Sugar producer Tongaat Hulett has appointed a legal team and initiated a process for claims against long-standing auditor Deloitte, for its role in dubious bookkeeping that has brought it to the brink.
Tongaat chair Louis von Zeuner told shareholders on Tuesday the sugar producer had a “strong legal team” as its sought damages from Deloitte for years of signing off on problematic books.
Tongaat, however, refused to be drawn on just how much it is seeking, as it looks to put an accounting scandal behind it that has thrown a harsh spotlight on an auditing profession still reeling from the fallout from the Steinhoff scandal.
“We have reviewed Deloitte's role in the collapse in Tongaat,” he said. “Now that the firm has completed all required statutory work we can proceed with action against them as the auditors at the time of the collapse,” he said.
“The process is well under way,” he said.
Tongaat, whose SA borrowings exceed R6bn, has been struggling to generate cash and sell off assets to meet demands from lenders, and had its plans thrown off course after the July civil unrest tore into profits and its property sales prospects.
The plan to tap shareholders for cash, which was flagged in 2021, is being put to shareholders on Tuesday morning, and forms part of efforts to shore up Tongaat’s balance sheet after the discovery of dubious bookkeeping practices that inflated profits and asset values.
The timing of the process has, however, drawn criticism, including by those pointing to the potential inflow of funds that could support the business should the company settle with Deloitte early, in a similar manner to Steinhoff.
The chair of Tongaat’s audit committee, Linda de Beer, said during the meeting on Tuesday the group did not “sit on its hands,” but had been delayed by a need to finalise its 2021 audit, conducted by Deloitte.
The group has since appointed EY as its new auditors, and has said previously Deloitte needed to finish its work before it could pursue damages from its former auditor.
Shareholders had approved the reappointment of Deloitte for another year at the group's 2020 AGM, and Deloitte had removed all individuals previously involved in the audit process.
“It's fair to understand that nobody else at that point of time would have touched the audit and we needed to see it through,” said De Beer.
De Beer declined to answer questions posed by shareholders about how much the group would be looking for, saying that that could prejudice its legal position.
“It is something that is very, very high on our agenda,” she said.
Opportune Investments founder Chris Logan said he did not buy Tongaat’s explanation on the delay in pursuing damages against Deloitte.
Steinhoff had looked beyond the big four accounting firms, which had repeatedly let the profession down, and appointed Mazars as an auditor, even though this required oversight of a global business, which had been subject to a far more complex fraud, Logan said.
Tongaat is also seeking R450m in civil claims from former directors and executives, including CEO Peter Staude, but said recently it expected trials to only get under way in early 2023, citing legal objections on “highly technical grounds”.
A PwC investigation identified 10 executives, including Staude, who were allegedly involved in profit inflation. It concluded that there was a culture of deference within Tongaat that led to employees not questioning accounting practices.
The group has been forced to restate previous financial results, including for the six months to end-September 2018, which resulted in total assets decreasing by R12bn, or 34%.
In afternoon trade on Tuesday, Tongaat’s shares were trading 3.65% lower at R5.34, having fallen 45% since November 17, when it flagged its proposed equity raise. The group’s shares have fallen 90% over the past three years.
Update: January 19 2021
This article has been updated with industry comment.
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