By Sam Sole | AmaBhungane Managing Partner
KEY TAKEAWAYS
- Letters to business rescue practitioners (BRP’s) reveal Mozambican bidder’s furious allegations of being repeatedly sidelined.
- RGS Group Holdings claims the BRP’s repeatedly favoured rival bidder Vision Investments, despite RGS offering a better deal.
- Now there are doubts about Vision’s funding, while RGS claims its bid is fully funded.
- Both bids hang in the balance after a judge ruled that the BRP’s acted unlawfully in withholding sugar industry levies, but now RGS is asking the Durban high court to enforce the tabling of their bid.
This post Tongaat Hulett bidder in scathing attack on business rescue process appeared first on amaBhungane
Leaked letters have blown the lid off backroom battles that Tongaat Hulett rescue bidder RGS alleges show that the business rescue practitioners (BRP’s) have attempted to sideline them in favour of a rival bid led by IT mogul Robert Gumede.
The allegations amount to claims that the BRP’s acted contrary to the best interests of Tongaat Hulett Limited (THL) and its creditors by frustrating efforts by Mozambique based RGS to make an offer for the distressed company – an offer that appears better for all concerned than others the BRP’s have been pursuing.
And, in the latest drama surrounding the business rescue process, RGS has launched an urgent application to force the BRP’s to table their bid for a vote by creditors, arguing that Gumede’s consortium has failed to raise the necessary cash.
Tongaat Hulett was placed in business rescue in October 2022 after a new management team uncovered accounting failures and alleged fraud that led the company to a R12-billion reversal in valuation. Business rescue is an alternative to liquidation for companies in distress that might be saved by a combination of new investment and a compromise of debts owed to creditors.
In papers published on the Tongaat Hulett website yesterday (Tuesday 12 December 2023) RGS seeks a court order compelling the BRP’s to proceed with a creditors meeting this Thursday, 14 December 2023, to vote on an amended RGS rescue plan.
The amendments are necessary to take account of last week’s Durban high court ruling that the BRP’s acted unlawfully in withholding payment by Tongaat Hulett of sugar industry levies of almost R2-billion due to the SA Sugar Association (SASA).
The creditors’ vote on two published rescue plans – that of RGS and a competing plan of Gumede’s Vision Investments consortium (previously named Terris) – was due to have taken place on Friday 8 December but the timetable was torpedoed by the court judgment on the levies.
For the full background, read Who is behind the Tongaat Hulett bid battle?
Initially, the BRP’s were insistent that the creditors vote must take place on Thursday the 14th.
Now the BRP’s want it postponed to January. RGS alleges that this is intended purely to give Gumede more time to raise money, whereas their bid is funded and ready to go.
In their court papers RGS also take aim at the Lender Group of banks which holds some R7.7-billion of Tongaat Hulett debt and was poised to do a deal to sell their claims to Gumede’s Vision consortium, allowing him to take control of the business rescue vote by taking their place as the dominant creditor.
RGS disclosed a copy of the agreement between the banks and Gumede’s Vision Investments 155 which would have seen the Vision consortium take over the claims at a discounted price of R3.51-billion.
But it also shows that the agreement would terminate if Vision failed to make payment by noon South Africantime on 6 December 2023.
Vision failed to make payment and amaBhungane understands that this was because the board investment committee of the Public Investment Corporation (PIC) resisted pressure to advance R2-billion, citing concerns about the reputational risk of preempting a fair rescue bid process.
In their application RGS claims they were informed by the Lender Group at a meeting on 7 December that the Vision Agreement had lapsed and no new agreement had been concluded.
Lawyers for the Vision consortium did not respond to questions about the PIC’s involvement and their efforts to find other funders, which were rumoured to have included an approach to Zimbabwe’s notorious Rudland family. Prior to the business rescue this family had launched a failed bid to take over Tongaat Hulett.
After deadline the lawyers for Vision sent this response: “It is well known that some of the Vision parties are Zimbabwean, and others have business interests in Zimbabwe, so they do travel to Zimbabwe often. A simple fact check would have revealed that Vision parties in 2021 had a THL board approved deal to purchase THL’s Zimbabwe and Botswana operations. This SA and Zimbabwean consortium deal was scuttled by the Rudlands’ backed THL rights offer at the last minute. We respect the Rudlands’ family as any other but there is no direct or indirect relationship with them on this deal or any other. However, it is important to note that neither any of Vision’s members have ever had the pleasure of meeting the Rudlands, their management or advisors. This allegation is a fabrication.”
