Tongaat Hulett’s business rescue practitioners have lost their court case about the nonpayment of sugar levies, but it is not yet clear if they will need to repay more than R1bn owing to the SA Sugar Association (SASA).
The order by Durban high court judge Rashid Vahed was given without full reasons, which will be issued on Monday.
Only then will sugar producer Tongaat know if it needs to repay the outstanding levies.
The sugar levy paid to SASA is part of a redistributive mechanism in a complex, highly regulated industry that ensures all farmers get the same price per tonne of sugar and larger mills subsidise smaller players.
Highly indebted Tongaat, which is still in business rescue, did not pay levies from October 28 to end-March, with more than R1bn unpaid.
Stanger-based mill Gledhow, which also went into business rescue, did not pay levies for a period, resulting in the amount owing to SASA exceeding R1.4bn.
More than 20,000 sugar farmers and millers such as RCL had to make up for the shortfall to SASA, due to the nonpayment.
RCL, owner of Selati sugar, which spent R234m extra on levies, told Business Day in April that Tongaat’s “nonpayment has dire consequences for the viability and sustainability of the entire local sugar industry”.
When an industry complaint against Tongaat was laid at a sugar industry body, business rescue practitioners Metis Strategic Advisors took the matter to court. They argued the Companies Act provides for the nonpayment of all creditors while the company is being stabilised.
The business rescue practitioners argued that being forced to pay the statutory levies subverted the purpose of business rescue and could threaten Tongaat’s future.
They warned the “inability to be rescued would be calamitous to the SA sugar industry and would have serious ramifications for the economy of KwaZulu-Natal and nationally”.
The practitioners argued that SASA should not be paid what they are owed and get preference over unpaid creditors such as banks, just because the levy is provided for in law.
Opponents including farmers and millers argued that in business rescue, levies must be paid in the same way other statutory payments such as income tax are paid.
Both Tongaat and Gledhow used their business rescue plans to criticise the more than 20-year-old levy system and call for a free market with less regulation.
The SA Canegrowers Association, representing more than 20,000 mostly small-scale farmers, welcomed the order issued on Wednesday.
It said it would study the longer judgment when it was issued on Monday.
The association also suggested they would try to ensure farmers are repaid.
“We look forward to future engagements with the business rescue practitioners to resolve this matter and secure the critical outstanding funding due to SASA, growers and the other millers in order to help ensure the industry’s long-term survival.”
Metis Strategic Advisors said: “We are waiting for the judgment to be handed down on Monday. We will evaluate the judgment to determine the next steps.”
It is not clear if this process will delay the planned December 8 vote on who will buy the company.
Businessman Robert Gumede’s multinational consortium is still in talks with the nine banks to buy their debt worth billions. This would allow the consortium to become the main creditor and hold the majority vote on who can buy the company.
However, as the Gumede talks are not complete, the business rescue process could be further delayed.
childk@businesslive.co.za
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