Confidentiality key to ensuring prosecution is not jeopardised: Steinhoff’s Sonn
Steinhoff had to take care about maintaining confidentiality about those responsible for irregular transactions so as not to jeopardise future litigation, the company’s chair, Heather Sonn, said in Parliament on Tuesday.
Sonn and Steinhoff CEO Louis du Preez addressed a joint meeting of four parliamentary committees — finance, public accounts, trade and industry and public service and administration — to update them on developments within the group and on the PwC forensic report, which was released Friday. The report indicated that income and asset values had been overstated by about €6.5bn euros by means of fictitious and irregular transactions over an extended period of time.
The PwC report released to the public did not name the culpable individuals and Sonn said the concern about disclosure was to prevent long-term consequences for a successful prosecution. Steinhoff had to be in a position to institute recovery actions against directors in the event of claims being lodged against it and for bonuses that were illegitimately paid.
She said Steinhoff had decided to institute legal action against responsible parties. “
Those responsible will be held accountable,” she stressed.
Sonn said that Steinhoff remained in a precarious position and had to finalise its arrangement with creditors.
Du Preez told MPs that as a result of the forensic report, income and asset values were being restated. Work was under way with Deloitte to finalise the 2017 and 2018 financial statements taking into account the findings of the forensic investigation. The financial effect of the irregular and fictitious transactions would be reflected in the 2017 statements.
The market would be immediately informed if the effect on group equity were materially different from that stated in the interim report released in June 2018.
Finance committee chairman Yunus Carrim stressed the need for prosecutions to take place while other MPs demanded that those responsible be identified.
JSE CEO Nicky Newton-King informed the committee about the stock exchange's bid to strengthen listing and regulatory requirements, a process that is still underway. Draft listing requirements will be released towards the end of the second quarter followed by one month consultation on the proposals.
The JSE has fined Steinhoff Investment Holdings — the South African issuer of preference shares — R1m and publicly censored the company for failing to disclose its downgrade in the immediate aftermath of the Steinhoff scandal unfolding. Steinhoff Africa Retail (now known as Pepkor) was fined R5m for its failure to disclose its contingent liabilities in relation to its obligations to Steinhoff International in its prelisting statement. R1m of this fine was suspended for two years.
The JSE has submitted a report on its investigation into insider trading to the Financial Sector Conduct Authority (FSCA).
Newton-King did not believe that more regulation was required but what was needed was ethics and more resources for enforcement.
Companies and Intellectual Property Commission (CIPC) commissioner Rory Voller told MPs that Steinhoff had complied with a compliance notice the CIPC issued to the company in January 2018. However, the CIPC was bound by confidentiality agreements demanded by Steinhoff, so he was not able to name the individuals Steinhoff had identified as having been involved in the falsification of accounting records.
The compliance notice required Steinhoff to identify the individuals involved in the falsification of records, to institute criminal and civil action against them within six months.
Voller said the CIPC would definitely make applications to have the directors of Steinhoff declared delinquent, which would prevent them being directors of any company boards. However, this could only happen when a court had found those responsible guilty. The CIPC is also looking into an inclusion in the Companies Act of requirements for social and ethics committees in respect of external companies.
FSCA divisional executive for investigations and enforcement Brandon Topham said the FSCA was investigating insider trading, market manipulation and false and misleading information. As the FSCA only had to establish proof on a balance of probabilities in its administrative investigations, it had been able to proceed with speed.
He said the FSCA had narrowed its investigations from 60 trading accounts for insider trading down to eight trading accounts. He said that it was clear that there was false and misleading information about the financial statements, which the company itself admitted had to be restated.
Topham said the investigations would be a high priority for the FSCA over the next three to six months and there were no budgetary constraints to doing so. The final stage would be to lay criminal charges with the police. He noted that the publication of false and misleading information was similar to fraud.
“The FSCA is putting all its resources to finish this matter as speedily as possible,” Topham said.