Stehwaz (Istiwath) Holding Company - Shareholders' Legal Complaint Against Board and The Investment Dar

AlQabas reports that 47 shareholders of Stehwaz Holding Company -شركة استحواذ القابضة  - have raised a legal complaint against the board of directors, the auditors and the parent company, The Investment Dar ("TID").  As its name implies, Stehwaz is involved in mergers and acquisitions as well as pre IPO transaction.  The company has some 5,000 shareholders.   TID and Efad Group are the major shareholders.  Efad is also a major shareholder in TID.

AlQabas describes this as an "unprecedented" action by shareholders against a Kuwaiti company.

These 47 shareholders' allegations (and note that word) consist of the following:

1. After undertaking the increase in the company's capital to KD 250 million, TID caused the company to enter into a series of contracts for its benefit allowing it to take most of the capital of the company.
2. One example is the sale of Madar Investment Company - which allegedly resulted in a KD 50 million profit for TID and no benefit to Stehwaz.
3. Another item in the list of complaints is the company's lending activity.  The shareholders allege that it is unclear if  KD 3 million obtained by the Board is loan or another type of facility.
4. Exaggeration (overstatement) of goodwill in the amount of KD 50 million.
5. A pattern of conducting real estate transactions solely with related parties - reaching an amount of approximately  KD 300 million.  Stehwaz supposedly conducted these with  just three related parties  from among the founding shareholders.  The complaint specifically raises the point that no real estate transactions were undertaken with other market participants.  The thrust here seems to be a concern over purchases of real estate.  That logically would be one of overpayment.   AA:  In 2007, Stehwaz had KD 450 million in total assets.  The company has not released its 2008 financials.
6. Funding provided to TID via wakala and tawarruq transactions - a major issue given the constrained financial position of TID.

The complaining shareholders are requesting guarantees from those parties who benefited from the transactions described.  That is the first step in seeking to impose personal liability on  member of the board of directors.  An initial (statutory) fine of KD5,001 is also being requested as well for the decline in share value to KD 20 fils.

The Court is to hear the case 11 February.

Some observations.

1. Another bit of bad news for TID in securing creditor agreement to its rescheduling proposal, particularly in light of the charges made in this complaint.  Without full details and noting that this is only a complaint and not a legal judgment against TID, these are the sort of activities that could be behind the Central Bank's delay in approving TID's financials as well as some of the content of the restructuring proposal.  Earlier post here. 
   
2. As well, this suit is reminiscent of some of the issues that the Ministry of Commerce and Industry is pursuing with respect to related party transactions. Earlier posts here and here. 

It's important to re-iterate that these are unproven allegations at this point.  The Kuwaiti Courts will determine if they have legal merit and if sufficient evidence is provided to substantiate them.  In any case this is not good news for TID, particularly at this critical juncture.