Bekker NO v Commissioner of the South African Revenue Service and Another (9258/2000) [2006] ZAGPHC 126 (11 May 2006)

IN THE HIGH COURT OF SOUTH AFRICA

(TRANSVAAL PROVINCIAL DIVISION)

UNREPORTABLE DATE: 11/5/2006

CASE NO: 9258/2000

In the matter between:

J N BEKKER NO Applicant

and

THE COMMISSIONER OF THE

SOUTH-AFRICAN REVENUE SERVICE First Respondent

W SENOKO Second Respondent

________________________________________________________________

JUDGEMENT

MURPHY J

1. The applicant originally sought an order in terms of section 362(1) of the Companies Act 61 of 1973 directing the first respondent to hand over to him certain assets being money, shares and policies it had recovered from the second respondent. Events subsequent to the filing of the notice of motion have led the applicant to adjust his claim for reasons which will become apparent presently, restricting it to the money attached by the first respondent now held in the trust account of the applicant’s attorneys.

2. The applicant is the liquidator of Senoko Enterprise CC (in liquidation) as well as L J Pharmaceuticals (Pty) Ltd (in liquidation), hereafter referred to respectively as “the corporation” and “the company”.

3. The first respondent, the Commissioner of the South African Revenue Service, does not oppose the application. The second respondent, Mr W Senoko, the sole member of the corporation and the sole shareholder and director of the company opposes the application.

4. Section 362(1) of the Companies Act of 1973, applicable also to close corporations by virtue of section 66 of the Close Corporations Act 69 of 1984 provides:

“The court may at any time after making a winding up order or after a special resolution for the voluntary winding up of a company has been registered in terms of section 200, order any director, member, trustee, banker, agent or officer of the company concerned to pay, deliver, convey, surrender or transfer to the liquidator of the company forthwith, or within such time as the court directs, any money, property or books and papers in his hands to which the company is prima facie entitled.”

In brief the sub-section empowers the court to order the relevant functionary to deliver to the liquidator any money, property or documentation “in his hands to which the company is prima facie entitled”.

5. This matter has a long, complex and troubled history, involving several applications of one kind or another to this court. It all began during the early 1990’s when the MEC of Education, Art, Culture and Sport, Northern Province (Limpopo) awarded a tender to the corporation for the supply of chemical solutions for the treatment of waste in latrines mainly at schools located throughout the province. In August 1997 the MEC made an application in terms of section 68(c) of the Close Corporations Act for the liquidation of the corporation on the grounds that it would be just and equitable to wind it up. De Klerk J granted an order placing the corporation in final liquidation on 15 October 1997. From his judgement it appears that the learned judge considered it just and equitable to wind up the corporation because it evidently lacked the technical competence and capacity to deliver on its tender opbligations; was guilty of maladministration and a failure to keep proper accounting records as required by legislation; and was not bona fide.

6. About a year later, on 25 November 1998, the second respondent brought an application against the applicant, (the liquidator), for the return of certain motor vehicles on the grounds that such were his personal property and not that of the close corporation. Van Dijkhorst J dismissed the application and stated the following:

“Now it is clear that the applicant had no books of account for many years. It is clear that the applicant considered the close corporation and the company as his sole property, if I may call it that, and that the funds of himself, the close corporation and the company were mingled.”

7. In November 1999 the applicant brought an application for the setting aside of certain dispositions made by the second respondent to his fiancée, Ms E B Gwebu. This matter was again heard by De Klerk J. During the course of his judgement in this matter, in which he set aside the disposition, he stated:

“The applicant has proved that the affairs of the CC were dealt with in a shocking manner by a spendthrift who deemed the money of the CC to be his own pocketmoney. That is a recipe for quick bankruptcy. The denial of insolvency based on no factual basis in the absence of books and accounts in the teeth of the evidence of improper documentation and payments extracted from the Northern Province and in the absence of any VAT or tax payments is an unfounded bare denial against the probabilities and not bona fide. It would indeed in my view be a miracle if the CC is not insolvent.”

