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Since its share price plunged in December 2017 at the start of a now-infamous accounting scandal, Steinhoff has said it would consider using clawback provisions to recoup money already paid to senior executives accused of wrongdoing.
In mid-June, the Stellenbosch-headquartered retail and furniture conglomerate lodged court documents in the Western Cape High Court against two defendants, former senior executives Markus Jooste and Ben La Grange.
A clawback provision allows companies to demand that money paid to employees be returned.
Jooste and la Grange were previously named by Steinhoff as two of eight people implicated in the findings of a 15-month forensic probe of the company's books by PwC. Both have previously denied any wrongdoing.
Here are 5 things you need to know.
1. Who are Jooste and La Grange?
Markus Jooste was Steinhoff's long-time CEO. He abruptly resigned in December 2017 at the start of an accounting scandal that caused Steinhoff's share price to plunge by some 95%. The ex-CEO denied any wrongdoing when he appeared before Parliament in September 2018, blaming the company’s woes on former business associate Andreas Seifert.
La Grange was Steinhoff's former chief financial officer, a position that put him in close contact with Jooste. He resigned as CFO in December 2017 and in January 2018 quit his positions at Steinhoff subsidiary STAR, now renamed Pepkor. He remained on a short-term consultancy deal with the conglomerate until when he was suspended in August 2018.
That same month he told a Parliamentary inquiry that he was "shocked" when the group's external auditors first raised allegations of fraud. He also said it doubtful that the share price will ever climb back to what it was before December 2017.
2. Why does Steinhoff want to clawback the money?
Steinhoff is arguing that salaries were paid, bonuses issued and share schemes signed off for Jooste and La Grange by its board based on an incorrect understanding of the firm's financial position. Steinhoff had a "reasonable but mistaken" belief that the remuneration of the two former executives was warranted.
Following the PwC probe, Steinhoff published its restated earnings report for 2017 in May and its delayed 2018 financials in June. The group reported a loss of €1.19bn (R19.3bn at current exchange rates) for the year ended September 2018, and a restated loss of €3.99bn (roughly R65bn at current exchange rates) for the 12 months ended September 2017.
3. What does it want paid back?
Steinhoff wants base salaries, performance bonuses, strategic bases, project bonuses, and the value of the shares awarded in company share schemes paid back. According to Fin24's calculations, this corresponds to about R830m* for Jooste for the financial years between 2009 and 2017 and amounts to roughly R270m* for La Grange for the period between 2010 and 2017.
Steinhoff has demanded that the payments be made back in both rands and euros, and that interest be added.
4. Why does it state that financials were not correct?
The group argues in court documents that "fictitious" or "irregular" payments were entered into with parties said to be independent of Steinhoff. But these companies were, in fact "not genuine or independent".
"Fictitious" income was created via these transactions, according to Steinhoff, which was then allocated to under-performing entities within the group.
As such, Steinhoff subsidiaries were made to appear more successful than they were in truth. This made the firm's financials appear healthier than they were, and contributed to the remuneration of the two executives.
5. What are the groups that the 'fictitious' payments?
Little is known about the companies. According to Steinhoff's court documents, they include the Campion/Fulcrum Group, the Talgarth Group and the TG Group. The transactions allegedly entered into with these companies had "little or no economic value" the courts documents read.
*In its calculations, Fin24 rounded off amounts to the first decimal, used the euro-rand exchange rate on July 1 and not included interest.
