Van der Merwe, LDR N.O & 5 others v UTI South Africa (Pty) Ltd & Others - HC 11033 DBN
02 March 2015
Posted by: Author: Pieter Faber
Author: Pieter Faber (SAIT)
Van der Merwe, LDR N.O & 5 others v UTI South Africa (Pty) Ltd & Others - HC 11033 DBN - 17 December 2014
This is an application to the Durban Local Division of the Kwazulu-Natal High court by the applicants (1st-5th Applicant) who are the joint liquidators of the taxpayer (6th applicant) Pela Plant (Pty) Ltd (In Liquidation). The applicants seek to compel SARS to immediately instruct the release of equipment held in a customs storage warehouse by the 1st respondent UTI SA (Pty) Ltd and kept in the 2nd respondents, Trans-Med Shipping CC, storage warehouse. They seek further to compel those persons to transfer possession of the goods, notwithstanding the outstanding customs duty, VAT and storage costs.
Prior to its liquidation, the taxpayer had sent 23 items of heavy machinery to the Democratic Republic of the Congo for its trading operations in that country. Some of the equipment is financed by ABSA and FNB who also reserved ownership of the goods. On completion of the contract the goods were returned to SA by the shipping agent UTI and kept in the storage warehouse of Trans-Med. The taxpayer was unable to pay the customs, VAT and storage costs to have the goods released which then remained in the custody of UTI and Trans-Med. Thereafter the taxpayer went into liquidation. After the appointment of the liquidators, they in terms of section 84 of the Insolvency Act 24 of 1936, became entitled to claim possession of all the taxpayers’ assets irrespective of where it was situated or whether it was subject to finance.
On demand of the goods by the liquidators, SARS refused to release the goods until payment of approximately R12m in customs duty and VAT. UTI and Trans-Med also refused to hand over the goods on the basis that the customs duty and VAT had to be settled as well as their storage costs, which to date was approximately R2m. They also contended that they were entitled to retain possession of the goods until the second meeting of the creditors and would until such time have the right to sell the goods in settlement of their costs.
It was common cause that the goods had been imported by the taxpayer and that a liability for customs duty and VAT arose, though some doubt did arise about the VAT liability which the court did not have to decide on. The court therefore had to determine whether SARS, UTI and Trans-Med were either entitled or obliged by legislation (i.e. the Customs & Excise Act 91 of 1964 & VAT Act 89 of 1991) to retain possession of the goods until payment of the customs duty and VAT or whether the goods should be released and the claim added to the liquidation and distribution account per the provisions of the Insolvency Act. The second question to be addressed is whether UTI and Trans-Med do indeed have the right to retain possession of the goods until the second meeting of the creditors is convened.
The court approached the interpretative exercise by laying down the fundamental principles of insolvency law which does not lead to an unbusinesslike or absurd result as per the SCA direction in Natal Joint Municipal Pension Fund v Endumeni Municipality2012 (4) SA 593 (SCA) at . Firstly it requires the creation of quorum of creditors where claims and rights of the creditors are established as at date of insolvency. Secondly is the proper realisation by the liquidator of all the assets of the insolvent so that the proceeds can be distributed to creditors according the preference dictated by the insolvency law. The courts stated that the Insolvency Act was intended to comprehensively deal with what happens on insolvency and though it does not expressly exclude an exceptional preference to be provided by other legislation, such legislation would have to create such rights in an express manner. The court then investigated whether the Customs and VAT legislation in fact contains such provisions and reiterated the principle that any ambiguity would be interpreted contra fiscum. The court found that the Customs Act does not specifically deal with the matter on insolvency and though the VAT Act does deem an insolvent estate to be a "person”, there is no express exclusion from the law of insolvency. The court found that section 99(1)(cA) & (cD) of the Insolvency Act specifically afford such tax claims a preference which suggests the legislature did consider claims for customs and VAT. Furthermore, the court held that the fact that these were specifically considered but were not specifically excluded, such as the claims of the Land Bank, supports a conclusion that the legislature did not intend to exclude customs and VAT claims.
