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[2018] ZALMPPHC 38
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Tombstone v Commissioner for South African Revenue Services (7107/2017) [2018] ZALMPPHC 38 (29 June 2018)
REPUBLIC OF SOUTH AFRICA
IN THE HIGH COURT OF SOUTH AFRICA
LIMPOPO DIVISION, POLOKWANE
CASE NO: 7107/2017
In
the matter between:
THABALETSI
TOMBSTONE
APPLICANT
And
THE COMMISSIONER FORSOUTH
AFRICAN
RESPONDENT
REVENUE SERVICES
JUDGMENT
SEMENYA
J:
1.
T
he
deponent to the applicant’s founding and two supplementary
affidavits has been appointed as business rescue practitioner
(the
practitioner) of the applicant in terms of s129 (3) (b) of the
Companies Act 71 of 2008 (the Act). The applicant has launched
this
application in terms of s153 (1) (a) (ii) read with 153(7) of the
Act. The order sought is for the setting aside of the respondent’s
vote against the adoption of the business rescue plan developed on
behalf of the applicant. The respondent is opposing the application
on the basis that the vote was appropriate and that it would not be
reasonable and just to set its vote aside. The respondent
further alleges that it does not appear from the plan that the
business of the applicant can be rescued.
2.
In a resolution taken by the only member of the applicant on the 21
June 2017, it is stated that the applicant is financially
distressed
and that there appears to be reasonable prospects that it can be
rescued. Further that the company voluntarily resolves
to begin
business rescue proceedings and to be placed under supervision. The
practitioner invited all creditors to submit their
claims up to the
date on which the applicant was placed under business rescue
proceedings, being the 2 June 2017.
On the 31 July 2017, the respondent
wrote a letter to the practitioner advising him that according to its
records the applicant
failed to submit the following returns:
Income Tax for the period 2014 to
2016;
Value Added Tax (VAT) for January 2016
to date of the letter;
PAYE for December 2015 to July 2016
and April 2017 to May 2017.
3.
The respondent indicated in the said letter that should the applicant
fail to submit the said outstanding returns before publication
of the
business rescue plan (the plan), the returns will be regarded as
falling outside the scope of the plan.
4.
In the second meeting of creditors the practitioner informed the
creditors that all creditors, inclusive of the respondent, are
concurrent creditors. The effect would be that none of them have a
preferent claim against the applicant and would be paid out
of the
free residue. He further stated that all creditors who have provided
finance to the applicant during the post-commencement
rescue
proceedings period will be given preference over unsecured claims.
5.
It needs to be mentioned at this stage that the post-commencement
creditor referred to happened to be the only member of the
applicant
whose claim amounted R896 000.00. When the respondent raised
concerns about the idea of giving the member of the
applicant
preference over the other creditors, the practitioner changed and
informed the creditors that the member of the applicant
has indicated
that she will wait for all other creditors to be paid before
submitting her own claim. Despite informing creditors
in a meeting
that all are concurrent, the applicant stated in the replying
affidavit that the respondent is a post-commencement
creditor who has
a preferential claim.
6.
One of the purpose of the second meeting was to vote for or against
certain amendments which were proposed by the respondent.
According
to the respondent the said amendments were intended to safeguard the
interests of the general public in seeing to it
that taxes are
collected. However, all other creditors voted against the proposed
amendment. It is common cause that 92% of the
creditors, which
comprises the respondent, voted against the adoption of the plan.
According to the practitioner the reason furnished
by the
respondent’s representative was that the plan benefited the
member of the applicant only, ignoring the fact that the
applicant
had 38 employees. The practitioner then and there informed the
meeting that he will apply to court for the setting aside
of the
results of the vote in terms of section 153 (1) (ii) of the Act.
7.
It is common cause that the applicant’s largest creditor is the
respondent and that as at the date of the launching of
this
application, the respondent had submitted a preliminary claim in the
amount of R1 283 446.00. The respondent arrived
at this
amount after the applicant submitted returns in respect of VAT. The
respondent contended that the applicant’s failure
to submit its
corporate income tax returns made it impossible for it to fully
assess the applicant’s indebtedness to it and
to conduct
investigations to determine whether all income generated by the
applicant had been declared. The respondent’s
submission of tax
returns was further required in order to make an accurate assessment
of the applicant’s liability to SARS.
8.
Counsel for the applicant argued that submission of the returns would
not have assisted the respondent in anyway as it was going
to be a
nil return. I however agree with counsel for the respondent that the
applicant has a legal obligation to submit the returns.
