UPDATE: Spar CEO's "undisclosed secrets"

The saga involving Spar and the Giannacopoulos family continues. The family now plans to seek redress for their grievances through legal action against the Spar board and to declare three of Spar’s executives delinquent directors in terms of the Companies Act.

Noseweek reported previously (in nose248) that the family, that owns 45 retail businesses under the Spar banner, had won three court cases with costs in the Pietermaritzburg High Court against Spar Group Ltd and the Spar Guild. Spar has since been granted leave to appeal the judgment in respect of one of them.

In the meantime Fluxmans, the family’s attorneys, have set out a long list of accusations against Spar and its CEO Graham O’Connor in an 11-page letter that was sent to Spar’s attorneys, Garlicke Bousfield Inc. on 15 September 2020. Spar was given 14 days to reply but there has been no response from them so far.

                                          Spar vs Spar

“The next step will be delinquency and derivative action which we plan to take to court by the end of the year,” says the family spokesperson, Harry Giannacopoulos. The planned actions are “derivative” in that the members of the family, rather than the companies they control, will seek legal redress.

The Fluxmans letter quotes from Spar’s published statements where it has committed itself to the highest standards of ethical conduct and to ethical business dealings and total honesty. “Directors and senior management have a common law duty to avoid any conflict of interest and to act in the best interests of the company at all times, in addition to the duty of disclosure as laid down by the Companies Act.” The letter refers further to Spar’s duty to disclose “indirect shareholding” in other companies and “family connections”, specifically mentioning that “no secret profits” shall be tolerated.

It is also claimed that several of Spar’s directives to its own attorneys are untrue, and that this is not the first time that the Spar Group has given them “fundamentally dishonest instructions”, which violate its commitment to ethics and total honesty. Several examples are given where the Spar Group and its CEO, Graham O’Connor, have made false claims under oath.

Spar’s relationship with its retailers in South Africa is structured according to the guild system and the Fluxmans letter alleges that O’Connor and the directors of Spar Group are treating members of the Guild as their personal fiefdom. Spar Group has allegedly also been abusing the Guild’s separate juristic personality, precluding its retail members from having a genuine say in the manner in which the Guild operates.

The Giannacopoulos family alleges that the rules and policies set out in the Spar Guild’s Memorandum of Incorporation (MOI) have been applied inconsistently and in an unfairly discriminatory manner and that O’Connor has on a number of occasions threatened to “take” the Giannacopoulos businesses “for free”.

According to the letter, O’Connor has a financial interest in Numlite (Pty) Ltd, the company that operates Spar’s IT, and the Guild is allegedly being abused to misdirect secret profits to this company at the expense of its retail members: “Numlite derives many millions of Rands of revenue in respect of the Spar IT Scheme [enabling] O’Connor to profit handsomely from the scheme paid for by the Spar retailer.”

Under the heading “Unlawful objects and abuse of the Spar Guild” it is alleged that O’Connor also has an interest in the retail Spar businesses of the Renckens Group, unethically favouring them with credit, rebate and other trade terms which are preferential compared to those applicable to all other retail members of the Guild.

The Renckens and the Giannacopoulos families are the two biggest groups of retailers trading under the Spar banner. The final straw was when the Guild gave consent to the establishment of a Renckens-owned Superspar at the new Junction14 shopping centre in the Richards Bay CBD. The shopping centre is within a radius of 800 metres from Harry Giannacopoulos’ two Spar and two Tops stores and only a hundred meters away from his Townsquare Superspar.

“My Superspar is three years old, how is this possible?” he asks. “Spar assisted me in obtaining a development loan of R25 million from Wesbank for my store and now they have given the go-ahead to a competitor who is already trying to poach some of my 250 staff members. It is in direct competition with my businesses and other Spar stores in Richards Bay.”
Giannacopoulos is adamant that the Spar Guild irregularly authorized the new store for the Renckens Group because of O’Connor’s involvement and that no application for Spar retail membership was submitted for the new shop. He says the Guild has “irregularly and surreptitiously” purported to condone the establishment of the new store. “They have trampled on the rights of all existing Spar owners in Richards Bay.”

Applications to operate a Spar or Tops are always subjected to a rigorous process which includes ascertaining whether existing retail members of the Guild who are within the proximity of the proposed new shop, have any objections and in particular whether the proposed new shop would negatively impact on the financial viability of the existing members concerned.

These provisions, policies and rules are intended to protect existing retail members’ goodwill and the viability of their businesses as they have invested substantial capital and resources to promote the Spar Group.

“O’Connor and Spar in KwaZulu-Natal have showed flagrant disregard of the rules, policies and procedures of the Guild with the intention of misappropriating the businesses and property of the Giannacopoulos family.”

He believes plans for the new Superspar in Richards Bay were in place before judgment was delivered in the Pietermaritzburg High Court and that the new owners aigned a binding offer to lease the space and now cannot exit. The developer of Junction14, Schoonies Vier (Pty) Ltd, is already advertising that a Superspar will soon be opening and contractors have been lined up to do the shop fittings.

“O’Connor made arrangements to directly or indirectly establish this new Superspar. He has not disclosed in published Spar Group statements his interest or family connections with regard to the Junction14 Superspar, nor has he transparently disclosed this to a duly constituted meeting of all Guild directors or any other committee.”

Fluxmans has demanded on behalf of its clients that the Spar Board revoke the consent for the new Superspar and that the store should not be permitted to trade under the Spar brand. They also want the Guild to take steps to recover the secret profits earned by O’Connor via Numlite in respect of Spar’s IT Scheme and that the recovered profits are credited to the retailers’ accounts. They are also insisting that a stop be put to the preferential credit, rebate and trade terms that the Renckens group receives.

So far their demands have fallen on deaf ears.

Noseweek sent questions to Spar CEO, Graham O’Connor, asking him why there had been no consultation with other Spar retailers in Richards Bay before a new Superspar was established. We also asked him whether the claim about his financial interest in the Renckens group was correct and if he wanted to comment on the Giannacopoulos planned legal action to have him declared a delinquent director? The message was read but no response was received.

Noseweek also asked Mike Otto and Max Oliva, respectively a director of the Spar Guild and the managing director of Spar KwaZulu-Natal distribution centre, for comments. Once again the message was read, but they did not respond.
– Susan Puren

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