Creditors of René Benko’s Signa have filed a criminal complaint with Austrian anti-fraud prosecutors, calling for an urgent investigation into the collapsed property group.
The complaint was filed with Austria’s state prosecutor for economic crime and corruption (WKStA) late last week by a Viennese law firm on behalf of a group of international institutional investors who are long-term lenders to Signa.
Signa Development, one of the three main holding companies of the Signa Group, engaged in “unlawful transactions” before its insolvency filing on December 29th, the creditors allege in the complaint, a copy of which has been seen by the Financial Times.
The failure of Signa, a property empire built over the past two decades by its politically connected, billionaire founder Benko, has been the highest-profile casualty of the strains across Europe’s commercial property market following a rise in interest rates over the past 18 months. Its assets include stakes in Dublin’s Brown Thomas and Arnotts, New York’s Chrysler building, London’s Selfridges and KaDeWe, Germany’s famous department store.
In the 22-page submission the creditors say they have identified “a considerable outflow of assets of more than €662 million from Signa Development to (indirect) shareholders and sister companies, and that there is no economic or operational justification for this”.
Signa Development was the arm of the Signa conglomerate responsible for developing lucrative properties and selling them quickly. It was also the most cash-generative part of the Signa Group.
The claim alleges a “presumably deliberate” lack of transparency from Signa Development in the run-up to its insolvency. “No substantial information was disclosed” to creditors in the prior months, it states, adding that a “total loss” is now expected on the missing funds.
A spokesperson for the WKStA said prosecutors had received “several” criminal complaints relating to Signa in recent weeks. They declined to comment on specific allegations. The body had not yet decided whether to formally open a criminal inquiry and was still assessing the merits of the claims.
Erhard Grossnigg, a Signa Development board member who has been put in charge of restructuring the company, declined to comment on creditors’ suspicions of criminal activity.
The company is currently in “self-administration” – a situation in Austrian law where existing management may attempt to restructure a company, with only arms-length supervision by a third-party administrator.
The FT last month reported on two of the large transactions creditors detailed in their complaint last week, including the transfer of more than €300 million from Signa Development to two entities connected to the family trusts of Benko.
Following the FT’s report, Signa Development’s external administrator, Andrea Fruhstorfer, said transactions had been “used for Signa real estate projects” and had not occurred immediately prior to the company’s insolvency.
Contacted by the FT on Monday, Fruhstorfer said claims about the purpose of the payment flows had not yet been fully checked by her. “The process will take time,” she said.
The creditors’ complaint alleges that the transactions were not lawful, citing regulations imposed as a condition of Signa Development’s borrowing that limited the entities to which it could transfer money. The two entities controlled by Benko’s family trusts were not part of this group, the complaint asserts.
“It is suspected that the asset transactions described were carried out in wilful violation of the mandatory capital maintenance regulations [of the company] and to the detriment of SDS [Signa Development] and its creditors,” the complaint states.
Creditors are struggling to come to terms with the complexity of the 46-year-old Benko’s empire. In total Signa is made up of more than 1,000 different corporate entities, many of which now find themselves pitted against each other in the race to recover assets on behalf of separate creditor and shareholder groups.
Benko did not hold any formal managerial role at Signa after a 2013 bribery conviction. But he maintained a tight grip on almost all aspects of the decision-making process through a complicated shareholding structure.
Benko “had the reins in his hands”, said Signa Development’s biggest external investor, Austrian construction tycoon Hans Peter Haselsteiner, in an interview last month.
Benko’s lawyer did not respond to a request for comment on his client’s role at Signa or the allegations of criminal activity.
Creditors have been taken by surprise by the scale of Signa’s borrowing. Last week Signa Holding revealed it had debts of more than €8.6 billion – €3.5 billion more than disclosed in November.
The Swiss bank Julius Baer has been a prominent casualty. Last week its chief executive Philipp Rickenbacher resigned after the lender wrote off the entirety of a SFr600 million ($690m) loan it had made to Signa. Senior executives at the bank have told the FT they are also exploring legal action. – Copyright The Financial Times Limited 2024
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