Dairy farmers unlikely to receive payment for milk worth millions after top transporter goes bust

It may be the biggest agricultural liquidation in South African history. More than R90-million owed to 28 dairy farmers will not be recovered as the affairs of one of the country’s biggest milk transport companies are being wound up.

On Sunday, 23 June, a report in News24 revealed that the business rescue practitioners appointed to save Desmanda Milk and its partner company, Dezmo Trans, from bankruptcy have found the companies to be so heavily indebted that there was no chance of redemption.

The only route is liquidation, which leaves affected farmers in the Eastern Cape, KwaZulu-Natal and the Free State with very little hope of recouping any losses.

Dezmo Trans has already been liquidated.

Flipman — trading as Desmanda Milk — is set to be finally liquidated on 2 July. The delay was caused by an application brought by one of the milk producers in Durban.

It’s bad news for a small industry, and deeply concerning for the Milk Producers’ Association because only secured creditors appear likely to recover some losses.

CEO of the association Fanie Ferreira told Daily Maverick they believed it to be the biggest agricultural liquidation in South African history. They are now calling for a forensic audit to determine what happened to the once highly profitable companies.

Before entering business rescue in April this year, Desmanda Milk and Dezmo Trans were held to be worth a combined R1.065-billion, according to documents seen by Ferreira and presented at the first creditors’ meeting.

The documents also revealed that the finances of the companies, owned by Amanda and Flip Jacobs, were “interdependent” and that intercompany loans were issued between them.

Milk transporters such as Desmanda act as middlemen in the dairy industry, collecting fresh, raw milk from farmers which they then sell on to processors.

Typically, farmers invoice and are paid monthly for their milk, but in February and March, Desmanda defaulted on its payment obligations.

Desmanda, based in Heidelberg in Gauteng, is one of the country’s two largest transporters, competing with Free State operator, Tip-Top.

Desmanda Milk was by far the Jacobs’ more profitable company, valued at more than R865-million at the end of April.

Dezmo Trans, then worth around R200-million, operated 147 side-tippers to transport coal between Durban and the Richards Bay coal terminal.

It is not yet known how many employees are affected.

Ferreira estimates the debt to farmers to be around R90-million and says all major banks are exposed.

The coal trucks have already been repossessed by the financiers, while some of the milk tankers have been put up for sale.

‘Terrible’ situation

The situation is “terrible”, Ferreira said.

Not all farmers have been unpaid for two months, but those in KwaZulu-Natal, the Eastern Cape and the Free State are now heavily exposed and the country can’t afford to lose more farmers.

One dairy farmer has lost more than R14-million, another R11-million, although they are more likely to be able to access support from their creditors, while the small farmers, who are owed between R500,000 and a million, could be in bigger trouble due to the scale of their business.

It’s a small but vital industry: South Africa only has 850 commercial dairy farmers, who supply more than nine million litres of milk daily.

Hannes Müller, a director at Tshwane Trust, one of five provisional liquidators in both matters, is charged with the standard administration of both companies.

Newly appointed to the liquidation team, Müller says his office has been requested by some of the major creditors to help extend the liquidation order to gather information to convene a forensic audit, but pointed out that it was still early days.

If a business goes bankrupt and owes money it can’t repay, Section 417 of the Companies Act allows for a confidential investigation, which looks into the company’s financial activities, dealings and assets.

Müller, who became involved only after the granting of the provisional orders, is still trying to establish the assets and liabilities involved. “We are also still trying to find our feet.”

Although not party to the creditors’ meeting at the end of April, Müller disputes claims that the two companies were worth more than R1-billion, saying a creditor’s meeting in a business rescue process is just “a wish”.

“My experience is that it’s not normally based on reality. It’s done with the hope of saving the company. But with the liabilities in the region of about R800-million, this company didn’t have a chance of surviving.”

Meanwhile, the producers’ association is putting plans in place to cushion farmers from their buyers, Ferreira says, because they take on a heavy risk with all buyers since they know nothing about them.

“We are not aware of their financial position. We’re looking at something like a risk fund to try to mitigate against something like this happening again.”

Daily Maverick approached the Jacobs’ attorney for comment but had not heard anything by the time of publication. This story will be updated with comment when available. DM