex
multi-jurisdictional nature of the litigation make implementation of the proposed settlement
uniquely challenging. The Company has therefore been considering a number of options
to achieve the necessary certainty and finality required by the Company and stakeholders.
One of the options currently available to Steinhoff to implement the global settlement is by
a composition plan which will be submitted in draft form (ontwerp van akkoord)
immediately on the filing of the request for a Suspension of Payments (surseance van
betaling) procedure in the Netherlands by the Company and a pre-prepared compromise
plan pursuant to section 155 of the Companies Act 71 of 2008 in South Africa by SIHPL. The
Company and SIHPL continue to consider whether there may be appropriate settlement
mechanisms to supplement and/or replace such implementation procedures.
In addition to achievement of the necessary levels of support by claimants to the Group’s
proposal, the settlement will be conditional on, among other things:
• consent of the Group’s financial creditors under the terms of the Group’s restructured
debt financings. A request for consent from the Group’s financial creditors will be
launched shortly; and
• consent of the South African Reserve Bank in respect of certain elements of the
proposal and to facilitate the funding of the settlement proposal.
There is no assurance as to whether those consents will be forthcoming.
Timetable and Next Steps
The Company will provide updates on the progress and the outcome of the consent
requests.
Shareholders and any other claimants are advised to seek independent legal, financial and
tax advice in respect of the Steinhoff settlement proposal. Financial creditors can contact
Kirkland & Ellis (London) in respect of any questions arising in relation to the proposals as
they relate to the financial creditors.
Documentation to be completed by any claimant for the purposes of supporting the
proposed settlement will be available shortly at the Steinhoff website set out below.
Further information
Further information on the proposed settlement, including the Settlement
Term Sheet and a Frequently Asked Questions document, is available at:
https://www.steinhoffinternational.com/settlement-litigation-claims.php.
Alternatively, Steinhoff’s investor relations team can be contacted at
settlement@steinhoff.co.za.
Important Note
The Group’s settlement proposal is made on the basis that it does not represent an
admission of any liability in respect of any of the various claims made against any member
of the Group or any directors, officers, or employees, past or present.
Caution
Efforts to conclude and implement the proposed global settlement on terms acceptable
to the Company and SIHPL will continue and Steinhoff will update the market on progress.
There is no certainty that the proposed settlement will be finally concluded. Shareholders
and other investors in the Company are advised to exercise caution when dealing in the
securities of the Group.
JSE Sponsor: PSG Capital
Stellenbosch, 27 July 2020
Date: 27-07-2020 08:05:00
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