Constitutional Court: Tongaat Hulett BRP Statutory Payment Suspension Denied

• South Africa's Constitutional Court dismissed Tongaat Hulett BRPs' appeal, affirming they cannot unilaterally suspend statutory sugar industry levy payments during business rescue.
• Tongaat Hulett now faces a R517 million claim for outstanding levies, which the BRPs had temporarily suspended from October 2022 to April 2023.
• The BRPs had argued the payment suspension was critical to prevent liquidation and ensure the survival of Tongaat's sugar operations.
• The ruling clarifies that the Sugar Industry Agreement's levies are not subject to the same suspension provisions as other agreements under the Companies Act.
• The non-payment of levies previously led to a special levy on all sugar growers and millers to cover industry obligations.

This decision underscores that certain financial commitments, even those arising from industry-specific legislation like the Sugar Act, are not automatically subject to the same suspension provisions that might apply to other contractual obligations under the Companies Act.

The Constitutional Court of South Africa has delivered a significant ruling impacting business rescue practitioners (BRPs) in the country, specifically concerning the ability to suspend statutory payment obligations during rescue proceedings. The nation's highest court recently dismissed an application by the BRPs of Tongaat Hulett for leave to appeal, thereby affirming earlier decisions by the Supreme Court of Appeal (SCA) and the High Court. This judgment effectively prevents BRPs from unilaterally suspending payments mandated by pre-existing agreements, even when a company is under business rescue.

The ConCourt's decision, handed down on a Monday, found no reasonable prospects of success on the merits of the application for leave to appeal, leading to its dismissal with costs. This outcome means that Tongaat Hulett's BRPs now face a claim of R517 million for outstanding statutory sugar industry levies. The JSE-listed sugar and property group, whose shares remain suspended, had sought a declaratory order that would permit such temporary payment suspensions, arguing it was crucial for the company's survival.

In response to the ruling, Tongaat Hulett's joint BRPs issued a statement on Thursday, indicating they are consulting with their legal counsel and relevant stakeholders to assess the full implications and impact of the ConCourt judgment on the ongoing business rescue process. They cautioned that it would be premature to comment on specific payment implications, the exact quantum, or the timing of these payments at this stage.

The legal dispute originated from the BRPs' decision to temporarily halt certain payment obligations to the Sugar Association of South Africa (Sasa) under the Sugar Industry Agreement. These payments were suspended for the period spanning October 28, 2022, to April 1, 2023. The BRPs contended that this suspension was vital for ensuring the long-term survival of Tongaat's sugar operations, which they deemed critical for the sustainability of the sugar industry in KwaZulu-Natal. They argued that making these payments at the time would have severely depleted company funds, potentially forcing Tongaat into liquidation.

The core legal question in the SCA application revolved around whether the Sugar Industry Agreement, promulgated under the Sugar Act, qualified as an "agreement" as defined under a specific section of the Companies Act. A positive finding would have potentially allowed BRPs to suspend payment obligations arising from it during business rescue. The High Court in Durban had previously dismissed the BRPs' application in December 2023, which sought a declaratory order affirming their power to suspend such payments. The SCA subsequently upheld this dismissal in December 2025, leading to the BRPs' unsuccessful appeal to the Constitutional Court. Tongaat had initially ceased payments required under the Sugar Industry Agreement in September 2022, which triggered the dispute over the legality of withholding these payments during business rescue.

Sifiso Mhlaba, the Chief Executive Officer of Sasa, confirmed on Thursday that Tongaat Hulett owes the association R517 million in outstanding statutory sugar industry levies. While Sasa awaits legal advice on the precise timing for these outstanding levies to be settled, Mhlaba indicated that they should be paid in accordance with the approved Tongaat business rescue plan. He also noted that Sasa had recovered a portion of the R1.5 billion that was owed by Tongaat at the end of March 2023.

The non-payment of levies by Tongaat to Sasa had tangible repercussions for the broader sugar industry and its cane growers. A special levy had to be imposed to settle obligations to banks and other creditors, a burden that was ultimately borne by all growers and millers, who remain out of pocket. Despite the period of suspension, the BRPs have emphasized that Tongaat has been consistently paying industry levies since April 1, 2023, and, importantly, all amounts owed to cane growers have been settled since the commencement of the business rescue process.

This Constitutional Court ruling sets a crucial precedent regarding the scope of business rescue practitioner powers in South Africa, particularly concerning statutory payment suspension. It clarifies that BRPs cannot unilaterally suspend statutory payment obligations, such as industry levies, under pre-existing agreements during rescue proceedings. This decision underscores that certain financial commitments, even those arising from industry-specific legislation like the Sugar Act, are not automatically subject to the same suspension provisions that might apply to other contractual obligations under the Companies Act.

The judgment reinforces the principle that statutory payments often carry a distinct legal standing, limiting the discretion of BRPs to defer or avoid them, even in the interest of a company's immediate financial stability. For lawyers advising companies in business rescue or creditors of such entities, this ruling is a critical reminder that statutory debts must be meticulously accounted for and potentially prioritised. Failure to adhere to such obligations, as demonstrated by the R517 million claim against Tongaat Hulett, can lead to significant accumulated liabilities, impacting the overall success and viability of the business rescue plan.

This ruling clarifies that Business Rescue Practitioners in South Africa cannot unilaterally suspend statutory payment obligations, such as industry levies, under pre-existing agreements during rescue proceedings. Lawyers advising companies in business rescue or creditors of such companies must note this limitation on BRP powers, ensuring statutory debts are accounted for and potentially prioritised, as failure to pay can lead to significant accumulated liabilities.

Source: Original reporting via Moneyweb