A Liquidator's Allegiance: To a Settlement Agreement or to the Law?By Tim Fletcher and Zahira Bhana Company A owed rent to Company B and a large amount of unpaid tax to the South African Revenue Service The South African Revenue Service (also known as SARS) is the section of the South African government responsible for collecting taxes, tariffs, duties and all other forms of revenue levied by the South African government. SARS was formed by the merger of the S.A. (SARS). A was liquidated DAMAGES, LIQUIDATED, contracts. When the parties to a contract stipulate for the payment of a certain sum, as a satisfaction fixed and agreed upon by them, for the not doing of certain things particularly mentioned in the agreement, the sum so fixed upon is called liquidated damages. (q.v. but had no assets because an associated company associated company associate n → Partnerfirma f associated company n → società collegata C had taken over its assets without paying for them. An insolvency inquiry was convened but before proceeding a settlement was reached between the liquidator Liquidator Person appointed by an unsecured creditor in the United Kingdom to oversee the sale of an insolvent firm's assets and the repayment of its debts. and C in terms of which C agreed to pay B's claim and the claim of any other proved creditor. C duly paid an amount over to the liquidator sufficient to settle B's claim but was unable to pay the claims of SARS and an additional creditor. C was then liquidated but its creditors received no dividend. The liquidator distributed the amounts paid by C for the settlement of B's claim, not in accordance with the settlement agreement but in terms of the liquidation The collection of assets belonging to a debtor to be applied to the discharge of his or her outstanding debts. A type of proceeding pursuant to federal Bankruptcy and distribution account which reflected SARS as a preferent creditor. B objected unsuccessfully to the Master of the High Court. B then applied to the High Court for an order that it was entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to have the money paid directly to it in settlement of its claim and was successful in that application. SARS not surprisingly appealed against that decision on the basis that the residue in the estate of A must, notwithstanding the agreement between the liquidator and C, be distributed in the order of preference set out in the Insolvency Act. The liquidator's duty in terms of the Companies Act is to recover all the assets and property of a company and to realise and apply the proceeds firstly in satisfaction of the costs of winding up and then to distribute any residue to the creditors in the order of preference and in the manner set out in the Insolvency Act. It follows that any agreement which purports to subvert the requirements of the Insolvency Act would be unlawful. The Supreme Court of Appeals accordingly found that the agreement between C and the liquidator was lawful for so long as it provided for the payment both of the costs of liquidation and of the claims of all proved creditors and did not purport to prescribe pre·scribe v. To give directions, either orally or in writing, for the preparation and administration of a remedy to be used in the treatment of a disease. a payment scheme in conflict with the Insolvency Act. As soon as C was unable to make payment of all proved claims, the agreement could not operate without offending of·fend v. of·fend·ed, of·fend·ing, of·fends v.tr. 1. To cause displeasure, anger, resentment, or wounded feelings in. 2. the Insolvency Act and became unlawful.The court held that the liquidator's duty to the estate and the creditors overrides any particular duty that the liquidator assumes in terms of a settlement agreement. The decision of the liquidator in this case to distribute the residue of the estate in accordance with the requirements of the Insolvency Act and contrary to the settlement agreement with C, which settlement agreement had become unlawful, was accordingly in keeping with the liquidator's duty and the court upheld the appeal of SARS. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Cliffe Dekker Inc Johannesburg Regional Office Private Bag X7 Benmore Johannesburg 2010 SOUTH AFRICA South Africa, Afrikaans Suid-Afrika, officially Republic of South Africa, republic (2005 est. pop. 44,344,000), 471,442 sq mi (1,221,037 sq km), S Africa. Tel: 112907000 Fax: 112907300 E-mail: bev@wrightconnection.co.za URL URL in full Uniform Resource Locator Address of a resource on the Internet. The resource can be any type of file stored on a server, such as a Web page, a text file, a graphics file, or an application program. : www.cliffedekker.com Click Here for related articles (c) Mondaq Ltd, 2006 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com |
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