Tongaat claims R450-million from former executives

Sugar and property giant Tongaat Hulett has gone to court to recover R450-million from four former top executives, who resigned in 2019 over massive balance sheet fraud of around R11-billion, which crippled the company.

The Tongaat group also wants former chief executive officer Peter Staude and three other former high-flyers to repay the company’s Zimbabwean subsidiaries more than $9-million that they lost due to overvalued sugar cane sales.

More than 8 000 Tongaat Hulett workers across its subsidiaries in three countries lost their jobs as a result of the scandal, sparked by the discovery that company bosses had misrepresented earnings for property and other deals. 

As a result, its financial statements for 2018 and 2019 had to be restated, causing the group serious financial and reputational damage and forcing it into layoffs and farm sales to reduce its debt.

Staude, chief financial officer Murray Munro and sugar division head Sean Slabbert all resigned or went on early retirement over the scandal, as did Tongaat Hulett Developments managing director Michael Deighton.

The extent of the fraud was discovered by a forensic audit appointed by the new chief executive, Gavin Hudson, and board, in 2019.

In 2020, Tongaat Hulett Limited, Tongaat Hulett Sugar South Africa Limited and Tongaat Hulett Development — along with Zimbabwean subsidiaries Hippo Valley Estates Limited and Triangle Limited — lodged their damages claim against the three. 

An earlier, separate claim was lodged against Deighton, who headed the property division. 

The company, the largest of the KwaZulu-Natal sugar barons, diversified from sugar into residential and commercial property, rezoning and selling extensive tracts of land on the province’s north coast from around 2000 onwards.

The transactions over which the group is being sued includes land in the Cornubia and Zimbali areas, which were used to inflate the development division’s profits and earn the executives millions in performance bonuses.

The scam also resulted in employees of the division being paid bonuses on sales which were not made, costing Tongaat Hulett millions of rands.

The company has also laid criminal charges of theft and fraud against the four and is awaiting a decision from the National Prosecuting Authority (NPA) as to whether or not they will have their day in court.

In papers before the Pietermaritzburg high court, Tongaat has demanded that Staude, who was chief executive between 2005 and October 2018 and who served as a director of Tongaat and its entities, as well as Munro and Slabbert repay the company all the salaries, bonuses and benefits it paid them between 2015 and 2019.

It argues that by failing in their fiduciary duties and by effectively defrauding the company, they were not entitled to their earnings.

All three had committed to “act with utmost good faith” toward the company and “promote, safeguard and protect” its interests when they were employed by Tongaat, but had failed to do so, it says.

Instead, they “breached their duties … and caused loss and damage” to Tongaat Hulett and its subsidiaries by manipulating sale agreements and including revenue that had not been earned in a series of annual financial statements.

They also manipulated the price of land under sugar cane — along with sugar sales that did not exist — in order to falsify revenue at both Triangle and Hippo Valley and misstated maintenance costs as capital investment.

According to the court papers, the three earned bonuses based on the inflated figures, which Tongaat wants back, along with other perks they received.

In the case of Staude, Tongaat wants him to repay the R40-million he earned in salary between 2015 and 2019, along with R7.7-million he received in pension and the R5.7-million it paid for his medical aid and fund.

Tongaat also wants Staude to repay the R48-million he received in short and long term bonuses during his tenure as chief executive.

In the case of Munro, Tongaat has demanded a total repayment of R24-million in salary, R4.6-million in leave pay, pension and medical payments and R16-million he was paid in short and long term bonuses.

Tongaat has demanded a total of R25.6-million from Slabbert. It has also asked the court to declare all three delinquent directors.

Tongaat wants Staude, Munro and Slabbert to collectively repay the R44.68-million it cost to have the group’s financial statements restated, along with the R7.5-million it was fined by the JSE and R20-million it was fined by the Financial Sector Conduct Authority.

The company has also demanded that the trio repay $3.89-million to Hippo Valley and $4.8-million to Triangle over their losses accrued to due to inflated sugar sales.

In the case of Deighton, Tongaat said in papers that he had inflated the profit and asset values by recording sales agreements as actual sales in order to make the division he headed look more profitable so that he could earn performance bonuses.

The company has claimed R76-million from him.

All four men have filed notice of their intention to defend the action to the court.

On Tuesday, Tongaat Hulett company secretary Johann van Rooyen said the matter was likely to be heard by the court during the course of 2023.

Van Rooyen said the process had been delayed by a series of interlocutory applications by the former executives but that the company was “determined to pursue this matter” to secure a fair outcome for its shareholders.

“Tongaat Hulett is withholding Staude and Deighton’s pensions until the finalisation of the litigation initiated against them. Munro and Slabbert had unfortunately already left the business and withdrawn their pensions by the time the action was instituted,” he said.

The company was also waiting to hear from the NPA as to whether or not it had decided to prosecute.

Van Rooyen said the company had made good progress in the past two years in implementing sound corporate governance principles at board, management, internal audit and risk and compliance level.

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