It is for the
respondent to decide, after conducting the necessary investigations
and assessment, whether the applicant owes income
tax or not.
9.
It is noteworthy that the applicant informed creditors in a meeting
that it will not finalize its plan without submitting all
its returns
to the respondent. This in itself is an indication that the applicant
was fully aware of its obligations to the respondent.
According to
counsel for the respondent a clause in the plan that provided that
any creditor who fails to submit the claim by the
8 September 2017
will forfeit its claim in its entirety, is one of the factors that
prompted the respondent’s representative
to vote against the
adoption of the plan. The respondent avers that it is the applicant’s
failure to submit its returns that
made it impossible for it to
submit its claim.
10.
It however remains to be determined whether the vote stands to be set
aside on the ground that it is inappropriate as envisaged
in s153 (1)
(ii) of the Act. The requirements for the setting aside of a vote are
laid down in s153 (7). The subsection provides
that on application
for the setting aside the result of the vote, the court may order
that the vote be set aside if it is satisfied
that it is reasonable
and just to do so, having regard to the following factors:
(a). the interests represented by the
person or persons who voted against the proposed business rescue
plan;
(b). the provision, if any, made in
the proposed business rescue plan with respect to the interests of
that person or those persons;
and
(c). A fair and reasonable estimate of
the return to that person, or persons, if the company were to be
liquidated.
11.
Counsel for the applicant contended that this court should adopt a
purposeful interpretation to the words used in the Act in
the
determination of the issues before it. Section 7 of the Act which
provides that the purpose of the Act is the efficient rescue
and
recovery of financially distressed companies in a manner that
balances the interests and rights of all stakeholders. Reference
was
made to the case of
Cooper
Sunset Trading 220 (Pty) Ltd v Spar Group Limited and Another
(365/2014 [2014] ZAGPPHC 688;
2014 (6) SA 214
(LP) (9 May 2014) at
[24]
where it was stated that section 7k of the Act reads that one of the
purposes of the Act is to provide for the efficient recovery
of
financially distressed companies in a manner that balances the rights
of all relevant stakeholders.
12.
Counsel for the respondent on the other hand referred the court to
the decision in
DH
Industries (Pty) Ltd v Gribnitz NO & Others
2014 (1) SA 103
(KZN)
at par 10
where it was stated that:
“
I
respectfully agree that the chapter as a whole reflects a legislative
preference for proceedings aimed at the restoration of viable
companies rather than their destruction but only of viable companies,
not all companies placed under business rescue.”
13.
In
the majority judgment of the SCA in
FirstRand
Bank Ltd v KJ Foods CC (In business rescue) (734/2015)
[2015 ZASCA 50
(26 April 2017) at par [76]
(KJ
Foods) it was held that:
“
In
interpreting s153 (1) and (7) the words of the Act are taken into
consideration. However, these words must not be considered
in
isolation, but in the light of the context of the provision, the Act
as a whole and the purpose for which it was enacted. The
interpretation is ‘essentially one unitary exercise.
14.
At
par [80] the court stated that on an application to set aside the
result of a vote in terms of s153(1)(a)(ii) and
s153(1)(b)(i)(ii)(bb),
the court is enjoined by s153(7) to determine
only whether it is reasonable and just to set aside the particular
vote, taking into
account the factors set out in s153(7)(a) to (c)
and all circumstances relevant to the case, including the purpose of
business
rescue in terms of the Act. The court stated that the vote
would be set aside on application on the grounds that it is
inappropriate,
if it is reasonable and just to do so in terms of
s153(7).
15.
With regard to the interests represented, the respondent contended
that it represents the general public’s interests,
which in my
view include the employees and creditors of the applicant. It was
submitted that the respondent is an entity that is
responsible for
the collection of taxes and that voting for the adoption of the plan
in the face of outstanding returns would have
amounted to dereliction
of duty on its part. Counsel for the applicant on the other hand
submitted that the court should take cognizance
of the interests of
its employees and other creditors into consideration and that they
will lose employment should the applicant
be liquidated. The
applicant contended that the court have regard to the fact that the
business is showing some improvement since
the commencement of the
proceedings.
16.
