Tongaat Hulett and Gledhow liable for payments

Embattled Tongaat Hulett will be liable for financial sugar industry obligations despite their efforts to challenge this in court. At the end of December 2023, the High Court of South Africa, Durban Local Division, dismissed with costs the application by Tongaat Hulett and business rescue practitioners to challenge the financial obligations on the miller in terms of the Sugar Act and the Sugar Industry Agreement.

This follows the failure of Tongaat Hulett and Gledhow Sugar mills to pay more than R1,5 billion due to the South African Sugar Association (SASA) at the end of March, citing ongoing business rescue proceedings.

The business rescue practitioners at Tongaat Hulett challenged the legal basis for the amounts owed, arguing that the business rescue process took precedence over industry arrangements. Had Tongaat Hulett succeeded in this argument, it would have released the sugar mills from the legal obligation to honour their financial commitments.

According to SA Canegrowers, because of these defaults, the final recoverable value price for growers in the 2022/23 season dropped by about R400/t, with significant financial implications for growers and compromising the sustainability of their operations.

On 4 December, Judge Rashid Vahed delivered his judgment on the application to suspend the miller’s payment obligations arising out of the Sugar Industry Agreement.

According to SA Canegrowers chairperson Andrew Russell, the judgment vindicates SASA’s position that the Sugar Industry Agreement creates statutory not contractual obligations that are not overridden by the business rescue process under the Companies Act.

“The judgment further rejects the argument that payment obligations under the Sugar Industry Agreement can be separated from the rest of the Agreement as obligations falling with the scope section 136(2)(a) of the Companies Act. Rather, the judgment holds that the obligations under the Sugar Industry Agreement are ‘simply the cost of doing business’ and therefore not subject to the moratorium on the rights of claimants applicable to business rescue proceedings under the Companies Act,” Russell said.

He added that the judgment takes into account the purpose of the Sugar Industry Agreement, that being to ensure that all parties, growers, millers and refiners, benefit from an equitable division of the proceeds of the local market and are insulated against the risk of the export market. “The substantive basis for the dismissal of the application is a welcome outcome for the ongoing sustainability of the sugar industry. This judgment brings the industry one step closer to a resolution of this critical industry matter.”

SA Canegrowers would note whether the business rescue practitioners appealed the judgment, and how they addressed this matter in light of the publication of the proposed business rescue plans, which do not include provisions to pay the more than

R1,5 billion due to SASA. –

R1,5 BILLION OWED TO THE SOUTH AFRICAN SUGAR ASSOCIATION