SUPREME COURT OF APPEAL: LIQUIDATORS UNHINDERED BY OUTSTANDING VAT OR CUSTOMS

The Customs and Excise Act 91 of 1964 does not prevent a liquidator from taking possession of property in terms of the Insolvency Act 24 of 1936.

Commissioner, South African Revenue Service v Van der Merwe and Others (598/2015) [2016] ZASCA 138 (29 September 2016).

  1. The Background
    • Pela Plant (Pty) Limited (Pela), was provisionally liquidated on 20 July 2014 after a failed business rescue. By the time that the liquidation order was made final on 16 September 2014 twenty three pieces of heavy earthmoving equipment belonging to Pela had not yet been cleared by the Customs authorities and was retained in Durban’s harbour.
    • The company had exported the equipment, valued at R25 million, to the Democratic Republic of the Congo. After completing its operations there, it was repatriated to South Africa.
    • During March and June 2014, the equipment arrived in the country and was stored in the warehouse of Trans-Med Shipping CC, acting as UTI’s sub-agent, who was appointed by Pela as it’s clearing and forwarding agent regarding the equipment. A dispute arose between SARS and Pela as to whether or not VAT and customs duties were payable and if so how much. A dispute that had not been resolved at the time of the Pela’s liquidation.
    • The intervention of Pela’s liquidation created an interesting further complication. Usually, customs duty and VAT have to be paid in full prior to the release of any items held in bond. However the liquidators refused to pay SARS prior to the release of the equipment and contended that the provisions of the Insolvency Act are peremptory in this regard and that SARS was obliged to release the equipment to them and to submit a claim in the winding up of Pela’s affairs, as provided for in terms of the Insolvency Act. SARS disagreed and refused to release the equipment.
  1. The Appeal
    • Having unsuccessfully demanded the release of the equipment from UTI and the SARS, the liquidators launched an urgent application in the Durban High Court (DHC) contending that the provisions of the Insolvency Act trump those of the Customs and Excise Act.
    • SARS and UTI opposed the application essentially contending it couldn’t release the equipment unless all custom duties and VAT were paid in full.
    • The DHC ruled in favour of the liquidators and order SARS and UTI to release the equipment to the liquidators. Both SARS and UTI sought to appeal the order of the DHC and the Supreme Court of Appeal (SCA) was left with the final determination.
    • The SCA found, unlike SARS had argued, that there was no inferred “embargo” in favour of SARS and that there is nothing in either the Customs Act  in or the Insolvency Act which infers that goods subject to a lien in favour of SARS cannot be dealt with under the laws of insolvency.
  1. Conclusion:
    • The SCA concluded that the Customs and VAT Acts do not absolve SARS from releasing the equipment to the liquidators, to be dealt with in terms of the laws of insolvency, without the liquidators first having to pay duty and VAT and ordered the immediate release of the equipment.
    • The appeal was dismissed with costs, including the costs of two counsels.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

OWNING PROPERTY WITHOUT A WILL

If you die without a will, an administrator will have to be appointed to administer your estate which will be distributed according to the laws of intestate succession. As such, your assets may not be distributed as you would have wished. It also means that the process will be delayed and that there will be additional expense and frustration which most people would not want to inflict on their loved ones during a time of loss.

Marriage and property

When drafting your will, it’s important to consider the nature of your relationship with your ‘significant other’. If you are married in community of property, you only own half of all assets registered in your name and that of your spouse. Your spouse therefore still remains a one half share owner of any fixed property you may want to bequeath to a third party which could potentially present difficulties.

If you are married in terms of the accrual regime, the calculation to determine which spouse has a claim against the other to equalise the growth of the respective estates only occurs at death. Your spouse may therefore have a substantial claim against your estate necessitating the sale of assets you had not intended to be sold.

