Markus Jooste: Joined the Freedom Furniture board. Picture: SUNDAY TIMES
Markus Jooste: Joined the Freedom Furniture board. Picture: SUNDAY TIMES

As the forensic team at PwC scours millions of documents in its attempt to figure out what happened at Steinhoff, regulators may have to go back to 2003 to scrutinise what happened in the Steinhoff-facilitated management buyout of Australian-listed Freedom Furniture. This follows a joint investigation by the Financial Mail and the Australian Financial Review.

The reason? The transaction could yet become the first evidence of a "front running" model that has spanned the globe.

Steinhoff continued to expand internationally following its listing on the JSE in 1998 when it combined the manufacturing assets of the Steinhoff group with those of GommaGomma Holdings.

In July 2001, Steinhoff formed a strategic alliance with Australian lifestyle and homeware retailer Freedom Group in which the two companies merged their manufacturing operations into a new company, Freedom Furniture, which would be 74% controlled by Steinhoff.

As part of the same transaction and, rather curiously, Freedom sold 13.2m shares at A$1.32/share not to Steinhoff, but to one of Steinhoff’s largest shareholders — Fihag Finanz und Handels AG (Fihag) — the investment holding vehicle of Angela and Bruno Steinhoff. Markus Jooste joined the Freedom board as a result.

Fihag would continue purchasing shares in Freedom up to the point where it held 21.7m shares, or just under 21% of the issued share capital.

As reported by the Sydney Morning Herald, in August 2003 three Freedom directors — MD Rod Walker, Geoff McIntosh and Michael Gordon — made an offer to shareholders of A$2.10/share with the help of Steinhoff.

Walker argued the reason for the buyout was a material change in the risks the company was going to be undertaking.

With acquisition opportunities limited in Australia, the company was going to expand into the Asia-Pacific region, and he did not think it prudent that retail investors be taken along for the ride.

Walker also said at the time that Fihag was no longer "a substantial shareholder in Steinhoff".

But this is patently not true. According to the 2004 Steinhoff annual report, Fihag was listed as the fourth-largest shareholder in Steinhoff with 8% of the issued shares. The transaction meant that within the space of a couple of years, Fihag made a tidy profit of well over A$10m when it sold its shares to the management consortium backed by Steinhoff.

So is this not a clear case of front running?

The takeover attracted scrutiny in the media because of the presence of two obscure Channel Island shareholders that accounted for 27% of Feedom after buying heavily in the weeks ahead of the deal: Formal Property Management Services (14.9%) and Hawkesbury Ltd (12.2%).

Walker was quoted by Australian media as saying he knew "little" about them.

Australian institutional shareholders wanted the Australian Securities & Investments Commission to scrutinise the scheme, in particular shareholder voting entitlements and the holdings of the two mysterious entities registered in the Channel Islands.

"The whole thing is very murky," Invesco fund manager Ross Wilkinson said at the time.

Said another shareholder: "I find it hard to understand why someone would put so much capital into a small Australian retailer and have no active involvement."

With the benefit of the treasure trove of documents provided by the Panama Papers, we can now see who the directors of these two companies were.

George Alan Evans was listed as the sole director of Hawkesbury and was once CEO of Jooste’s investment vehicle, Kluh Investments. Evans was charged alongside Jooste as part of an investigation launched by German authorities in 2015.

His role in the Steinhoff debacle was highlighted in a report by Viceroy that showed Evans was a director of a company called Campion Capital, one of the off-balance-sheet entities using loans from Steinhoff to buy various loss-making businesses from it — the so-called "ground zero" of the investigation into accounting manipulation.

According to the Panama Papers, Formal Property Management Services lists one Malcolm King as a director.

King appears to be very close to Jooste. Besides owning the exclusive Bantry Bay apartment inhabited by Jooste’s alleged mistress, he also appears to be a large subordinated creditor to Jooste’s investment holding company, Mayfair Holdings.

Pavilion Capital, an entity controlled by King, was listed as being owed R420m by Mayfair in court papers filed by Absa Bank last December. The debt was subordinated to the loans made by three SA banks totalling R1.5bn.

In addition, King also has strong ties to former Steinhoff chair Christo Wiese, its largest shareholder. King is a director of Wiese’s wine estate, Lanzerac.

So just why did two Channel Island companies with no obvious inclination or experience in furniture retailing decide to take such concentrated bets in an Australian outfit mere months before Steinhoff would bankroll a management buyout?

Perhaps only the regulators can tell us.