Government, IDC oppose Tongaat Hulett liquidation
While Tongaat Hulett Pty Limited’s (THL) business rescue practitioners (BRPs) seek liquidation, which they regard as a solution to the financially-ailing South African sugar producer, parties opposed to the move have filed court papers to block it.
Among those opposing liquidation is the Industrial Development Corporation (IDC), which has warned that the move would lead to the winding-up, business interruption and possible cessation of operations.
In an affidavit deposed by IDC’s Bongani Winston Tutu Miya, seen by the Mail & Guardian, the development finance institution has cautioned about the rights of secured creditors, saying the value of all security held by them would also erode.
“The rights of employees will be determined in accordance with the statutory preferences accorded to them in terms of the Insolvency Act, 1936.
“It is unlikely that liquidation funding will be available and this will result in a forced sale of assets – at huge discount to market value.
“Most importantly, a liquidation will result in the loss of the capability inherent in the assets of THL – reducing agricultural and industrial capacity with no guarantee of a recovery,” said Miya.
Maintained Miya: “In a liquidation, inventory will fall to be realised under forced-sale circumstances. Debtor recovery will be severely impacted. Market confidence will erode.
“The benefits of ongoing trading will be lost. Mills will cease operations, and the likelihood of the mills being able to restart will worsen over time. A liquidation will have a significant impact on the supply ecosystem.”
He said about 100 000 hectares of agricultural land supplying the mills would be affected.
“The value of these properties is derived from their productive capacity, as dryland cane farms. In the absence of a functioning mill and a viable cane market, the value of these properties will erode.
“This will destabilise rural farming communities who are dependent on operating mills. The livelihoods of farmers will be threatened with many being unable to operate, pay salaries to their staff and discharge financing obligations obtained for farming operations,” added Miya.
The IDC supports a business rescue, saying it “will, with the support of ongoing PCF (post-commencement finance) by the IDC, provide operational continuity and preservation of jobs”.
Said Miya: “The business relationship with suppliers and key stakeholders will be preserved. Most importantly, it will be a lot easier to continue trading and preserve the going concern status of THL through a funded business rescue, as opposed to a liquidation process.
“A funded liquidation process will not be able to instil any level of confidence within the market and with all THL’s stakeholders. There is a lot at stake in relation to THL.
“The mills operated by THL support the livelihoods of thousands of cane growers, small and large. A liquidation will have a huge impact on food producers who rely on sugar in their production process.
“If a constant volume of sugar is not available, producers will seek alternatives resulting in the death of THL as a player producing sugar for the South African market.
“The impact of the collapse of THL will also have a financial impact on other millers and the levies payable by them in terms of the Sugar Industry.”
While sentiments expressed by the IDC to oppose the THL liquidation have been endorsed by the government, the Vision Sugar Group has remained non-aligned.
Court papers deposed by Vision director Rutenhuro Moyo indicate that the company’s stance on the liquidation application by the BRPs.
Said Moyo: “Vision has neither opposed nor supported the main application which seeks the discontinuation of THL business rescue and its provisional winding up.
“Vision acknowledges THL’s cash flow crisis and the breakdown in negotiations that necessitated the BRPs bringing the main application.
“Vision has, however, remained committed to addressing the true causes that necessitated the main application. Vision has been in constant negotiations with, among others, the IDC and the BRPs to seek means of salvaging the stated Vision plan.:”
The BRPs of THL have maintained that the liquidation application was filed after no binding financing arrangement was concluded between secured lenders Vision Sugar Group and the IDC, with the sale agreements having lapsed.
Legal expert explains what needs to happen to save Tongaat Hulett
Lawyer JDK Reitz has explained the intricate unfolding legal processes to be followed in the possible liquidation of Tongaat Hulett Limited (THL)
The financially-embattled sugar giant entered business rescue in October 2022 following severe accounting irregularities, financial misstatements and governance failures under former senior management.
About R12 billion in shareholder value was destroyed, with the company’s balance sheet, credibility and access to funding severely impaired.
Robert Gumede’s Vision Sugar Group, which has taken over THL as a secured lender, bought the company debt from all 13 banks.
