Friday’s crucial creditors vote on a business rescue plan for troubled sugar giant Tongaat Hulett is set to be delayed again by court action by the South African Sugar Association (Sasa) to secure the R1.5 billion in unpaid industry levies it is owed. Photo: Delwyn Verasamy
After a week of high drama in and out of the courts, the crucial vote by Tongaat Hulett creditors on a business rescue plan has again been postponed, this time until 14 December.
In the process, the bid by ANC funder Robert Gumede’s consortium to secure control of the troubled sugar giant appears to be on the rocks, ahead of the final vote, which has been postponed several times.
Court applications by the South African Sugar Association (Sasa) and RCL Foods were launched against Tongaat Hulett and business rescue practitioners Metis Strategic Advisors this week over the failure of Gumede’s Vision consortium and rival bidder RGS Sugar to accommodate the R1.5 billion in unpaid industry levies it is owed in their business rescue plans.
Sasa — which had recently secured a declaratory order against Tongaat Hulett for R1.5 billion in unpaid levies — and RCL gave notice of their intention on Tuesday as neither of the two rescue plans to be voted on sufficiently catered for the settlement of the debt.
RCL owns Selati Sugar, and like the rest of the KwaZulu-Natal sugar industry benefits from the levies.
They approached the Pietermaritzburg high court on Thursday for an order interdicting the Section 151 vote — which had been set down for Friday 8 December — and declaring the two rescue plans unlawful for ignoring the declaratory order.
Attempts by RGS to secure an agreement to stand the case down and allow them to adjust their rescue plan during the week failed, with the BRPs then proposing in court papers a short adjournment to allow the matter to be heard and for their rescue plan to be adjusted ahead of the vote.
On Thursday, the court adjourned the matter until 13 December, after which the creditors vote will take place on 14 December.
In a letter of demand sent to Metis earlier this week, RGS lawyers said they were confident that their rescue plan could be amended in time for Friday and that the vote should go ahead.
RGS was aware that Vision and the banks had asked for another extension to finalise their agreement, which had to be concluded by Wednesday evening.
“As matters stand, the Terris Vision (Vision’s old name) plan is not funded and if unconditional funding is not forthcoming by tomorrow [6 December] the agreement concluded between Terris and the senior lenders will lapse rendering the Terris plan incompetent,” they said.
“If Terris does not obtain unconditional funding by the contractual deadline of 6 December 2023 the Terris plan will not constitute a ‘business rescue plan’ as contemplated in the Act and will not therefore be capable of adoption at the Section 151 meeting.”
By contrast, and as the BRPs are fully aware, the RGS plan was “fully funded and ripe for implementation”.
Metis could not simply postpone the meeting because the banks wanted them to.
“The BRPs [business rescue practitioners] cannot therefore abdicate their statutory obligations and simply grant a postponement of the section 151 meeting because the senior lenders ask for it,” they said.
If Vision had again failed to secure funding, it would not be in the interests of the rescue process to further delay the vote simply to accommodate them.
They demanded a written undertaking from Metis that the vote would go ahead, failing which they reserved their rights to approach the court for intervention.
Metis on Wednesday sent a notice to creditors informing them of the two court applications, but gave no indication as to how this would affect the Friday vote.
On Monday, after the handing down of a declaratory order compelling Tongaat and Metis to pay the levies, Sasa briefed lawyers to go to court and stop the vote from taking place.
Although Sasa executive director Trix Trikam said the matter was “currently under consideration”, several sources in Sasa and SA Canegrowers, who were part of its earlier court action, said they were seeking an interdict.
In a statement on Tuesday, SA Canegrowers chairperson Andrew Russell said the association would monitor the situation to see if Metis elected to appeal and what they did to accommodate the ruling in the rescue plans.
Russell said the published plans “do not include provisions to pay the more than R1.5 billion that was due to Sasa”.
