Tongaat scandal: Thursday court appearance for former directors

The criminal charges laid against former directors of Tongaat Hulett finally appear to be moving forward, but the civil damages claim against them is dawdling along.

National Prosecuting Authority (NPA) KwaZulu-Natal spokesperson Natasha Ramkisson-Kara confirmed on Tuesday the criminal case against the former Tongaat directors returns to the High Court in Durban on Thursday (10 September) “for a pre-trial conference” – but failed to comment on why the proceedings are taking so long.

Tongaat instituted both civil and criminal proceedings against former directors of the company.

This followed the Financial Sector Conduct Authority (FSCA) in August 2020 imposing an administrative penalty of R118.34 million on Tongaat for contravening the Financial Markets Act – for making false, misleading or deceptive statements, promises or forecasts in its public statement to the markets over six years prior to the publication of its 2017 and 2018 annual financial statements.

To avoid penalising innocent Tongaat shareholders further, the FSCA decided to remit a portion of the administrative penalty and issued an order for Tongaat to pay a penalty of R20 million.

The directors, and the charges

Tongaat reported in February 2022 that six former company executives – Peter Staude, Murray Munro, Michael Deighton, Rory Wilkinson, Kamlasagrie Singh and Samantha Shukla, along with Deloitte audit partner on the Tongaat audit Gavin Kruger – had appeared in the Durban commercial crime court in relation to fraud charges and were all granted bail.

The charges stemmed from alleged fraudulent activity between March 2015 and September 2018 related to the alleged backdating of land sale agreements, which had a significant impact on the company’s financial results and led to a significant loss in shareholder value.

Tongaat company secretary Johan van Rooyen said in September 2023 the NPA was driving the criminal proceedings “quite hard” but would probably only be ready to proceed with that trial late in 2024.

Civil proceedings

Tongaat instituted civil proceedings in the High Court in Pietermaritzburg in September 2020 against former CEO Peter Staude, former chief financial officer Murray Munro and former finance executive Sean Slabbert.

The company’s business rescue practitioners (BRPs) said the claims in these proceedings are based on unjustified enrichment, breaches of fiduciary duties and misrepresentation, and include an application for the former directors to be declared delinquent.

They said a separate civil matter was instituted by Tongaat Hulett Developments against former MD Michael Deighton.

The BRPs said these proceedings remain ongoing, and that the quantum of the civil claims instituted against the former executives is currently under review.

Van Rooyen said in September 2023 that Tongaat in the civil matter issued summons against the former directors for R250 million but other reports indicated Tongaat is seeking to claw back R450 million from past directors and executives in the civil damages claim.

Van Rooyen said then that the company was at the end of closing proceedings in terms of pleadings and was hoping to enrol the matter for trial but was likely to only get a court date in 2025.

The BRPs this week were vague on when these proceedings will be concluded.

“The civil proceedings remain subject to the court process and Tongaat Hulett is not in a position to provide a definitive timeframe for their conclusion although attempts will be made to expedite the legal process,” they said.

Unfair enrichment?

Analyst and investor David Woollam said on Wednesday he does not have a lot of confidence the civil proceedings will lead to anything other than people following the process and it looks to him “these cases are going nowhere”.

“We all know they misstated the numbers by more than R10 billion but that isn’t enough. You have to say it was deliberate, it was reckless, it was negligent and all those things to put culpability on people.”

Woollam said he has read the civil claims, which amount to hundreds of millions, but questions whether it was unfair enrichment.

He said the company is saying the former directors got paid all this money in salaries and bonuses and they did not do their job, so it is claiming it back.

Woollam said he initially did an investigation into Tongaat from 2012 onwards when all the dodgy things happened and, for instance, former CEO Peter Staude was on average paid about R18 million to R20 million a year, or about R133 million over the seven years.

He said Staude’s incentives for the same period were R40 million but he bought Tongaat shares with most of that and did not pocket much of it.

“He put real hard cash into shares and the end result was that he ended up owning 400 000 shares, which at one point was worth R140 a share but then fell to R40 or R50 and then to nought.”

Woollam said the practical consideration is that he does not think Staude has much money. He added that he has not found one example anywhere, including after the 2008 global financial crisis when there was a lot of recklessness, where anybody ever got their money back.

“They never sued people for their salaries. They got their deferred bonuses cancelled but that is in the contract.

“I don’t know if there is a helluva argument here that he [Staude] personally enriched himself. The actual fruit of his ill-gotten gains is not sitting somewhere that can be claimed back. It’s sitting in the defunct share price.

“He not sitting with a lavish home, sports cars and art collections. He was just cocky and arrogant and thought he could trade his way out of it and come out of it looking like the hero.

“But he didn’t steal money and he certainly did not pocket a lot of money because he was stupid enough to actually put most of it back into the shares,” he said.

Woollam said breaches of fiduciary duties and misrepresentation involve the Companies Act and a punishment, not a civil claim or any financial compensation.

Punishment

Woollam said the punishment is that a person is declared delinquent and may no longer practice as a director, but the former Tongaat directors have already been punished for that by the FSCA and fined.

• In July 2024, a reconsideration application by former Tongaat CFO Murray Munro of the public censure and R6 million fine imposed on him by the JSE was dismissed by the Financial Services Tribunal.
• In February 2023, Tongaat’s BRPs announced that former auditors Deloitte had agreed to pay Tongaat R260 million without any admission of liability to settle claims against the firm.

This article was republished from Moneyweb. Read the original here.