Legislative "embargo” to release goods and statutory lien
Dealing with SARS’ argument that the Customs Act provides an embargo on the release of the goods until payment, the court stated that such an interpretation would run counter to the whole scheme of the insolvency law. This the court stated, would lead to the anomaly that SARS’ claim would be settled in full without them having to prove the claim and secondly, SARS would be entitled to realise assets at its discretion to the detriment of other creditors. The latter denying all other creditors the protection afforded to them by section 83 and 89 of the Insolvency Act. The court concluded that SARS has to claim like any other creditor and cites the following from Matazima v Minister of Welfare and Pensions 1990 (4) SA 1 (TKAD) at 3 as supporting authority:
"…the Commissioner is not given the right to elect or select the source from which he can obtain payment of the tax due before sequestration. He is compelled to claim like any other creditor upon the insolvency of the debtor.”
The court held that though embargo provisions exist, they have to be specific and express and the Customs Act provisions cited by SARS do not have any such express provisions creating such embargo. The court agreed with the submission by the counsel for the applicants that the Customs Act does not require payment before goods are entered for home consumption in the form of an embargo and the relevant provisions merely create a specific time when SARS becomes entitled to payment. The court found that even if an embargo could be interpreted from section 47 of the Customs Act, it would result in an absurd result as no one would purchase goods subject to payment of the duty, especially if the duty exceeded the value of the goods resulting in the goods never being realised or ending in a state warehouse for SARS to sell. This is an absurd result in that assets that were in terms of the insolvency law to be realised by the liquidators are now realised by SARS without any input of the liquidators or creditors.
SARS also submitted that section 114(1)(aC) of the Customs Act creates a statutory lien over the goods for security over the unpaid duty which prevents it from relinquishing possession. The court rejected this contention on the basis that the Insolvency Act does not forfeit the lien but retains it despite having to relinquish ownership and this lien was specifically introduced to ensure SARS had a secured claim and specific preference which it did not have prior to the amendment. The court held that the lien is therefore not an embargo to SARS to release the goods to the liquidators.
Retention till second meeting of creditors
The court held that UTI and Trans-Med did not waive any rights of security by making an election under section 83 of the Insolvency Act. However the court still had to determine whether that provision provided them the right to retain possession until the second meeting of creditors and to dispose of the asset prior to such date. The court found that the authority cited by the respondents did seem to indicate that the creditor could stay in possession of the goods until the second meeting if it had not realised the goods by then. However, the court found that the creditor must be able to realise the goods as per the manner and conditions of section 83(8) of the Insolvency Act. In this respect the court found that the 1st and 2nd respondents were not the importer of the goods and cannot realise the property by public auction as required. The court held that it would be an absurd interpretation and result that a creditor could continue to retain possession of the goods without the ability to realise the assets to the detriment of other creditors and storage costs would continue to mount for such period. The court held that section 83 infers that that section only secures the claim of the creditor in possession of the goods. In this instance it was SARS, who had a statutory lien over the goods, and the financiers, ABSA and FNB, in terms of the relevant instalment sale agreements. The court held that in such circumstances it was nonsensical to allow UTI and Trans-Med to retain possession of the goods and depriving the liquidators of their powers to realise the assets to best advantage of all the creditors. It was therefore inconceivable that section 83 was meant to apply in such circumstance and the respondents would therefore do not have a right to refuse to deliver the equipment to the liquidators.
The court ordered that subject to the proper documentation being provided, SARS must enter the goods for home consumption notwithstanding the outstanding duty and VAT. UTI and Trans-Med were also ordered to release the goods to the liquidator’s notwithstanding the outstanding costs but such release does not affect any lien or waiver of such right. The claims of the respondents are therefore to be dealt with in terms of the law relating to insolvency. The respondents were ordered to pay the costs of the applicants, being joint and severally liable.
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