The levies paid by Tongaat, the country’s largest sugar producer, are essential in sustaining the local sugar industry by ensuring that growers, millers and refiners all profit equitably.
Metis had gone to court to challenge the validity of the agreement, which the court upheld.
Russell said that if the rescue plans were not adapted to accommodate the court ruling, SA Canegrowers would take action.
“It is our hope that the plans will be revised to accommodate the payment of the industry obligations upheld by the high court. Failure to do so will needlessly prolong what has already been a protracted and costly process for the entire industry and will continue to put thousands of livelihoods at risk,” Russell said.
On Tuesday, Metis briefed some of Tongaat’s creditors about the vote being potentially delayed by an interdict by Sasa over the accrued debt, which is made up of Sugar Industry Agreement levies it failed to pay up until March this year.
Vision has been in negotiations with the group of banks who hold Tongaat’s R8 billion debt to purchase it at a discount using Public Investment Corporation and Industrial Development Corporation (IDC) funds.
The deal has already been extended once to allow Vision to raise the R3 billion it is offering to buy the debt and it has until the close of business on Wednesday to do so.
If it fails to secure the funding, Vision will be able to present a rescue plan but not to vote on it and influence the outcome, according to a source familiar with the process.
“The agreement for Vision to purchase the lender group debt is still in place but they have to pay by the close of business tomorrow. So far, they have not paid,” the source said on Tuesday.
“If they do not pay, the Vision rescue plan would still be on the table but they would not have the voting rights to push it through.”
It was not clear at the point whether or not Vision secured the necessary finance and the consortium’s spokesperson, Rob Bessinger, did not respond to messages from Mail & Guardian.
Tongaat Hulett entered voluntary business rescue last November, with Metis securing funding from the IDC to keep the company operational while the process was concluded.
Metis announced that voting would take place on the Vision and Kagera rescue plans last week and published both. Creditors were asked to select one to vote on, with 75% required to approve the plan. If the selected plan failed to get 75%, the second would then be voted on.
Metis said it had done so because of the strong likelihood of legal action if it failed to allow creditors the option to view both.
“The business rescue of Tongaat Hulett Limited has been bedevilled by numerous challenges, not least of which has been the ongoing threat and or institution of legal proceedings aimed at inter alia interdicting the business rescue process,” Metis said in notes attached to the rescue plans.
These had been brought by “various groups and or entities with frequently divergent interests, which if not adequately anticipated and or fully dealt with will frustrate and possibly altogether halt the business rescue process, with the almost inevitable consequence of liquidation”.
Last week Metis said it had published the two rescue plans by RGS and the Vision parties “to provide creditors with the best possible outcome”.
“We are confident that we are presenting fair and balanced business rescue plans under challenging circumstances,” the firm said.
It described the amended plans as “substantially improved from those put forward by the bidders during the [strategic equity partner] process”, adding: “This will result in improved outcomes for a variety of affected persons, particularly creditors and potentially shareholders.”
Metis said both bids improved the solvency of Tongaat Hulett, improved payments to unsecured creditors and would eventually give existing shareholders a diluted entitlement, rather than none.
According to the rescue plans, Tongaat employs 2 563 workers and created more than 25 000 employment opportunities, with employees earning R850 million during the past financial year.
In its plan, Vision undertook to pay R75 million to unsecured creditors, with its commitments to Sasa included in this figure. It also offered 2.7% of new shares in the company to existing shareholders and promised to inject further working capital in funding from the IDC.
The IDC was not compelled to make this funding available.
In its plan, Vision said that there would be some retrenchments to cut costs but that it would attempt to avoid doing so.
RGS offered to buy the R7.7 billion bank debt for R3.6 billion, paid in three instalments, and to inject R500 million in working capital. It also undertook to guarantee all deferred payments to creditors and not to rentrench any workers for the next two years.
It undertook to settle the Sasa debt in full, and to pay creditors owed less than R75 000 100c on the rand. Those with larger claims would be paid 40c on the rand.
*This story has been updated with new details