Founder: Turnaround Talk
When faced with liquidation and possible business rescue, every attempt is made to keep the company operational in order to address its financial distress. However, in the current economic and operational environment, this is not easy. Just ask Comair.
Tongaat Hulett is turning out to be South Africa’s second biggest financial distress story of the year. The company was placed into business rescue citing a tough operating environment and an accounting scandal which saw the company amass significant debt.
Barely two weeks since the company was placed into voluntary business rescue and the company is asking lenders to extend the deadline for the presentation of the company’s business rescue plan until the end of January. The company also received some relief from independent sugar cane farmers. All of this is adding spice to the situation.
Please sir, can we have an extension?
The News24 article points out that Tongaat entered business rescue on 27 October after lenders declined to accept a board-approved restructuring plan. Under the Companies Act, a plan must be published within 25 business days, unless lenders or a court says otherwise.
The practitioners met with creditors on 8 November to provide an update on the business rescue process, saying in a brief statement this included the successful advancement of the initial amounts of urgent post-commencement financing, which had allowed for some payments, including critical suppliers and small growers. Efforts to obtain additional financing continue, the statement read.
Missed payments and a 1 500 job warning
The financial distress of Tongaat Hulett had meant the group recently missed a R401 million payment for sugarcane delivered in September, affecting 4 300 growers, but on Saturday representative body SA Canegrowers said some small-scale growers supplying the Tongaat Hulett mills at Felixton, Amatikulu and Maidstone had received payments.
While the group welcomed the payments given the vulnerability of small-scale growers, it also warned that about 300 commercial growers had not yet been paid, with almost 15 000 jobs still at risk.
“It therefore remains critical that the business rescue practitioners prioritise the payment to these growers, which will enable payments to other value chain participants including contractors, haulier companies and input suppliers,” chairperson Andrew Russell had said in a statement.
“There also remain questions about Tongaat Hulett’s ability to make timeous payments of more than R345 million at the end of November for the more than 570 000 tons of cane delivered in October. If this is not addressed now, the industry may find itself in this same crisis in a few weeks’ time.”
Photo By: News24
In another News24 article, Russell points out that there was still a risk that Tongaat wouldn’t emerge from business rescue, which would again plunge the industry into crisis.
“It therefore remains essential that critical stakeholders, including government and lenders, work with the industry to ensure the success of the business rescue process. This is why SA Canegrowers continues to implore Minister of Trade, Industry and Competition, Ebrahim Patel, and Minister of Agriculture, Land Reform, and Rural Development, Thoko Didiza, to meet with industry stakeholders to address this situation.”
“The demise of Tongaat Hulett would undo years of work under the Sugarcane Value Chain Masterplan, reversing efforts to shield the local market from cheap sugar imports and protect the one million livelihoods that depend on the sugar industry,” Russell said.
Intricate balancing act
Business rescue has always been a balancing act. On more than one occasion, turnaround professionals have questioned why certain companies enter into business rescue – which is a lengthy process – only for the company to be ultimately placed into liquidation.
“The best interests of all parties are best served when the correct decision is taken early on in the process,” a turnaround professional told Turnaround Talk. More than one turnaround professional has questioned whether a liquidation would not be the best option for Tongaat?
The plot thickens.
