Tongaat Hulett wants to claw back R450m from former directors

JSE-listed sugar producer Tongaat Hulett is claiming R450m against former directors and executives implicated in the group’s accounting scandal, including former CEO Peter Staude.

In September 2020 the company initiated civil proceedings against Staude, former CFO Murray Munro and former finance executive Sean Slabbert, who was also a director of Tongaat Hulett Sugar SA. This was based on a damning PwC forensic investigation released a year earlier.

The group also initiated civil proceedings against Michael Deighton, former MD at group subsidiary Tongaat Hulett Developments, in the Pietermaritzburg high court in February 2020.

On Tuesday company secretary Johann van Rooyen said it was anticipated full trials against the directors would be scheduled for early 2023. He said criminal cases against former executives and senior managers had been opened in SA and in Zimbabwe, and the company continues to work with the relevant authorities.

In SA, he said, the matter was still with the National Prosecuting Authority (NPA) and a decision on the next steps was imminent.

“While the process has been significantly delayed through the filing of a number of interlocutory objections on highly technical arguments by the defendants, Tongaat Hulett is determined to pursue this matter and do everything within its power to secure a fair outcome for our shareholders.”

The company said it was also seeking an order declaring them delinquent directors. 

The scandal resulted in the JSE slapping Tongaat Hulett with a R7.5m fine for publishing false financial results to shareholders between 2011 and 2018, and being forced to restate its financial results for the year ended March 2018, leading to a R10bn decline in total assets.

Van Rooyen said the group was withholding Staude's and Deighton’s pensions until the finalisation of the litigation initiated against them.

“Munro and Slabbert had unfortunately already left the business and withdrawn their pensions by the time the action was instituted,” he said.

Van Rooyen said the implementation of sound corporate governance principles was at the core of the progress made by the business over the past two years.

“Our board, management structures, internal audit, risk and compliance processes have been considerably bolstered,” Van Rooyen said.

Tongaat Hulett CEO Gavin Hudson hired PwC to conduct a forensic investigation which found that some senior executives had inflated profits.

It found the executives had initiated or participated in undesirable accounting practices that resulted, among others, in revenue being recognised in earlier reporting periods than it should have been, and in expenses being inappropriately capitalised to assets. 

This resulted in profits in the respective years being overstated, and in the overstatement of certain assets in the group’s financial statements.

It found there was a culture of deference that resulted in employees following instructions on accounting practices without questioning the basis for those practices. According to the report, frameworks were not followed, creating an environment in which senior executives could initiate or participate in the financial reporting misstatements.

The report found that frameworks which outline internal processes to be followed for land sales were ignored. 

During the half-year ended September 2021, Tongaat Hulett said it was making progress  in restoring the group to a sustainable growth path. It said in addition to initiatives to improve operational performance and strengthen governance, debt was reduced  and cash flow improved, while it was successful in repatriating dividends from Zimbabwe.

During the half-year ended September, operating profit fell 23% to R1.3bn and revenue was up 5% to R8.5bn, up from R8.1bn in 2020.

Business Times