Collapse of 134-year-old company puts thousands of South African jobs at risk

Tongaat Hulett’s potential liquidation puts South Africa’s entire sugar sector at risk, along with thousands of local jobs and millions of livelihoods.

This is a warning from SA Canegrowers, which urged the government to step in and prevent the 134-year-old sugar producer’s collapse.

This comes after it was announced that Tongaat Hulett’s business rescue practitioners (BRPs) have approached the High Court for the company’s provisional liquidation.

Tongaat Hulett first entered business rescue proceedings after it experienced a catastrophic downfall in 2019 due to an accounting fraud scandal.

Around R12 billion in shareholder value was destroyed due to accounting irregularities, financial misstatements and governance failures under Tongaat’s former senior management.

In 2022, the company entered voluntary business rescue, with an official rescue plan adopted in January 2024, which involved the Vision Group consortium

The rescue plan was premised on a debt-to-equity exchange followed by refinancing secured through the Industrial Development Corporation (IDC). However, shareholders did not support this plan.

Therefore, the BRPs contemplated an alternative plan that saw Vision acquiring Tongaat’s operating assets in South Africa, as well as its investments in Zimbabwe, Mozambique, and Botswana.

Under this ‘Plan B’, Vision would also assume responsibility for stabilising the business, and it was contingent upon three critical conditions –

• Refinancing of the IDC post-commencement funding facility of R2.3 billion into a structure assumed by Vision
• Funding of an escrow account in the amount of R517 million in respect of the South African Sugar Association (SASA), pending the outcome of legal proceedings
• Provision of R75 million for distribution to concurrent creditors

However, despite repeated engagements, Vision and the IDC were unable to conclude binding funding arrangements. 

According to Tongaat’s BRPs, during this period Vision introduced new demands and conditions that were never contemplated in, nor capable of being accommodated.

“These included funding requirements beyond the financing of the IDC PCF facility and the SASA escrow amount,” they said.

“These demands materially complicated and delayed discussions between Vision and the IDC as well as the implementation of the plan at a time when Tongaat’s liquidity position was under severe pressure.”

Back to square one

Discussions continued to devolve and, ultimately, Tongaat’s BRPs concluded that there is no longer a reasonable prospect of implementing the adopted business rescue plan or rescuing Tongaat as a going concern.

“This arises in material part from Vision and IDC not reaching agreement on binding funding arrangements and Vision’s continued pursuit of relief and write-offs, which prevented final IDC approval,” the BRPs claimed.

“In these circumstances, and in compliance with their obligations under Section 141(2) of the Companies Act, the BRPs have no alternative but to apply to discontinue the business rescue proceedings and place Tongaat into provisional liquidation.”

The BRPs explained that, if the court grants a provisional liquidation order, the Master of the High Court will appoint a provisional liquidator.

This liquidator will assume responsibility for overseeing the winding-up process, engaging with creditors, securing the company’s assets, and guiding the submission and adjudication of creditor claims. 

“The BRPs, along with the Tongaat senior leadership team, recognise that this development brings significant uncertainty and distress for employees, creditors, suppliers and surrounding communities and remain committed to providing clear, timely updates as the process unfolds,” they said.

The Vision Group has responded to this development, saying the BRPs’ filing for liquidation is a disappointing outcome.

The group said this will introduce more uncertainty into an already fragile regional sugar ecosystem that is “reeling from delayed industry reforms, especially tariffs”.

The consortium claimed that the filing follows the failure of the business rescue process to effectively stabilise Tongaat’s operations and maximise a turnaround.

This, the group said, left liquidation as “the necessary legal mechanism to allow secured creditors like Vision to take direct control of the assets and initiate a comprehensive recovery plan of the South African sugar business”.

“Vision as a secured creditor will work with key stakeholders in trying to find a lasting solution that saves the 220,000 jobs in KZN alone,” it said.

“Vision is eager to commence its five-year turnaround plan, which focuses on operational stability and returning the sugar mills to profitability on a sustainable basis.”

The industry responds

Following the announcement of the liquidation application, SA Canegrowers warned that this represents a profound risk to the entire South African sugar sector and the million livelihoods that it supports. 

This is because Tongaat, which operates three sugar mills and is the country’s only white sugar refiner, is critical to South Africa’s sugar value chain.

“A liquidation will directly threaten the earning potential of thousands of small-scale and large-scale growers across KwaZulu-Natal and Mpumalanga,” the organisation warned. 

“Tongaat’s sugar mills, refining facility and cane-growing operations are the economic anchor of entire rural regions.”

SA Canegrowers called on the government and Tongaat to do everything possible to ensure that the sugar producer’s future is secured.

It warned that, should these efforts fail, the growers supplying Tongaat’s three mills, as well as the entire industry, will face immediate non-payment for cane, levies and other legislated funding requirements. 

“Operations at the mills will immediately cease, and many growers in the Tongaat-serviced areas will immediately lose access to the only mechanism to process their sugarcane,” it said. 

“Because sugarcane must be milled soon after harvesting to ensure a viable yield and due to the distance to other mills, it will leave vast amounts of this season’s sugarcane unmilled.”

The organisation added that liquidation may also mean that Tongaat will be prevented from selling its existing stock of refined sugar to manufacturers and retailers.

This would immediately stop critical cash flow to the company’s operations, “thereby all but ensuring the underlying asset value is diminished”.

SA Canegrowers CEO Dr Thomas Funke explained that the underlying value of Tongaat rests in functional, operating assets.

Therefore, if the company’s operational continuity cannot be secured, the entire South African sugar value chain will be “severely destabilised”.

“Ensuring continuity of milling operations at Tongaat and protecting grower income must be an urgent priority for the government and the BRPs of Tongaat, irrespective of the eventual ownership outcome,” said SA Canegrowers chairman Higgins Mdluli. 

“Tongaat’s liquidation will affect all of South Africa’s 27,000 small-scale and 1,100 large-scale growers.”

“The critical importance of Tongaat Hulett’s operations to South Africa’s economy and the stability of rural communities is hard to overstate.”