Alongside your will, you should also prepare the following in relation to any immovable property you may own:

  1. State where your title deeds are kept and record any outstanding bonds and all insurance
  2. File up-to-date rates and taxes receipts
  3. Record details of the leases on any property you have
  4. State who collects your rent
  5. State who compiles your yearly accounts
  6. State where your water, lights and refuse deposit receipts are kept

If you die without a will

According to the according to Intestate Succession Act, 1987, your estate will be distributed as follows:

  1. Only spouse survives: Entire estate goes to spouse.
  2. Only descendants survive: Estate is divided between descendants.
  3. Spouse & descendants survive: The spouse gets R250 000 or a child’s share and the balance is divided equally between the spouse and descendants.
  4. Both parents survive: Total share is divided equally between both parents.
  5. One parent: Total Estate goes to the parent.
  6. One parent & descendants: Half the Estate goes to the parent; balance is divided equally amongst descendants.
  7. No spouse; No descendants; No parents; but descendants through mother & descendants through father: Estate divided into two parts: half to descendants through mother; half to descendants through father.
  8. No spouse; No descendants; No parents; No descendants through mother or father: Full Proceeds of the Estate has to be paid into the Guardians Fund in the event of no descendants whatsoever.

References:

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

NOTEWORTHY IN OUR INDUSTRY MEDIA STATEMENT

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The Supreme Court of Appeal today dismissed an appeal against a judgment of the Western Cape Division of the High Court, Cape Town concerning the constitutionality of a policy that seeks to regulate the appointment of insolvency practitioners, primarily as provisional trustees and liquidators, but also as co-trustees and co-liquidators (and other comparable positions) under various statutes.

The policy was issued by the Minister of Justice and Constitutional Development in terms of s 18(1) of the Insolvency Act 24 of 1936 (the Act), pursuant to his powers in terms of s 158(2) of the Act and was to come into operation on 31 March 2014.

The challenge to the policy was made in two parts, ie, Part A was for an interim order restraining its implementation, and Part B, was to have it reviewed and set aside. In the Western Cape Division of the High Court, Gamble J dealt with the urgent application in respect of Part A and interdicted the appellants from implementing the policy.

The review application in Part B came before the court a quo, Katz AJ, in which the policy was challenged on four bases. These were that it infringed the right to equality provided for in s 9(3) of the Constitution; it unlawfully fettered the discretion of the Master; is ultra vires the Act; and was irrational. The court a quo largely upheld the respondents’ contentions and granted the application. And acting in terms of s 172(1)(a) of the Constitution, declared the policy inconsistent with the Constitution and invalid.

The SCA, after reviewing clauses 6 and 7 of the policy, upheld the court a quo’s finding that the policy is unconstitutional. The court held that clause 7.1 of the policy embodied strict allocation of appointments in accordance with race and gender, which were arbitrary, capricious and displayed naked preference, which is prohibited by s 9(3) of the Constitution. The court held that the policy’s arbitrariness was not saved by clause 7.3 of the policy as it does not resolve the fact that clause 7.1 requires the Master to make an appointment in accordance with a rigid quota.

With regards to the question whether the Master’s discretion was unlawfully fettered, the SCA held that there was a limited residual discretion left for the Master to exercise in making appointments in terms of clause 7.3 of the policy, and so the Master’s discretion was not improperly fettered in that regard.

On the issue of the rationality of the policy, the SCA lamented the fact that there was no explanation by the Master for the basis upon which the policy was formulated. There was for instance no proper explanation regarding how the ratio in the policy was determined, and no proper figures to show the number of practitioners in each category. Thus, the court held that in the absence of proper information about the basis upon which the policy was formulated, and proper information concerning the current demographics of insolvency practitioners, it was not possible to say that the policy was formulated, on a rational basis properly directed at the legitimate goal of removing the effects of past discrimination and furthering the advancement of persons from previously disadvantaged groups.

In a concurring judgment, Wallis JA (Mpati P, Swain and Mathopo JJA concurring) held that given the purpose of the insolvency legislation, the actions of the Minister in determining the policy under s 158 of the Act, and the actions that the Master must undertake in terms of that policy, must be in accordance with the interests of creditors in the liquidation of the estate or the winding-up of the company or close corporation. And that as the policy was formulated on the basis that those interests were irrelevant, and on its face it does not recognise or serve those interests, it was outside the legitimate powers vested in the Minister, and the promulgation thereof involved a breach of the principle of legality.

The SCA accordingly dismissed the appeal with costs.

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This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)