Sugar producer Tongaat Hulett may take legal action against Deloitte if “engagements” about the role its former auditor played in the “mismanagement of the company” do not result in an amicable settlement.
In a statement, Tongaat said it is engaging with Deloitte, because it signed off financial results over a number of years that included misstatements, as identified by a PwC forensic investigation.
Tongaat has not released PwC’s full report into what the investigation uncovered. In November 2019, it published the report’s key findings, which included:
- Certain senior executives initiated or participated in undesirable accounting practices that resulted in, among others, 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 Tongaat’s financial statements.
- There was a culture of deference and lack of challenge that resulted in employees following instructions on accounting practices without questioning the basis for those accounting practices.
- There were a number of governance failures pursuant to which internal policies, guidelines and frameworks were not followed, creating an environment in which senior executives could initiate or participate in the financial reporting misstatements.
The “undesirable accounting practices” resulted in Tongaat’s financial position being inflated by almost R12 billion over seven years.
Tongaat’s statement reiterated that “a review of Deloitte’s role in the historic mismanagement of the company” could proceed only once Deloitte had completed its statutory commitments for the group’s 2021 financial year. “This work was only completed late in 2021, after which engagements commenced.”
It said that “a legal team has been briefed in the event that the matter cannot be settled amicably”.
Civil claims against former executives
Meanwhile, Tongaat disclosed last week that, in 2020, it instituted civil claims totalling some R450 million against past directors and executives allegedly implicated in the undesirable accounting practices.
It initiated civil proceedings in the Pietermaritzburg High Court in September 2020 against former chief executive Peter Staude, former chief financial officer Murray Munro and former finance executive Sean Slabbert, who was also a director of Tongaat Hulett Sugar South Africa.
Tongaat was also seeking an order declaring them as delinquent directors.
In separate proceedings, subsidiary Tongaat Hulett Developments instituted a civil case in the Pietermaritzburg High Court in February 2020 against former managing director Michael Deighton.
It is expected that full trials will be scheduled for early 2023.
“As previously disclosed, criminal cases against former executives and senior managers have been opened, both in South Africa and in Zimbabwe, and we continue to work with the relevant authorities. In South Africa, the matter is still with the National Prosecuting Authority, and we understand that a decision on the next steps is imminent,” according to the statement.
Company secretary Johann van Rooyen said: “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.
“Tongaat Hulett is 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.”