The Magwa and Majola tea estates, into which the government has ploughed R100m of taxpayers’ money over almost three years, faces provisional liquidation as the government has faltered at the final hurdle and withheld a final tranche of R48m.
The provisional liquidation of the project will destroy remarkable progress made towards sustainability during the three years the project has been under business rescue.
It will also mean the impoverished Lusikisiki area loses a major job generator.
According to court papers before the Grahamstown High Court, the government failed to come up with R48m of the estimated R148m needed to help the Magwa Tea company, which includes Majola, back onto the road of sustainability.
The result is that the tea estates, where tea production increased dramatically during the business rescue, have had to lay off workers and stop mid-harvest as there is no money for salaries or operational costs, says business rescue administrator Garth Merrick.
Merrick was appointed to steer the company towards sustainability after the collapsed tea estates were placed under business rescue by an order of the high court in 2016.
Business rescue is permitted if it is believed a company in trouble may be turned around.
It puts on hold any claims by creditors while the process is under way.
Since then, the business rescue process – which traditionally does not last longer than six months – has been extended several times due to the dire state of the two estates and the complexity of the turnaround plan.
The company is wholly owned by the state via its shareholder, the Eastern Cape Rural Development Agency (ECRDA).
Outside investors were not interested in investing in the historically troubled estates, meaning the government was obliged to foot the entire R148m bill for the turnaround plan it had approved.
Merrick said the ECRDA and rural development and agrarian reform (DRDAR) MEC Xolile Nqatha had wanted the business rescue order discharged when it expired in April 2 this year.
But the funding requirements in the business plan had not been met, nor had the ECRDA appointed a board of directors.
This would affect its sustainability.
The matter was postponed to give the state an opportunity to put in place these measures. But no money has been forthcoming.
“In the circumstances I am enjoined [by law] to move for an order for the winding up of the [Magwa Tea company].”
He said while the ECRDA was the shareholder in Magwa, it relied on DRDAR for funding.
Not only would the government have to provide the outstanding R48m, but it turns out that it would also have to fund the tea company’s shortfall of R138m over the next five years.
These were predicted to be R30m in 2019, R53m in 2020, R31m in 2021, R17m in 2022 and R7m in 2023.
Merrick said the application to provisionally wind up the business was urgent as there was a real possibility of its assets being stolen once people realised their jobs could dry up.
He said he hoped the provincial treasury and the DRDAR MEC Nqatha would realise how drastic the situation was and put in place the necessary funding to avoid it.
The DRDAR had not responded at the time of writing but indicated it would do so in due course.
The business administrator’s Makhanda attorney Mark Nettelton said the application was set down for Tuesday.