SCORPIO

Regiments Capital back in liquidation limbo after taxman strikes, again

By Jessica Bezuidenhout for Scorpio 25 April 2021
Caption
Illustrative image | Sources: Atul Gupta (Photo: Gallo Images / Financial Mail / Robert Tshabalala) | Regiments Capital Executive Chairman Litha Nyhonyha (Photo: Gallo Images / Foto24 / Johnny Onverwacht) | Regiments.co.za

The South African Revenue Service, adamant that Regiments Capital must stay in liquidation, says the company faces a nearly R700-million tax bill and is factually and commercially insolvent – and that’s with further tax audits pending.

The South African Revenue Service is heading to the Supreme Court of Appeal seeking to overturn a recent High Court order that plucked Regiments Capital out of liquidation. 

It is also opposing a simultaneous urgent application by Regiments to enforce the February 2021 order that had set aside its liquidation and for it not to be stayed pending the SCA appeal bid by SARS. 

The taxman recently issued the company with a tax assessment of nearly R700-million and says based on its calculations Regiments will not have enough to pay up once it settles various concurrent creditors. 

At the time of the liquidation SARS had merely estimated a provisional amount of just under R250-million. 

The final assessment now raised is for the 2014 to 2016 tax years and SARS is still conducting an audit on the period 2017 to 2019, it says. 

In the petition to the SCA, Pieter Engelbrecht of SARS’s criminal and illicit economic activities unit, says the lower court had erred in prioritising the claims of Regiments’ concurrent creditors above that of the revenue service. 

He says a contention that SARS’ claim was simply prospective as it had not issued an assessment at the time was incorrect. 

This is because the existence of a debt owed to SARS is not dependent on an assessment being issued, said Engelbrecht.

Fundamentally, calculations indicate that Regiments would not be able to fund its liabilities – in view of the total owed to existing creditors as well as SARS, and also because further audits are pending. 

The lower court, says Engelbrecht, had erred by removing Regiments from liquidation, as it is factually and commercially insolvent. 

These are among the reasons put forward by SARS for the initial court’s order setting aside the company’s liquidation not being just, equitable or in the public interest.

Regiments became engulfed by the State Capture scandal following allegations it paid kickbacks to Gupta-linked front companies for deals at state-owned enterprises like Transnet.

This latest move by SARS comes after the company won a High Court order on 22 February 2021 that set aside the company’s liquidation. (Creditor Vantage Mezzanine Fund had it liquidated in September 2020.)

That victory was short-lived as soon as SARS petitioned the SCA because it suspended the February order, knocking the company into liquidation limbo.

But SARS had barely filed its appeal notice and Regiments fired a salvo of its own. The company brought an urgent application in terms of Section 18 of the Superior Courts Act days later to try to enforce the order that had set aside its winding up.

Regiments co-owner Niven Pillay, in an affidavit filed in that case, says the suspension of the court order was irreparably prejudicial as it left the company in a state of paralysis. 

Pillay cites fears that SARS could tie Regiments down for years with exhaustive legal challenges that could go all the way to the Constitutional Court. 

Pillay argues the interest of a broader body of creditors and implies that SARS, in its approach to keep it in liquidation, was obstructing the company from settling with external creditors. 

Those include Transnet, currently banking on repayment of R180-million following a settlement deal struck with Regiments last year.  

He says exceptional circumstances exist to justify the company’s legal efforts to enforce the February 2020 order, and that there is no harm or prejudice to SARS. 

He also claims that SARS is a mere contingent creditor with a potential claim of just short of R250-million.

SARS on the other hand maintains this was but a provisional figure provided when it rushed to intervene in Regiments’ first bid to get out of liquidation last year. 

It says it has since issued Regiments with an assessment for the 2014-2016 tax years amounting to R679-million – an amount that pushes Regiments’ total liabilities to close to R1-billion, according to SARS. 

Pillay claims this assessment was raised at the last minute on 30 March 2021 so he is not able to deal with it in the company’s latest High Court application in any meaningful manner. 

But, the amount of R679-million is the fourth figure SARS has put before court to advance its claim against Regiments, he says.

SARS had previously put forward amounts of R162-m, R217-m and R671-m respectively, court papers state. 

Pillay says he raises these “observations” to show that even at a “high level,” the sustainability of SARS’ claim is doubtful. 

Furthermore, SARS is also empowered to secure its status as a preferent creditor and ensure payment of claims by resorting to its statutory remedies in the Tax Administration Act, Pillay says. 

SARS is opposing Regiments’ urgent application. 

Deon Boshoff, the SARS auditor responsible for Regiments, admits that it had taken longer than usual for the relevant tax assessment to be completed. 

SARS had issued Regiments with a Notice of Audit back in April 2020 and requested certain documents within 21 days.

But Boshoff says Regiments only provided documents between July and October, and then only relating to the 2014-2016 tax years.

Contrary to Regiments claims, SARS was not dilatory in issuing its assessments and emphasised that the company’s tax audits are highly complex and not “run of the mill,” Boshoff says. 

He says it would have been reckless to issue an assessment in haste without being satisfied it could be defended if challenged. 

“I would have been naive to think that a taxpayer who was about to be faced with an assessment of hundreds of millions of Rands would meekly accept it.”

Ultimately Regiments was assessed for this period and the income tax assessment exceeds what SARS had initially estimated when it applied to intervene in the matter last year. 

The company was liquidated in September 2020 and a month later it scored a win over the National Prosecuting Authority which had hoped to restrain some R1.6-billion in assets pending finalisation of its own investigations of the company into allegations of fraud, corruption and money laundering. (The NPA is appealing this order.)

Armed with the victory over the NPA, Regiments launched its first bid to get out of liquidation on 10 November 2020.

SARS was not party to those proceedings but successfully applied to intervene. In the end, the case went in favour of Regiments when it won the February 2021 order that set aside the company’s liquidation – the order that has now triggered the fresh round of legal action.

Regiments not only succeeded in obtaining the order to set aside its liquidation in February, the court had also put SARS on terms. 

Although it prohibited Regiments from paying third-party creditors for a period of 30 days, or of dissipating assets held by some of its subsidiaries, it gave SARS 15 days to produce an income tax assessment for the 2014-2016 period. 

All this, Pillay says in his latest court application, had served to give SARS a window of opportunity to exercise applicable statutory remedies available under the law to secure its interests. 

“It, therefore, makes little sense and appears patently detrimental to SARS’ professed desire to be speedily repaid its asserted tax debt to perpetuate a state of liquidation and with it the ensuing costs and delays. 

SARS’ statutory remedies are not merely alternative remedies, but superior remedies, and SARS has failed to provide any good reason why the blunt instrument of winding-up must be resorted to, to the detriment of all affected persons in order to protect SARS’ position.” DM

*Judgment is pending in Regiments’ High Court application. 

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  • Interesting to see that, once a company’s malfeasance is in the public domain, the taxpayer becomes involved and makes appropriate investigations – not unreasonable since is is a fair bet that a company playing legally fast and loose and thereby showing a distinct lack of integrity, is highly likely to be playing similarly fast and loose with it’s tax obligations.

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