Tongaat-Hulett's Suppliers Challenge 'Unsavoury' Business Rescue Actions – Legal Explainer

The business rescue proceedings involving agriculture and agri-processing business, Tongaat Hulett have been reported on extensively - particularly the various interventions of interested parties in the proceedings, including some of the affected persons.

In one of the latest developments, Business Day reports that one of Tongaat Hulett's suppliers has approached the Durban High Court, seeking to interdict Vision Consortium from purchasing the embattled company.

The sales process has been reported to have been approved by creditors and was incorporated in the adopted business rescue plan. 

In their Application, the supplier argues that the current business rescue plan is unlawful because it does not fulfil its understood purpose of business rescue and fails to indicate how the distressed company will be saved from liquidation. 

The supplier (Powertrans Sales and Services) argues that Tongaat will remain commercially and factually insolvent until at least the 2027 financial year in the event of the application of the plan - and that an alternative and competing bid would have rendered a substantially better return to the creditors of Tongaat and its lenders. 

In addition, it has been submitted that unsecured creditors would at most receive 5 cents to the Rand for the funds that they are owed and that the application of the plan could have a detrimental effect on the rural economy of KwaZulu- Natal given the number of farmers the sugar producer acquires sugar from - consequently impacting many farm workers.

Section 128 (1)(b)(iii) of the Companies Act 71 of 2008 defines the “business rescue”, which definition, amongst other requirements, provides for the development and implementation, if approved, of a plan to rescue the company by the restructuring of its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if it is not possible for the company to so continue its existence, results in a better return for the company's creditors or shareholders than would result from the immediate liquidation of the company. 

Section 7(k) states that the purpose of the Companies Act 71 of 2008 includes providing for the efficient rescue and recovery of financially distressed companies in a manner that balances the rights and interest of all relevant stakeholders. 

The Court will need to consider and balance the rights of the participants in the business rescue proceedings and will no doubt investigate whether a decision by the creditors to implement a business rescue plan now needs to be overturned or halted, depending on the applicant's version. 

The circumstances surrounding the reason as to why the alternative proposal - and which the application proposes will provide a better return to creditors - was seemingly not presented to creditors for consideration may play a crucial role in the outcome of the proceedings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Pieter Walters
Barnard Inc.
Units 2-3 Centurion Gate Office Park
1951 Akkerboom Street
Centurion
SOUTH AFRICA
Tel: [phone]
Fax: [phone]
E-mail: [e-mail]
URL: www.barnardinc.co.za/

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