Judge finds Lancaster 101 director Jayendra Naidoo breached fiduciary duty
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JAYENDRA Naidoo, by his conduct, “breached and violated his fiduciary duty” and was not empowered with authority to institute legal proceedings against furniture retailer Steinhoff, according to a Western Cape High Court judgment last week.
Steinhoff challenged a resolution adopted by Lancaster 101 which purported to grant Naidoo its director authority to institute legal proceedings in a bid to recoup losses after the retailer’s share price crashed in December 2017.
Steinhoff argued Naidoo did not have authority to institute legal proceedings given his directorship in Lancaster 101 (L101) and the subsequent “windfall” that he received as sole shareholder and director of the Lancaster Group.
Naidoo, a former trade unionist through his company L101, convinced the Public Investment Corporation (PIC), which manages assets worth over R1 trillion, to part with R9.35 billion in order for L101 to become a black economic empowerment partner in Steinhoff.
In September 2016 the Lancaster Group, instead of L101, received a 2.5 percent underwriting commission when the shares were subscribed in Steinhoff.
Steinhoff is facing a tidal wave of litigation by shareholders who lost billions following the 2017 accounting scandal.
“Since Naidoo, and by extension Lancaster 101’s authority is derived solely from the impugned resolution, Naidoo was not empowered to authorise ENS to institute legal proceedings,” Western Cape High Court Judge Diedre Kusevisty said in a judgment handed down electronically on Wednesday.
Kusevsity said in so far as relief was sought directing that ENS may no longer act on behalf of L101, this seemed to be too broad a request.
“No case has been made for a blanket prohibition for ENS to not represent L101. Most certainly, the relief would only be applicable to these proceedings,” she said.
Kusevisty said Naidoo by his conduct, breached and violated his fiduciary duty.
“The motivation by Naidoo was purely self-serving and devious,” Kusevisty said.
Kusevisty said Naidoo’s obvious failure to include or make mention of the subscription commission that he received as sole shareholder of the Lancaster Group, indicated his violation of his fiduciary duty.
At the time of the conclusion of the subscription agreement, the PIC, Steinhoff’s second-largest shareholder, held a 50 percent stake in L101 and the remaining 50 percent was held by the Lancaster Group.
It was alleged that the subscription agreement made no mention of the payment of an underwriting commission to any party. However, when Steinhoff’s capital increase was announced on September 28, 2016, it included a recordal that Lancaster 101 would be paid an underwriting commission of 2.5 percent of the total subscription price under the subscription agreement.
It appeared to have been calculated on 60 million shares, although it subsequently became apparent that some 51 million shares were subscribed for by Lancaster 101, while the Government Employees Pension Fund appeared to have subscribed for over 8 million of the remaining shares, making up the balance of the 60 million shares.
Subsequent to the Lancaster underwriting commission, the PIC was criticised for approving a transaction that would significantly enrich a single individual.
The Commission of Inquiry into allegations of corruption in the PIC said it was questionable whether the Lancaster Group or L101 should have received an underwriting commission at all, and whether this should have gone to the PIC itself.
“Based on the evidence of Mr Naidoo, it also appears that no discussion took place in relation to whether the commission should have been paid to L101, instead of the Lancaster Group,” said the PIC Commission of Inquiry.