London — German-listed Steinhoff International did not tell investors about almost $1bn in transactions with a related company despite laws that some experts believe require it to do so, a Reuters examination of filings and prospectuses has found.

European financial disclosure rules, including the EU prospectus directive, say publicly traded companies must disclose all transactions that are material in the prospectuses they present before a debt or equity sale. The law says a material transaction is one that is big enough to influence investors’ view of the firm’s financial health. However, the law does not define the details of a material transaction.

One lawyer and two accounting academics told Reuters the transaction was large enough to be material.

The EU rules also require disclosure of all transactions with related parties. Those three experts said this would apply to Steinhoff because the transactions involved a company called GT Branding Holding, in which it holds a minority stake. But although the lawyer and two experts said the company should have disclosed the transaction, Steinhoff and one other academic that Reuters spoke to said it might not necessarily be required.

Two traders said Steinhoff’s shares fell in response to the Reuters report. Shares were down 4.6% at ¤3.59 at 1.50pm GMT. Investors said the company would be under pressure to release more information on the transactions.

Accounts and incorporation documents filed with Swiss, Austrian and German corporate registries show that in 2015, Europe’s second-largest furniture group by sales bought a 45% stake in Swiss company GT Branding and then lent it about 810-million Swiss francs ($810m). The details in the publicly available company filings have not previously been reported.

Prof Emilios Avgouleas, University of Edinburgh chair in international banking law and finance, said that the potentially market-sensitive information should have been clearly flagged. “That transaction should be disclosed to investors. It’s a material transaction and arguably it can lend itself to all kinds of distortions of the share price.”

Dennis Jullens, lecturer in accounting at the University of Amsterdam, said the rules were less clear-cut. “The rules don’t say exactly what size transactions need to be disclosed so there is some judgment involved,” he said, adding that, conceivably, a company might argue a large transaction was not material or that very small related party transactions didn’t need to be disclosed.

A spokesman for Steinhoff said the company complied with all reporting requirements including internal accounting rules and the prospectus directive.

The company operates across many jurisdictions so many laws will apply. However, as a Dutch-registered and German-listed company, the most important rules it must comply with are those countries’ local regulations and the EU prospectus Ddrective.

The transactions were not disclosed in Steinhoff’s 2015 or 2016 annual reports, share prospectuses in August 2015 and November 2015, and a debt prospectus published in July 2017. The Steinhoff spokesman said the company did not need to provide detailed information about the loans, share purchase or royalties it paid to GT Branding’s subsidiary because they did not have a major impact on profitability.

“All transactions to and from Steinhoff to GT Branding are not material in a qualitative and quantitative way. Therefore in line with International Financial Reporting Standards (IFRS) requirements, no related party disclosure was presented in Steinhoff’s group financial statements,” he said.

Spokespeople for the AMF, the financial regulator in the Netherlands where Steinhoff International is registered, German regulator Bafin, the Frankfurt Stock Exchange, and Steinhoff’s auditor Deloitte all declined to comment on Steinhoff’s filings.

A spokeswoman for the European Commission, the EU’s executive arm, said it did not comment on individual cases and said national authorities were responsible for enforcement of the EU directive.

Luxembourg financial regulator Commission de Surveillance du Secteur Financier approved a 2017 Steinhoff bond prospectus. A spokesman declined to say if it would investigate whether the company should have disclosed the transactions.

The loans came shortly after Steinhoff bought the 45% stake in GT Branding. This created a party relationship between the two groups. Campion Capital owns the other 55%. Campion did not reply to e-mails and phone calls, and Steinhoff declined to answer questions about Campion’s ownership.

GT Branding’s main asset is another Swiss company, GT Global Trademarks, which trademark registers show owns about 200 brands used by Steinhoff. Steinhoff used to own GT Global Trademarks.

At the end of 2015, the GT Branding debt represented 3.2% of Steinhoff’s total assets. Three experts said this was significant enough to be above the reporting threshold laid out in the EU prospectus directive, which requires the disclosure of any information that could influence an investor’s view of the company’s financial health.

A Steinhoff spokesman said that while the interest on the loans and royalty payments were related party transactions, they did not need to be disclosed because, when netted off, the amount of money flowing between the companies was small.

Kecskes Andras, head of department of economic and trade law at the University of Pecs in Hungary, said transactions with associated companies worth hundreds of millions of euros should be disclosed.

Steinhoff, which owns Poundland in Britain, Mattress Firm in the US and Conforama in France, is under investigation for suspected accounting irregularities by the state prosecutor in Oldenburg, Germany. The investigation is ongoing and Steinhoff denies all wrongdoing. It is not directly linked to the transactions outlined in this article.


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