The Steinhoff Corporate Scandal and the Protection of Investors Who Purchased Shares on the Secondary Market

Abstract

The December 2017 revelations of accounting irregularities in the Steinhoff group resulted in the share price dropping more than 95%. Investors, including pension funds, lost millions.

This contribution deals with some of the legal issues arising from the misstatement of the financial position of Steinhoff International Holdings NV and its South African predecessor Steinhoff International Holdings Ltd, which resulted in the inflation of its quoted share price. It considers how retail and institutional investors who had acquired their shares through trades on the regulated secondary market might recover the losses they suffered. The administrative penalty provisions in relation to market abuse are briefly considered but shown to be of very limited application as regards compensation to investors.

Common-law delictual liability and statutory civil liability in terms of section 218(2) and section 20(6) of the Companies Act are considered in the context of the first reported attempt at the certification of a shareholder class action. Unfortunately, both the potential statutory remedies were interpreted so restrictively by the court in the class action certification application that they would hardly serve any purpose. The interpretations are shown to cause anomalies in the context of the Companies Act and to be out of step with established principles of company law. Also, the certification court's application of the reflective loss and proper plaintiff principles is questioned.

Some of these issues might have been solved through further litigation, but for statutory compromise and composition mechanisms that brought a mutually acceptable early end to the uncertainty of protracted litigation.