Wiseman Khuzwayo

There could be an increase in liquidations during the course of the year because the SA Revenue Service (Sars) will be less inclined to vote for a business rescue plan, following a seminal judgment by the Western Cape High Court in October last year.

This is according to Eric Levenstein, a director at Werksmans Attorneys, who said Sars was a preferred or secured creditor in a liquidation while in a business rescue it was now on the same footing as unsecured or concurrent creditors.

He said the judgment in SA Revenue Service vs Beginsel NO & Others was refreshing and interesting as it was one of the few handed down that dealt with the substantive aspects of business rescue.

The new Companies Act introduced the business rescue plan as a way to rescue or rehabilitate a company that is under financial distress instead of liquidating it.

He said in this matter, Sars asserted that on its interpretation of the provisions of the legislation, it was of the opinion that the decision taken to adopt a business rescue plan was unlawful and invalid.

Levenstein said: “While Sars agreed that the act did not oblige a business rescue practitioner to concur a preference on Sars over unsecured creditors, it also averred that the act did not oblige a practitioner to treat Sars as a concurrent creditor.”

He said most judgments to date had dealt with the procedural aspects of business rescue and the instances in which a court would be inclined to grant a business rescue.

“This judgment clarifies once and for all the manner in which concurrent creditors will vote in business rescue proceedings. Interestingly, concurrent creditors stand alongside secured creditors and have the opportunity to have their say either for the approval or rejection of the business rescue plan.”

Levenstein said: “Practical implications of this outcome for future business rescues could be that Sars would be less inclined to vote for a business rescue plan because in liquidation proceedings, Sars is a preferred creditor.

“As such we could see an increase in liquidations during the course of the new year as once business rescue is brought against a company it either has to go through or liquidation proceedings are brought out.”