Steinhoff’s settlement proposal hits hurdle of its own making

Steinhoff appears to have done an about-turn on its undertaking not to pay out on Christo Wiese-related claims until legal battles with US-registered Conservatorium disputing those claims have been settled.

According to a just-released update of its $1 billion settlement proposal, Steinhoff has now undertaken to pay out on the substantial part of Wiese’s claim against Steinhoff.

This means around R7 billion will be paid to Wiese-related entities as soon as the proposed settlement is finalised rather than waiting for the outcome of the legal battle between Wiese-related entities and Conservatorium.

The change of heart by Steinhoff is likely to result in a several month delay in the finalisation of the proposed settlement.

Conservatorium is expected to launch legal proceedings against Steinhoff in a bid to reverse the payment decision; such proceedings are likely to drag on for several months.

US-registered Conservatorium is the legal successor to a group of financial institutions that had extended a €1.6 billion loan to Wiese in 2016. As security for that loan, which was used to buy Steinhoff shares, Wiese pledged those Steinhoff shares and other Steinhoff shares that he had acquired in 2014 in exchange for his Pepkor shares.

Wiese’s R59 billion claim comprises the R34.7 billion worth of Pepkor shares he gave to Steinhoff in exchange for Steinhoff shares back in 2014. That is referred to as the Upington 2 claim in Steinhoff’s proposed settlement. In addition Wiese’s claim against Steinhoff includes R24.3 billion for the 314 million Steinhoff shares he bought in 2016 with the €1.6 billion loan.

Conservatorium contends it is entitled to the bulk of any payment made to Wiese because he pledged most of his Steinhoff shares when he took out the €1.6 billion loan in 2016.

Conservatorium has initiated legal action in South Africa and the Netherlands in a bid to secure its claim against the Wiese entities.

Original proposal

The original settlement proposal released at the end of July revealed that Wiese-related entities were set to be the single largest group of beneficiaries with a possible total payout of around R9 billion on the R59 billion claimed.

However, at that stage Steinhoff made it clear that it would not pay out on any claims where there was a dispute to the legal ownership of the amount being claimed.

According to that original proposal Steinhoff would “wait for the final unappealable determination, or consensual resolution, of those disputes before paying any compensation to the owner of the claim”.

The change

On Friday Steinhoff released an updated version of the proposed settlement, which contains one critical change. Steinhoff is now intending to pay Wiese-related entities around R7 billion for the ‘Upington 2 claim’ without waiting for the outcome of the court battle between Wiese and Conservatorium.

The revised proposal states the settlement amounts will be paid to the Wiese-related entities “notwithstanding any continuing ownership dispute”.

No explanation is given for the change; indeed there is not even a reference to the fact that there has been a change.

Strangely, proceeds for the Upington 1 claim, estimated at around €82 million, will remain ringfenced until the dispute between Wiese and Conservatorium has been resolved.

Remarkably, the dramatic change in approach comes after the Western Cape High Court strengthened Conservatorium’s claim by granting it intervention status.

‘Prejudicial’

Over the weekend Michael-James Currie and John Oxenham of Nortons Inc, legal advisors to Conservatorium, told Moneyweb their client had voted against the settlement proposal because of the change.

“Conservatorium’s view is that both the Upington 1 and Upington 2 claims are being disputed and the [Western] Cape High Court found that this is clearly a triable issue to be determined by a court,” said Currie, adding that the Steinhoff proposal to pay out the Upington 2 proceeds when there is clearly a disputed claim “is prejudicial to Conservatorium”.

When asked for an explanation, a spokesperson for Steinhoff told Moneyweb: “The position of the company has changed since the 27 July 2020 term sheet and the view of the company, after taking appropriate advice, is set out in the current proposal.”