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The Commissioner for The South African Revenue Service v Beginsel N.O.

Thursday, 25 July 2013   (0 Comments)
Posted by: Author: SAIT Technical
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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 Act.


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 concurrent. 


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 unlawful. 

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. 

Please click here to access the full case.



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