Page 751 - SAIT Compendium 2016 Volume1

CASE DIGEST 2012–2013
The above charges relate to an alleged unlawful enterprise that was allegedly commenced and continued by the respondents during the period May 1998 to March 2002. The common purpose and aim with this enterprise was to obtain, unlawfully and intentionally, certain tax bene ts and/or to avoid the payment of any tax having allegedly given rise to a loss to the South African Revenue Service (SARS) and/or the scus.
The eight respondents pleaded not guilty on the above charges but were not discharged when the magistrate delivered his judgment. Subsequently, the respondents added an additional plea (in terms of s 106(1)(h) of the Criminal Procedure Act) in which they stated that the prosecutors (representing the State) did not have the necessary authority to prosecute in this case. They opposed that, because of these appointments, the prosecution will not be conducted without fear, favour or prejudice as is required by the National Prosecuting Authority Act.
The magistrate acquitted the respondents on these grounds and stated that the respondents were entitled to change their pleas at that stage of the proceedings (after the State had closed its case).
The State lodged an appeal against the magistrate’s judgment in terms of s 310 of the Criminal Procedure Act. The State was of the opinion that the magistrate took a narrow and particularly legalistic approach when he considered the relevant legislation and that the respondents did not have suf cient grounds to succeed with a plea in terms of s 106(1). Furthermore, they argued that there were no allegations or indications during the proceedings that one of the two counsels (representing the prosecution) had any unjusti ed regard towards the interest of SARS.
Held
The High Court concluded that the prosecutors were duly authorised to be engaged in the proceedings in terms of s 38 of the National Prosecuting Act and that their appointment could not result in an unfair trial. Furthermore, it was determined that the respondents were not entitled to raise a plea in terms of s 106(1)(h) after the trial commenced. There was also no legal requirement on the prosecution to be authorised in terms of s 20(5) and (6) in addition to their ‘engagement’ and additionally they are not required to take an oath under s 32.
The above ndings contradicted the magistrate’s interpretation of the applicable legislation and therefore his judgment was set aside. As a result, the High Court refused to grant the respondents’ applications to change their pleas from not guilty to a plea in terms of s 106(1) of the Criminal Procedure Act. The matter was remitted to the magistrate to proceed with the trial in accordance with the law.
[Link: http://c.ymcdn.com/sites/www.thesait.org.za/resource/resmgr/2014_case_law/delport,_pickard_and_six_oth. pdf]
22. Whether SARS is a preferent creditor in business rescue proceedings in terms of the Companies Act?
[The Commissioner for the South African Revenue Service v Beginsel NO (2013 (1) SA 307 (WCC)) (75 SATC 87)]
Introduction
The issue on hand is whether or not SARS is a preferent creditor. According to SARS, all preferent creditors are categorised as unsecured creditors under s 145(4)(a) of the Companies Act 71 of 2008, 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 s 150 of the Companies Act.
Facts
The creditors of a company that found itself in nancial distress took legal action and the company was placed under liquidation. Afterwards, the rst and second respondents (‘the BRPs’) 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 dif culties. According to the business rescue plan, SARS was a concurrent creditor to whom no dividend will be paid on liquidation since only the preferent 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 BRPs’ decision to classify SARS as a concurrent creditor since they were (according to SARS’ interpretation of the s 150(2)(b)(v) of the Companies Act) not obliged to classify SARS as concurrent.
Held
The judge rejected SARS’ interpretation of s 145(4)(a) and stated that this section refers to secured or unsecured creditors, which includes both concurrent or preferent creditors. Therefore, both preferent and concurrent creditors’ voting interest during the relevant meeting where the business plan was adopted, equalled their claim against the company. It was ruled that SARS is to be treated like any other concurrent creditor of the company and that its voting interest did not exceed those of the other concurrent creditors and therefore the voting procedure could not be impeached.
SAIT CompendIum oF TAx LegISLATIon VoLume 1 743
CASE DIGEST 2012-2013