They also noted, “We do not have a deal with the PIC, nor have we been promised therefore our plan is not depended on the PIC. We can confirm that Vision has an agreement with the Lender Group that is conditional on Vision’s plan being adopted by creditors. We are looking forward to the creditors meeting on 14 December. We are ready to present and support our plan.”
The PIC also failed to answer questions about its decision, merely saying, “The PIC is not collaborating with any party in this regard. Any interpretation of the PIC’s position as a shareholder of Tongaat Hulett outside of the business rescue process would be speculative until a business rescue plan is presented and approved by the required majority of creditors, both in number and in value, at a duly constituted creditors meeting in terms of the requirements of the Companies Act. Currently, the meeting is scheduled for the 14th of December 2023.”
In their urgent application to compel the meeting to go ahead on the 14th, RGS argued that the BRP’s support of yet another adjournment until January was “bizarre” in circumstances where the RGS Plan was “fully funded and capable of adoption at the Meeting on 14 December 2023, and immediate implementation”.
RGS stated, “The BRP’s (and the Lender Group) should not be choosing sides between RGS and the Vision Parties… The Vision Parties have still not secured the necessary funding and it is inconceivable that the BRP’s should now be attempting to adjourn the Meeting to provide the Vision Parties with more time to secure the funds they need to acquire the Lender Claims.”
RGS said the BRP’s, “in promoting and favouring the Vision Plan,” were attempting to facilitate the Lender Group’s desire to escape their exposure to Tongaat Hulett.
“It is submitted that the BRP’s’ conduct has created a reasonable impression that they are conducting the THL Business Rescue solely for the benefit of the Vision Parties and / or the Lender Group,” RGS argues.
That claim is consistent with the history of previous interactions set out in the leaked letters between RGS and the BRP’s.
The letters suggest that:
- RGS delivered an expression of interest to the BRP’s in June but was ignored;
- RGS was forced to purchase another creditor’s claims in order to enforce its right to make alternative rescue proposals;
- Even at that stage RGS was forced to threaten legal action in order to get access to the Tongaat Hulett data room to conduct a due diligence exercise;
- In October, RGS made what it termed “a fully funded bid” that appears more beneficial than the Vision offer, yet it only saw the light of day after RGS threatened, in a blistering letter on 10 November 2023, to go to court to have the BRP’s removed.
The business rescue team appointed by Tongaat Hulett is led by Peter van den Steen, Trevor Murgatroyd and Gerhard Albertyn, all of Metis Strategic Advisors.
They did not respond to detailed questions but said through their spokesperson that business rescues were guided by regulated processes: “It is therefore not appropriate for us to provide detailed information on the current Strategic Equity Partner [bid] process outside of the formal communications channels.”
In an attached statement they said: “The BRP’s are tasked with providing for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all the relevant stakeholders… [The BRP’s] are confident that they presented fair and balanced business rescue plans under challenging circumstances.”
RGS’s key allegations are set out in detail in a letter dated 10 November 2023, addressed to the Joint Business Rescue Practitioners and signed by M Aquil Rajahussen, the chair of RGS Group holdings.
RGS summarised the position in these terms: “It is clear to us that the Joint BRP’s have failed to act in an independent manner and have actively favoured the Terris [Vision] Transaction… over a due and proper consideration of the RGS Business Rescue Plan.
“In particular, the Joint BRP’s have not afforded the body of creditors of Tongaat the opportunity to evaluate the RGS Business Rescue Plan against the Terris Business Rescue Plan. Instead, the Joint BRP’s have sought to facilitate the purchase of the of the Secured Lender Claims to the Terris Sugar Consortium by inter alia… delaying the date for the publication of a business rescue plan to afford the Terris Sugar Consortium the opportunity to negotiate the purchase of the Secured Lender Claims and seek approval for its financing. This in the face of a fully funded business rescue plan contained in the RGS Business Rescue Plan.”
RGS also raised doubts about whether the secured lender claims of the bank Lender Group were “in fact secured against the assets of any member of the Tongaat Group due to such security being potentially invalid and unenforceable”.
The letter concludes with a threat to seek the removal of the Joint BRP’s on grounds of failure to exercise proper care and a lack of independence.
RGS argues that this perception is supported by the fact that when Vision was not able to secure funding in terms of an agreement with the Lender Group of November 3, further delays were allowed to enable the conclusion of another agreement as of November 20.
It was this later agreement that allegedly lapsed on December 6.
The RGS plan was only published – alongside the Vision plan – on November 29.
The RGS urgent application is being opposed by Tongaat Hulett and the BRP’s.
These and the competing claims of Vision and other parties are due to be argued tomorrow in the Durban high court, including the BRP’s application for leave to appeal levy findings in favour of the Sugar Association.
