Durban - The Department of Trade and Industry (dti) has directed the Companies and Intellectual Property Commission (CIPC) to launch an investigation into possible non-compliance with the Companies Act by the battered South African-based global retailer Steinhoff.
This is after the company faced a near collapse with its share price tumbling by about 80% last week, although there was a slight recovery by Tuesday.
Acting Deputy Director-General for Consumer and Corporate Regulation Division at the dti, Macdonald Netshitenzhe, said the investigation would start before the end of the year.
“What needs to happen now is that a senior counsel will be appointed to be in charge of that investigation. Although I cannot say when exactly, I can assure you the CIPC processes are quick,” he said.
There could be dire consequences for the company executives and auditors if the CIPC finds any wrongdoing on their part.
Some of the allegations being probed are whether board members and auditors deliberately failed to report some of the suspicious activities and transactions.
After the investigation, the CIPC might issue a certificate of non-compliance and impose penalties on the company.
Netshitenzhe said according to Section 77(3), a director or prescribed officer was liable for any damage of financial loss sustained by the company as a consequence of his fiduciary duties.
“For an example, the CIPC may order that the company should pay compensation for the loss recorded in the share price," he said.
"With regard to auditors, the CIPC may make findings and submit a report to the Independent Regulatory Board for Auditors (IRBA).”
The CIPC is empowered by law to look into financial statements and to summon people as witnesses.
“The dti will further suggest that IRBA also consider the circumstances with regard to the role of auditors in this instance,” said Sidwell Medupe, the departmental spokesperson.
The chairperson of the finance committee, Yunus Carrim, said the Steinhoff scandal confirmed the need for tighter regulation and monitoring of companies.
He called for more effective regulatory bodies.
“We are concerned not just about the financial losses suffered by the Public Investment Corporation, the Government Employees’ Pension Fund and the government employees they represent, but also about the prospects of major job losses for workers in Steinhoff companies,” Carrim said.
“Alleged fraud of this scale requires swift and decisive action of regulators, both in and outside South Africa.
"The perpetrators have to be prosecuted and sanctioned to the full extent of the law.”
Although the full nature and extent of the fraud is not yet known, Carrim said that the events at Steinhoff raised questions of the appropriateness of governance oversight frameworks, corporate incentives and the role of entities trusted to ensure discipline in corporates, such as the asset management and accounting industry.
Economist Professor Bonke Dumisa said corruption in the private sector was just as bad as that in the public sector, although the latter tended to affect the poor the most.
The internal auditors at Steinhoff might have to answer for some of the allegations.