The shrewd business move has elevated Vision to be firmly in control and the lender at THL. Vision is not a strategic equity or a black economic empowerment partner, as some people have mistakenly believed. It is essentially the bank-m the lender.
Therefore, no deal can succeed without the involvement of the Vision Group.
According to Reitz, the business rescue practitioners (BRPs) who were appointed in the business rescue proceedings of the company, applied for its liquidation in terms of section 141(2)(a) of the Companies Act on the grounds that there was no reasonable prospect of the company being rescued.
Reflecting on the state of affairs at THL, BRPs explained to the Mail & Guardian that the liquidation application was filed last week after no binding financing arrangements could be concluded between secured lenders Vision Sugar Group and the Industrial Development Corporation (IDC), with the sale agreements having lapsed.
This, they said, led to the adopted business rescue plan no longer being legally implementable – compelling the BRPs to approach the court in terms of section 141(2) of the Companies Act, to place the company under liquidation.
The Durban High Court adjourned the hearing to a date to be allocated by the judge president. It has not only given parties a respite, but an opportunity to engage on the future of THL and find a possible way forward.
In dealing with powers of the court in hearing the application for the liquidation of THL, options available to affected persons to participate in the liquidation proceedings and to liquidators in dealing with company assets in its winding up, Reitz said: “Affected persons as defined in the Act, are entitled to participate in any court proceedings arising during business rescue proceedings – including proceedings commenced under section 141(2) of the Act.”
Explained Reitz: “In hearing the application in terms of section 141(2), the court may make the order applied for, or make any other order that the court considers appropriate in the circumstances.
“In addition, and having regard to the provisions of section 131(7), a court may again make an order – placing the company under supervision and commencing new business rescue proceedings, including an order appointing an interim practitioner who satisfies the requirements for practitioners – as contemplated in section 138.
“Chapter 14 of the Companies Act of 1973 continues to apply in the winding up and liquidation of insolvent companies which, in turn, renders the law relating to insolvency applicable to the winding up.”
In a winding up of the company in terms of the insolvency laws, Reitz said: “Liquidators appointed must forthwith recover all the assets of the company, realise the assets – subject to directions from creditors and shareholders at general meeting or if satisfied that assets of the company ought forthwith to be sold, with the authorisation obtained from the Master of the High Court.
“The net proceeds of such realisation should be distributed in terms of the scheme of distribution contemplated in sections 98A to 104 of the Insolvency Act read with section 135 of the Act.”
Reitz said shareholders and creditors of the company – registered trade unions representing employees and employees – were among key stakeholders during the consultation process.
Said Reitz: “Secured creditors enjoy certain limited rights to realise the security they hold prior to the second meeting of creditors and as provided for in section 83 of the Insolvency Act;
“Liquidators have limited powers to carry on or discontinue any part of the business of the company in so far as may be necessary for the beneficial winding up – subject to being empowered by creditors to do so or with the leave of the court.”
According to Reitz, a liquidator may propose an arrangement or compromise of the financial obligations of the company to all creditors as contemplated in section 155 of the Act.
“In practice, this only happens if a proposal is made and funding is obtained from a third party – subject to conditions which inevitably includes a condition that the third party acquires a shareholding in the company.
“The objectives of schemes in terms of 155 of the Act are similar to those contemplated in chapter 6 of the Act dealing with business rescue.
“For a proposal contemplated in section 155 to be adopted, it requires the support of the majority in number – representing at least 75% of the different classes of creditors, secured, statutory preferent and concurrent present and voting at the meeting called for that purpose.”
Three outcomes are possible for the company.
“Firstly, the practitioners withdraw the current application and proceed to implement the adopted plan.
“Secondly, affected persons exercise their statutory right to participate in the liquidation proceedings and persuade the court to exercise its powers to commence new business rescue proceedings and appoint an interim business rescue practitioner.
“Finally, the company is placed under winding up order, assets are realised and the proceeds thereof distributed as contemplated in the insolvency laws.
“Alternatively, a scheme of arrangement or compromise is adopted in terms of section 155 of the Act,” said Reitz.