Failing governance at STAR – more questions than answers….

Steinhoff Africa Retail (Star) dropped a bombshell on Friday when it announced that it was party to a guarantee of “third party debt” related to a historic Pepkor Holdings management investment scheme “underpinned by the Steinhoff share price”.

This investment scheme includes a number of current and former Pepkor employees and executives that decided to invest in Steinhoff through an entity called Business Ventures Investments 1499 (Pty) Ltd (BVI).

Neither Star nor Steinhoff have any interest in BVI.

According to Steinhoff’s share register at the end of November, BVI held 43.2 million shares in the company before the dramatic events unfolded in early December last year.   This left the BVI scheme underwater for about R375m.

However. a clause was included in the directors’ report of Pepkor Trading which stated: “Subsequent to year end, the company issued a guarantee in favour of RMB (facility provided by Rand Merchant Bank) for R430 million for performance of a loan payable by BVI”.

Several questions spring to mind:

1: How can a Star subsidiary that has issued a guarantee to a bank for third party debt involving current and former employees, not construe this as entering into agreements to cover losses or potential shortfall?

2:  Why was no mention made of this guarantee in the published accounts of STAR, and shareholders not duly informed prior to or at the AGM of the extent thereof?  When did the STAR board become aware of this matter?

3: How did the board of Pepkor Trading arrive at a decision to issue such a large third-party guarantee?  Were they not all conflicted and thus unable to vote on the matter? 

4: Even if they could rightfully consider the matter, how could the board possibly have voted in favour thereof knowing full-well that it has nothing to do with the business of the company?

5: Did the board have a mandate to consider and resolve this type of extra-ordinary matter?   If not, all board members who voted in favour should be held personally liable.

6: Did the auditors of Pepkor Trading flag this resolution for the Deloitte team at the STAR level to look at?

7:  How does STAR justify issuing a guarantee for third party debts while it was scrambling to source liquidity?

8: What makes the BVI shareholders – who are or were employees of STAR – so special that they get financial assistance from Pepkor Trading?

Read the full article on Moneyweb here