CSARS v Tradex (Pty) Ltd & Two Others - HC 12949/2013 WC - 9 September 2014
05 November 2014
Posted by: Author: Lesedi Seforo
Author: Lesedi Seforo (SAIT Technical)
In this case the Commissioner for the South African Revenue
Services (‘SARS’) sought confirmation of a provisional preservation order granted
in terms of section 163(4) of the Tax Administration Act 28 of 2011 (‘the
TAA’). The first respondent (‘Tradex’) and third respondent (‘BWA’) are
entities owned and controlled by the second respondent (‘Wiggett’). The
provisional order was granted ex parte on 14 August 2013 and a curator bonis was appointed to deal with
the assets in terms of the order.
Wigget owns and controls two entities, Tradex (Pty) Ltd
(‘Tradex’) and Business Wize Accounting and Management Services CC (‘BWA’). The
former is a supplier of technology solutions and a consulting firm while the
latter began operating in 2006 and subsequently acquired two properties with
the intention of providing office accommodation to Tradex at market related
charges. A mortgage bond was used to partially finance the purchase of one of
the properties. Additionally, BWA appointed Tradex as its agent in terms of
section 54 of the Value-Added Tax Act 89 of 1991 (‘the VAT Act’), with the
result that VAT on input and output supplies made by or to Tradex as agent for
BWA would be treated as supplies made by or to BWA.
Wigget had submitted no income tax returns to SARS since the
year 2000, BWA had outstanding income tax returns since its operations began
and Tradex still needed to submit certain income tax and VAT returns from 2010
till 2013. The reason for the non-compliance in the case of Tradex was because
the previous two financial managers had not adequately fulfilled their duties
and were consequently dismissed. From September 2012 to mid-2013 Wigget met
with senior SARS executives on a number of occasions to address the
respondents’ tax issues and presented a payment plan for the tax liability demanded
in respect of the periods for which the returns had been submitted. In the
meantime she engaged a firm of auditors in early 2013 to reconstruct the BWA
and Tradex accounting records, which were in complete disarray from the 2007 to
2013 periods. SARS was kept informed of all developments, but nevertheless
applied for and obtained an ex parte
preservation order from the high court in August 2013. This order prevented the
respondents from dissipating or dealing with their assets in a way that would cause
a decrease in the value of their assets. It also called for the appointment of
a curator bonis, in whom the assets
of the respondents would vest.
The auditors previously appointed by Wigget were then replaced
with a new firm of accountants and an experienced tax practitioner in
March/April 2014 to hasten the reconstruction of the accounting records and remedy
the tax non-compliance. By the end of April 2014, R4.7 million of the known tax
liability of Tradex, BWA and Wigget had been paid.
In mid-2014, BWA and Tradex completed their outstanding annual
financial statements (BWA’s showed losses) and submitted the relevant tax
returns. All of Wiggett’s personal tax returns from the 2000 tax period were
also submitted to SARS and assessed. Overall, Tradex’s estimated liability for
income tax and VAT was approximately R7 million and Wigget’s income tax liability
was roughly R460 000.
The respondents repeated an offer of security previously made
in negotiations with SARS by way of the continued operation of caveats in
- one of Wiggett’s property;
- the two immovable properties owned by BWA, and
- the cession in securitatem debiti by Tradex of book debts to the value of R10,5
Wiggett alleged that the security, worth more than R18
million, was substantially in excess of any tax that might be found owing and
therefore a preservation order was unnecessary.
The Commissioner’s response was that the R7 million tax debt
as claimed by the respondents had not yet been verified and that the
respondents had ignored Tradex’s potential liability for interest and penalties.
The correctness of Tradex and BWA’s recently submitted financial statements was
also questioned. In respect of Wiggett’s personal tax affairs, SARS said that
it still needed to verify her returns. Regarding the security offered by the
respondents, SARS cast doubt in particular on the value of the book debts,
referring to bad debts previously raised by Tradex.
In summary, SARS contended that for the years 2007 to 2013
the respondents faced potential tax liabilities of R10.4 million. SARS
therefore sought confirmation of the initial ex parte preservation order.
a. The meaning of
‘required’ in section 163(3) of the TAA
According to section 163(3) of the TAA, a preservation order
may be made if required to secure the collection of tax. The court thus began
with an analysis of what is meant by "required to secure the collection of
tax”. Rogers J concurred with the dictum of Savage AJ in Commissioner for the South African Revenue Service v CJ van der Merwe
 ZAWCHC, where it was held that that the test for what constitutes
‘required’ is not one of necessity. Adding to this, Rogers J held at par :
assets could be said to be ‘required to secure the collection of tax’ if
preservation would confer a substantial advantage in the collection of the tax.
I venture to suggest that, once one has concluded that a ‘substantial
advantage’ has been shown, one could simultaneously conclude that there was ‘an
element of need’ sufficient to meet the ‘required’ (i.e. ‘reasonably required’)
The learned judge did, however, disagree with Savage AJ’s
comments regarding dissipation not being the focus of the section 163, concluding
the opposite in this regard.
It was further submitted at par  that (emphasis mine):
"In every case where a
taxpayer is liable or likely to become liable for tax, there is a theoretical
possibility that the value of its assets may for some or other reason be
diminished by the time SARS is able to execute. I do not think the lawmaker
intended that a preservation order would routinely be available to SARS in every
case of an actual or anticipated tax liability. There must be something by way of
‘requirement’ which places the particular case outside the ordinary run of
Based on this assertion, the Commissioner was required to
show that there was a material risk that assets which would otherwise be
available in satisfaction of tax would, in the absence of a preservation order,
no longer be available. Unfortunately SARS was unable to discharge this onus,
leading Rogers J to surmise:
"One gains the
distinct impression that SARS launched the application not so much because a
preservation of the respondents’ assets was required but in order to bring
matters to a head by placing legal pressure on the respondents…While I can understand SARS’ frustration, that
is not the purpose of the preservation application.” [para 54-55]
Section 163, as stated by the court, is a procedure for
preserving assets, not an execution mechanism.
SARS’ submission in seeking the confirmation of the
preservation order seemed to have been solely based on the fact that the
respondents had been very late in submitting their tax returns for the
different periods. The court, however, held the view that:
"Delinquency in the
conduct of a taxpayer’s tax affairs may in appropriate circumstances be part of
the material from which one could infer that there is an appreciable risk that
assets available for collection of tax will be diminished. There is, however,
no automatic connection between the two. A person may be disorganised and late
in regard to its tax administration without there being any appreciable danger
that its assets will be diminished by the time tax comes to be collected” [par
In conclusion the preservation order was not found to be ‘required’
to secure the collection of tax within the meaning of s 163(3).
b. Appointment of a
Regarding the appointment of the curator, the court
considered whether such action would achieve an appreciable advantage for SARS,
in the sense that there would be a material risk of Tradex being in a worse
position to meet its tax liabilities if a curator was not appointed. The court
held that Tradex would not be managed better under the care of a curator bonis. The court [par 71] also
commented on SARS’ standard practice to appoint a curator in terms of the
provisional order, which the court noted was not only costly but a great
intrusion on the taxpayer’s rights. Such appointment the court stated should
only be done in provisional orders where, on the facts of the case, it is
The respondents had made certain open tenders in good faith
to SARS as a sign that they intended to settle whatever final tax liabilities
were found to be owing, irrespective of whatever the court’s findings may be.
These included the cession of Tradex’s book debts, Wigget’s personal suretyship
for the debts of BWA and Tradex and the caveats over BWA’s two properties.
The application was dismissed with costs.
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