I find it difficult to rely on information furnished by the
practitioner that the business is recovering in view of the
conflicting
statements that he made in the meetings, founding and
supplementary affidavits and replying affidavit. Although he
indicated in
a meeting of the creditors that the respondent is a
concurrent creditor, the statement changed in the replying affidavit
where
he stated that the respondent is a post-commencement creditor
and which has a preferent claim over others. I am of the view that
the statement was made because the applicant was aware that in terms
of s153 (7) (b), the court is enjoined to determine the provisions
made in the proposed business plan with respect to the interests
represented by the respondent.
17.
The statement that the respondent is a post-commencement creditor
cannot be correct for the purposes of this judgment. The issues
relate to the pre-commencement claim in the form of income tax and
other tax returns for the year 2014 to 20016. That the applicant
has
paid the respondent VAT and UIF post-commencement cannot be regarded
as an excuse. The respondent requires these returns for
the purposes
of determination and submission of its claim. As already stated, in
the first meeting of creditors, the practitioner
informed creditors
that he will not finalize the plan before complying with its tax
obligations. However, it appears from the papers
that he intended to
do the opposite. I find that no provisions have been made to cater
for the interests represented by the respondent
with respect to
Income Tax.
18.
Counsel for the applicant argued that the applicant became aware for
the first time that the objection was based on the fact
that the
applicant failed to submit its income tax returns in the respondent’s
answering affidavit. In response to this argument,
counsel for the
respondent submitted that applicant has been aware of these concerns
before the second meeting as they were raised
in a letter addressed
to the applicant on the 31 July 2017.
19.
I agree with counsel for the respondent that the applicant cannot be
permitted to decide not to submit returns on the basis
that it was
going to be a nil return. That would amount to usurping the functions
of the respondent. I fail to find any valid reason
why the applicant
is reluctant to submit this returns if it indeed conducts itself in a
bona fide manner. The applicant cannot
hide behind the fact that it
has paid VAT and UIF. The submission of Income Tax returns is
compulsory. Furthermore, failure to
submit returns is a criminal
offence. This court cannot be seen to be promoting lawlessness.
20.
Counsel for the applicant submitted that the business of the
applicant has improved since the commencement of the business rescue
and that this aspect is to the benefit the creditors and employees.
It was contended that a dividend of five cents (5c) in a Rand
will be
paid to concurrent creditors who have proved their claims to the
reasonable satisfaction of the practitioner. Furthermore,
the
practitioner stated that should any money be recovered from the
previous managers, 50% will go to the creditors. It is evident
that
the practitioner is unable to guarantee that any money will be so
recovered. I find that in the absence of the correct assessment,
the
respondent would not be able to submit a claim which may be to the
satisfaction of the practitioner.
21.
In arriving at a conclusion that the setting aside of the vote will
be reasonable and just, the SCA in KJ Foods noted that the
interests
protected in that case was that of a secured creditor and that
its claim will in any event be paid in full. It
was further found
that the employees and other creditors will be better off if the vote
is set aside.
22.
However in the present case I am unable to rely on the information
furnished by the practitioner in view of the contradictory
statements
that he made as referred to above. The respondent’s claim is
not yet submitted because of the conduct of the applicant.
It is not
clear whether the applicant will regard the respondent as a
concurrent creditor or preferent one. Furthermore the respondents
stated in the answering affidavit that as at the voting date, the
plan did not provide clear facts as to how the business was going
to
improve. I tend to agree with the respondent that the plan appears to
be such that it was intended to benefit the applicant’s
member
more than the creditors. Moreover the extent of the respondent’s
claim and the reasons for the applicant’s reluctance
to submit
income tax returns are still not known.
23.
I find that the vote was not inappropriate under the circumstances of
this case. The respondent indeed has an obligation to
protect the
interests of the general public. It has also expressed a desire to
reconsider its position should the applicant submits
its returns in
full and after proper assessment of the same. A failure to submit for
a period of three years whilst the business
was up and running is a
fact that cannot be ignored.
24.
In the circumstances I make the following order:
i). The application for the setting
aside of the respondent’s vote against the adoption of the
business rescue plan is dismissed;
ii). The applicant
is ordered to pay the costs of the application.
M.V
SEMENYA
JUGDE
OFTHE HIGH COURT; LIMPOPO DIVISION
APPEARANCES
FOR THE PLAINTIFF
:
ADV. M NAUDE
INSTRUCTED BY
: VENNIS ATTORNEYS
FOR THE RESPONDENT
: ADV. L NKOANA
INSTRUCTED
BY
: STATE ATTORNEYS
DATE OF HEARING
: 30 MAY 2018
DATE OF JUDGEMENT
: 29 JUNE 2018