It's like a shameful secret – thousands of South Africans have stashed under their beds not bank notes but Steinhoff shares.
“At the time of the Steinhoff meltdown in December 2017, there were thousands of ordinary shareholders, regular members of the public, who had Steinhoff shares in their stock portfolios,” says James-Brent Styan, who spoke to a number of shareholders when researching Steinhoff en die Stellenbosse Boys, the first book to be written about the Steinhoff International saga.
The public perception seems to be that only a handful of very rich people in the shadows hold Steinhoff International shares, but Styan says this isn’t the case. “Regular members of the public own shares, there’s no doubt about that. Once they’ve sold the share, they would have to realise the loss. At the moment, for many, the loss hasn’t been realised yet.”
Steinhoff’s crown came tumbling down in December after alleged “accounting irregularities” turned out to be very irregular indeed, wiping out 97% of the company’s book value. Thousands of South Africans hold the company’s shares.
“I bought a few months ago, as I thought it would be a good deal. After December, the price was super-cheap,” said an online chat participant discussing Steinhoff who elected to remain anonymous.
And these people are not financially clueless, either. “I bought 10 000 when the price dropped to around R15 and then another 10 000 around R3,” says University of the Witwatersrand professor of economics Jannie Rossouw. “My wife still thinks they’re going to get to zero, but I don’t.”
What to do?
Steinhoff is a minefield that seems to have bested the brightest financial minds. So what should thean average Joe or Janein the midst of it do? Hang on to his or her shares? Toss them? Take the company to court?
People who bought Steinhoff shares when the share price peaked are angry, and some, such as former director Christo Wiese, are considering taking legal action against the company. Those who bought at Steinhoff’s nadir are content to wait it out.
One shareholder said: “I haven’t sought legal counsel; I’m not going to try to claim. What for? I took the risk.”
Rossouw says: “Everybody wants to sue Steinhoff, but, as a shareholder, you can’t exactly sue yourself – you’ll only make the lawyers rich.”
What the lawyers say
“The problem with litigation if you’re an individual is that it can be expensive,” says Patrick Bracher, a director at law firm Norton Rose Fulbright. “You have to prove causation; you have to prove negligence; and these things can be hard to do. If you’ve lost enough money, I suppose it can be sensible pursuing litigation, or one can do it because of the principle, but principles can be expensive.”
Maximilian Weiss at Germany’s TILP Litigation, which is pursuing a class action against Steinhoff through the website www.steinhoff-claim.com, says that in terms of German law most individual shareholders can at best hope to get back most, but not all, of their moneyshareholders’ best hopes are to get most of the money back in the best-case scenario, but not all.
“Let us say someone bought a single share valued at R95 before December. If the purchase was in April 2016, then you have the chance to claim inflation damages under German law – in the given example, roughly R80. I do not believe that Steinhoff will be able to compensate all aggrieved investors the full price; only a portion of it.”
Alternatively, you could go after the individuals who ran Steinhoff, rather than the company as a whole. The Public Servants Association (PSA), whose pension fund lost billions of rands as a result of Steinhoff’s collapse, says it is on a path to getting Steinhoff’s current and former directors declared delinquent under the 2008 Companies Act.
“You have a board that basically got themselves involved in illegal activities, so what is the correct thing to do?” says Tahir Maepa, the deputy general manager of the PSA. “You make sure you go after who was there. It’s not just a change of guard; you have to deal with the corrupt individuals first, so we are saying they also need to be brought to book.”
However, he says, “this is also a dicey process that will require a lot of resources, and it’s not necessarily financially benefiting to an ordinary person. This must be done by corporates that were negatively affected by the actions of these directors”.
There may be other ways to reclaim the money, says Weiss. “Who says that Steinhoff has to pay for everything? We do not say that. We will make sure that Steinhoff will be held liable. And along with this objective, we will further increase pressure on the accountants, managers and their assets, as well as insurers [that provided directors’ liability cover]. Everybody will have to pay his share. If you ask me, we will not see a judgment in this case. Down the road, there will be a settlement with all parties involved. But before we get there, we have to litigate.”
Any court battle will be long one. The hourly rate of a lawyer in a city such as Johannesburg is R1 200 or more, according to Payscale.com, which will deter anyone who has not lost a large amount of money.
Or you could simply wait and trust in the entities that are battling it out on behalf of ordinary shareholdersfor the average Joe. “This process is quite complex and very costly – it’s unaffordable even for big corporates,” says Maepa. “That is why we opted for a class action supported by international funders, and even that process is not without legal complications and contractual obligations.
“I would advise individuals to approach organisations such as the PSA and others with information, to strengthen our legal prospects. If we are successful, obviously all affected parties will be considered from whatever will be left.”
And what will be left? Time will tell…
Katya Stead is an independent financial and investigative journalist.