The Commissioner for The South African Revenue Service v Beginsel N.O.
25 July 2013
Posted by: Author: SAIT Technical
Author: SAIT Technical
The issue on hand is whether, or
not, SARS is a preferent creditor. According to SARS, all preferent creditors
are categorized as unsecured creditors under section 145(4)(a) of the Companies
Act, while concurrent creditors will be subordinated on liquidation. As a result,
the decision made by the creditors to implement a rescue plan, will be invalid
since 87% of the value of all creditors present at the meeting would have
excluded concurrent creditors. In such event, the vote of SARS would have
carried the day and the business rescue plan would have been rejected, contrary
to the wishes of the lion’s share of the company’s creditors.
In addition, SARS objected to the
content of the proposed business rescue plan and indicated that it did not
comply with certain requirements prescribed by section 150 of the Companies
The creditors of a company that
found itself in financial distress took legal action and the company was placed
under liquidation. Afterwards, the first and second respondents ("the
BRP’s”) were appointed to manage business rescue proceedings with the main
objective to restore the company’s solvency and to rescue the business as a
going concern. The company owed the applicant (SARS) huge amounts in tax debts
and all efforts to reach a compromise were unsuccessful.
Later on it was decided to cease
trading since a downturn in economic circumstances made it impossible to trade
the company out of its difficulties. According to the business rescue plan,
SARS were a concurrent creditor to whom no dividend will be paid on liquidation
since only the preferment and secured creditors are entitled to such. However
the plan stated that all creditors (including concurrent creditors) will
receive a dividend with the subsequent auction of business assets at market-related
prices if the business rescue plan was adopted.
SARS objected to the approval of
the business rescue plan and applied for a court order to place the company
under liquidation. SARS claimed that the decision to adopt a business rescue
plan was unlawful and that it had a voting right equal to its claim against the
company. In addition, SARS opposed the BRP’s decision to classify SARS as a
concurrent creditor since they were (according to SARS’s interpretation of the
section 150 (2) (b) (v) of the Companies Act) not obliged to classify SARS as
The judge rejected SARS’s
interpretation of section 145(4)(a) and stated that this section refers to
secured or unsecured creditors, which includes both concurrent or preferment
creditors. Therefore, both preferment and concurrent creditors’ voting interest
during the relevant meeting where the business plan was adopted, equaled their
claim against the company. It was ruled that SARS’s voting interest did not
exceed those of the other concurrent creditors and therefore the voting
procedure could not be impeached.
Once again, the judge did not agree with SARS’s argument. It was held
that the business rescue plan was circulated amongst the interested parties and
no objection was made at the creditor’s meeting. The judge could find no
merits to SARS’s suggestion that the business plan was invalid and
The judge concluded that there is
no need to terminate the business rescue proceedings and to liquidate the
company. This will not be in the best interest of creditors since it will
result into additional costs that will decrease the funds available for
distribution amongst the interested parties. Based on the above-mentioned
findings, SARS’s application was dismissed.
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