Tongaat launches civil action against Peter Staude and other former executives
The sugar company has named 10 executives implicated in the PwC investigation
Tongaat Hulett has put executives including its long-serving former CEO Peter Staude, who was paid R176m in the decade to 2018, in the firing line over an accounting scandal that threatened the collapse of a once iconic SA company.
In one of SA's biggest scandals since Steinhoff disclosed accounting fraud in December 2017, the sugar producer, which traces its roots to the 1850s, asked the JSE to suspend trade in its shares in June after an investigation flagged accounting practices that meant its financial statements could not be relied upon.
By then, the collapse in the company's share price for 2019 had reached almost 80%. A PwC investigation identified 10 executives, including Staude, who were allegedly involved the “undesirable accounting” and the firm would consider civil claims and criminal charges against them, it said on Friday. Attempts to reach Staude were unsuccessful.
Tongaat said the PwC investigation identified practices that led to revenue being recognised in earlier reporting periods than it should have been and expenses being inappropriately recognized as assets. It also identified a “culture of deference” that contributed to “undesirable” accounting practices not being identified or acted upon.
The summary of the report also said the company recognized revenue from the sale of land too soon and overstated the value of assets and sugar sales in Zimbabwe.
“Key senior people at Tongaat who have left the organisation appear to have been involved in perpetrating these undesirable practices,” the company said.
Staude, who had been subject of a scathing report by an Investec analyst questioning his stewardship of the company, one of KwaZulu-Natal's biggest employers, stepped down in October 2018 after 16 years at the helm. That report came as the company released results that came in well short of its own guidance.
When it announced Staude's departure in August 2018, which had initially been set for April 2019, the company also said that then CFO Murray Munro would leave immediately on health grounds.
The extent of the trouble that the company was in started to come out after Gavin Hudson, a former SABMiller executive took over as CEO in February 2019 and embarked on a comprehensive strategic and financial review
“It soon became clear that, over and above the operational difficulties facing (Tongaat), there was insufficient internal accountability, governance and financial oversight,” Tongaat said.
Earlier in 2019, law firm Bowmans roped in PwC to conduct the forensic review to uncover whether the misleading financial information was deliberate. At the time, Tongaat said its 2018 financial statements might have been inflated by between R3.5bn and R4.5bn.
The company said it would be taking civil action to recover bonuses paid to former executives and would make applications for some people to be declared delinquent directors.
“From a criminal law perspective, the board is engaging with the South African Police Services (SAPS) and the National Prosecuting Authority (NPA),” the company said. Bloomberg reported in June that the company had said police were investigating an unnamed former executive for his role in an accounting scandal.
Chris Logan of Opportune Investments said the probe’s findings were worse than expected.
“Its not that surprising that Tongaat appears to be expecting litigation against it given the widespread wrongdoing and the fact everyone appears to have been sleeping at the wheel or deferring to the implicated CEO,” Logan said.
With Karl Gernetzky