D-day for a critical 134-year-old South African company

The KwaZulu-Natal High Court hearing regarding the potential liquidation of Tongaat Hulett starts today, 16 April, with three parties set to oppose the sugar giant’s liquidation.

SA Canegrowers, one of the parties seeking to block the liquidation, described this hearing as a “watershed moment” for two-thirds of South Africa’s sugarcane growers.

“More than 18,000 growers, the bulk of whom are small-scale growers, have no other option than Tongaat Hulett mills to process their sugarcane,” the organisation said.

“Should the company enter an unfunded liquidation, their farms could become economically unviable, leading to thousands of rural job losses.”

This comes after Tongaat Hulett’s business rescue practitioners (BRPs) filed for the company’s provisional liquidations, as a deal to sell the sugar giant to the Vision consortium fell through.

Based on how the High Court hearing, which is set to take place on 16 and 17 April, goes, Tongaat Hulett could face liquidation.

This, SA Canegrowers warned, could put the already struggling domestic sugar industry on the brink of collapse, threatening thousands of jobs.

Agriculture Minister John Steenhuisen previously warned that Tongaat’s liquidation would put over 15,500 jobs at risk, and impact as many as 40,000 people whose livelihoods depend directly on the supply chain linked to the company’s mills.

SA Canegrowers said in a press statement released on 16 April that the liquidation of Tongaat Hulett would affect the entire sugar industry.

This is because Tongaat operates three sugar mills and is the country’s only standalone refiner of white sugar. 

White sugar, the organisation explained, is a cornerstone of the national sugar value chain, which supports more than one million livelihoods.

SA Canegrowers is one of the parties opposing the liquidation, alongside the Industrial Development Corporation (IDC), and the Minister of Trade, Industry, and Competition, Parks Tau.

SA Canegrowers chairman Higgins Mdluli said Tongaat’s liquidation poses a direct threat to tens of thousands of rural jobs and livelihoods. 

“For SA Canegrowers, safeguarding these communities must come first,” Mdluli said. 

What needs to happen to save Tongaat

Mdluli explained that, while Tongaat Hulett has been in business rescue since October 2022, it remained operational throughout. 

“Earlier this year, the company’s business rescue practitioners filed for provisional liquidation after the sale agreement with the Vision consortium lapsed,” he said.

“The cost of preserving these operations is far lower than the long-term economic and social damage of allowing a viable milling business to collapse.”

Tongaat’s BRPs previously explained that the failure to reach a deal to sell the company is what prompted their filing for provisional liquidation.

The BRPs concluded that there is no longer a reasonable prospect of implementing the adopted business rescue plan or rescuing Tongaat as a going concern.

“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,” they said.

In a press statement released on 16 April, Tongaat’s BRPs said they are acutely aware of the significant socio-economic consequences that may arise from liquidation, including the impact on employees, growers, suppliers and surrounding communities.

“These considerations have been at the forefront of the BRP’s approach throughout the business rescue process,” they said.

“However, the statutory test is whether there remains a reasonable prospect of rescue. Where no such prospect exists, the Companies Act requires that an application for liquidation be brought.”

The BRPs explained that two requirements would need to be satisfied before the BRPs could reasonably consider the withdrawal of the liquidation application –

• Liquidity: Binding, unconditional funding commitments to meet Tongaat’s liquidity requirements
• Implementability: A concrete and implementable transaction capable of achieving the objective of business rescue within a realistic timeframe

“In the absence of these two elements, the objective facts remain that the adopted Business Rescue Plan remains unimplementable, the relevant sale agreements have lapsed and the conditions precedent have not been fulfilled,” they said.

“The BRPs, therefore, have no alternative but to continue with the provisional liquidation application.”

A blow to the sugar industry

SA Canegrowers warned that, should Tongaat enter unfunded liquidation, it would force large commercial beverage and snack manufacturers to rely solely on imported white sugar.

This, the organisation said, would further expose the local economy to the instability of global sugar prices and severely threaten the viability of the entire domestic sugar industry.

SA Canegrowers has previously raised concerns regarding South Africa’s growing reliance on imported sugar from countries like Brazil and India.

In these countries, sugar production is heavily subsidised, allowing exporters to sell their goods abroad at very low prices. This makes locally produced sugar, which is not as heavily subsidised, uncompetitive.

Now, Tongaat Hulett’s potential liquidation threatens to deal a further blow to the local sugar industry.

“It is important to note that Tongaat Hulett has not yet entered formal liquidation. Stakeholders, including SA Canegrowers, are actively engaged in discussions to explore options that may prevent liquidation entirely,” Mdluli said.

“But, if liquidation becomes unavoidable, SA Canegrowers believe that a funded liquidation needs to be negotiated that will ensure the mills remain operational and are not left unoccupied, which opens the risk of vandalism.”

It should be noted that the Vision group has said it continues to actively pursue a negotiated resolution with the IDC to save Tongaat from liquidation.

“The Vision Sugar Group remains committed to any process that can bring Tongaat back from the brink,” it said in a press statement released on 14 April.

“We remain committed to saving jobs, protecting growers, and preserving the ecosystem of millers and agricultural communities that depend on Tongaat’s continued operation.”