This brief alert is a follow-up to our previous article published on 1 February 2017, on the SCA judgment and is aimed at reporting on the Constitutional Court judgment.
The Policy
Following on from our previous tax alerts regarding the various proposed amendments pursuant to the draft Taxation Laws Amendment Bill, 2018 (draft TLAB) published for public comment on 17 July 2018, we discuss in this Tax Alert another significant proposed legislative amendment, specifically related to the allowance for doubtful debts set out in s11(j) of the Income Tax Act, No 58 of 1962 (Act).
The Gauteng Division of the High Court recently delivered a judgment in the matter of The Commissioner for the South African Revenue Service and Logikal Consulting (Pty) Ltd and Others, Case No. 96768/2016, in which the court had to interpret, among other things, what comprises a “class” of creditors as contemplated in s155(2) of the Companies Act, No 71 of 2008.
The Supreme Court of Appeal provided clarity in Diener N.O. v Minister of Justice & Others (926/2016) regarding the ranking of the business rescue practitioner’s (BRP) claim for remuneration and expenses. The SCA also clarified whether such claim was conferred a “super preference” over all creditors, secured and unsecured in subsequent liquidation proceedings.
A recent development in the ever-evolving jurisprudence associated with business rescue proceedings relates to the remuneration of the business rescue practitioner in the event that a business rescue fails. The Supreme Court of Appeal in Diener N.O. v Minister of Justice (926/2016) [2017] ZASCA 180 has recently confirmed that the practitioner’s fees do not hold a ‘super preference’ in a liquidation scenario and the practitioner is required to prove a claim against the insolvent estate like all other creditors.
A recent development in the ever-evolving jurisprudence associated with business rescue proceedings relates to the remuneration of the business rescue practitioner in the event that a business rescue fails. The Supreme Court of Appeal in Diener N.O. v Minister of Justice (926/2016) [2017] ZASCA 180 has recently confirmed that the practitioner’s fees do not hold a ‘super preference’ in a liquidation scenario and the practitioner is required to prove a claim against the insolvent estate like all other creditors.
On 22 January 2018, Statistics South Africa released a report for the period January to December 2017 on insolvencies in South Africa. This report reveals a general decrease in liquidations.
What is the “fatal flaw” in our law? The Insolvency Act, 1936 (Insolvency Act) has always made provision for the holder of a pledge and cession in security over “marketable securities” (Secured Party), upon the insolvency of the security provider (Security Provider), to immediately realise those marketable securities through or to a stockbroker on a recognised stock exchange. However, in terms of s83(10) of the Insolvency Act (as it currently stands), once the pledged securities have been so realised they must be paid over to the liquidator.
Certain debtors have become masters of delay and indeed professional insolvents, leaving creditors and failed businesses in their wake.
The legal moratorium is a protective mechanism inherent in business rescue proceedings. Another safety net available to debtors is the possibility of rehabilitation of insolvent estates. Debtors use these and other methods to take advantage of the system and their creditors, delaying the winding up process and impeding creditors’ recovery.
Kai Zeng and Kon M Asimacopoulos, Kirkland & Ellis
This is an extract from the first edition of GRR's The Art of the Ad Hoc. The whole publication is available here.
The purpose and role of ad hoc committees from a debtor’s perspective: the initial phase