SARS vs. JBSA Props: Business Rescue and VAT Liabilities
Summary of the High Court case of JBSA Props (Pty) Ltd and Another v CSARS and Others (5009/2023P)
Background of the Case
JBSA Props (Pty) Ltd and Wilmeg Investments (Pty) Ltd challenged the South African Revenue Service (SARS) in the High Court over SARS’ decision to appoint Wilmeg’s banks as agents to recover VAT debts incurred during Wilmeg’s business rescue process. The core issue was whether VAT liabilities accrued during business rescue were legally extinguished under the approved business rescue plan.
Case Facts and Arguments
Wilmeg Investments went into business rescue in May 2020. During the rescue period, the company continued operating, generating VAT liabilities that were declared in returns but remained unpaid. JBSA Props later acquired Wilmeg for R600 million, and post-rescue, the new owner resumed VAT payments—but only for liabilities incurred after the business rescue ended.
A dispute arose when Wilmeg claimed that VAT liabilities generated during business rescue were effectively extinguished under the rescue plan. SARS disagreed and invoked section 179 of the Tax Administration Act (TAA), appointing two banks as agents to collect R24 million in outstanding VAT. JBSA and Wilmeg then approached the High Court, seeking an interdict to prevent SARS from recovering the VAT until the court clarified the status of the liability.
SARS maintained that the business rescue plan did not formally extinguish post-commencement VAT liabilities. SARS also argued that it had not consented to the plan’s provisions regarding its claims and had not been consulted before its approval. The taxpayers contended that SARS’ failure to object or attend the creditors' meeting signaled its agreement to the plan’s terms, including the VAT treatment.
Key Legal Issues
Binding Nature of Business Rescue Plans – Under section 152(4) of the Companies Act, an approved business rescue plan is binding on all creditors, whether or not they voted for it.
Treatment of Pre- and Post-Commencement Debt – Section 154(2) of the Companies Act automatically extinguishes pre-commencement debt unless the plan states otherwise. However, post-commencement debt can only be compromised if the creditor explicitly agrees to it (section 154(1)).
SARS’ Consent to Debt Compromise – Under section 204 of the TAA, a tax debt can only be formally compromised through a written agreement signed by a senior SARS official.
The High Court Judgment
The High Court ruled in favor of SARS, finding that:
SARS’ failure to object to the business rescue plan did not constitute consent to waive post-commencement VAT liabilities.
The plan’s language regarding “full extinction of creditor claims” did not override the need for explicit SARS consent under the TAA.
No written compromise agreement was signed as required under section 204 of the TAA.
SARS was within its rights to recover VAT via agent appointments.
The taxpayer’s application was dismissed, and costs were awarded in SARS’ favor.
Key Lessons Learnt
Understand the consequences of pre- and post-commencement debt in business rescue – Business rescue plans can extinguish pre-commencement debt, but post-commencement tax debts require explicit creditor consent.
Written agreements matter, as SARS cannot be assumed to have agreed to a tax compromise unless a formal agreement is signed.
Monitor VAT compliance during business rescue and ensure that clients in business rescue must continue filing and paying VAT unless SARS formally approves an exemption.
Avoid assumptions on creditor silence as non-response from SARS (or any creditor) does not imply agreement to debt write-offs.
This case highlights the importance of correctly structuring business rescue agreements and ensuring proper engagement with SARS on tax obligations. Tax practitioners should guide clients carefully to prevent unexpected liabilities post-rescue.