8. This judgement also records the fact that on 11 December 1996 the corporation received an amount of R2 218 417, which was banked in the account of the company and that the second respondent appears to have laid claim to these funds as “remuneration for the services supplied by me and the goodwill that I had brought to these companies”. In this regard De Klerk J stated:

“There is no attempt by the respondents in the papers before me to amplify or substantiate the broad statement that Senoko was entitled to make withdrawals and receive remuneration for services supplied by him and the goodwill that he brought into these companies.

In order to prove that the withdrawals were due and proper and that the alleged remuneration was due or that they were proper, there is no allegation that the withdrawals were indeed legitimate or justifiable withdrawals or remuneration. I am now referring to the withdrawal for instance when the monies were paid into L & J Pharmaceutical’s account on 11 December. An ex post facto statement now in the papers before me, broadly stating that withdrawals were in respect of remuneration for services and that he was entitled to make withdrawals, does not take the matter further. It does not have the effect of justifying the withdrawal as being legitimate or for a legitimate purpose or for a purpose in the interest of SE BK.”

9. Sometime during the liquidation process an insolvency inquiry was held where the second respondent was questioned regarding his management of the corporation and the company. The applicant has emphasised the following exchanges that took place between the respondent and the questioner in support of his claim:

“V: Ja, was u besigheid se naam Senoko Enterprises BK?

A: Ja.

V: En dan het u die wins van daardie beslote korporasie geneem en in u persoonlike tjekrekening inbetaal. Is dit korrek?

V: Ja, so u het van die beslote korporasie se geld geneem, van tyd tot tyd, soos u dit benodig het, of goedgedink het dat u daarop geregtig is?

A: Ek het dit gedoen soos ek voel.

V: Ja, sê vir my, u het ook van die geld oorgeplaas na rekenings van SEN Enterprises by Allied Bank in Pietersburg. Is dit korrek?

A: Ja sorry no.

V: Nou waar kom die geld op SEN Enterprises se rekenings? Verskoon tog mnr die Tolk dat ek u nie verwar nie - waar kom die geld op SEN Enterprises se rekening by Allied Bank vandaan?

A: Dit is die BK se geld.”

And later on in the inquiry it was said:

“V: Ja, met ander woorde, SEN Enterprises is Senoko Enterprises BK - is dit korrek?

A: Dit is korrek.

V: En u het ook van Senoko Enterprises BK se geld inbetaal in die rekening van L & J Pharmaceuticals Medical (Edms) Bpk. Is dit korrek?

V: En u het ook ‘n bedrag van oor die R9 miljoen van Senoko Enterprises BK se geld oorbetaal aan die persoonlike rekening te Standard Bank in Bronkhorspruit. Is dit korrek?

A: Dit is korrek.”

10. The applicant maintains that these exchanges are a clear indication that the second respondent took money that rightfully was the money or property of the corporation.

11. The second respondent has countered that these amounts were paid to him legitimately as salary or as dividends and that the applicant has failed to show that the amounts paid or withdrawn were unreasonable.

12. During August 1997 the first respondent became aware that the second respondent owed an amount R13 535 983,67 in income tax, penalties and interest. Acting in terms of section 99 of the Income Tax Act of 1962 the first respondent seized an amount of R9 269 499,60, held in four of the second respondent’s bank accounts - one of the amounts being more than R9 million at the Standard Bank Bronkhorstspruit which the second respondent during the insolvency inquiry had admitted to transferring from the corporation to his personal account. It seems the first respondent was aware of the admission and acted in response to it.

13. In February 2000 the first respondent and the second respondent reached an agreement concerning his tax liability. The terms of the agreement are recorded in a letter addressed to the first respondent by the second respondent’s accountant on 16 February 2000 which reads:

“INCOME TAX : SENOKO WALTER

We refer to our meeting at your offices this morning for which we thank you and your team. We would like to refer to some of agreements and undertakings made by both parties which form the basis of this letter.

You have agreed to revise Mr Senoko tax assessment for 1995, 1996, and 1997 to R289 041,06, R246 570.43 and R2 466 567.40 respectively. The total amount of the above is R3 002 178.89.

We agreed to settle 90% penalty on the above amounts and the penalty amounts to R2701 960.

We accept that interest will be levied on the tax due and the interest amounts R504 330.

Our calculation for credit thus is therefore as follows:

Tax R 3 002 178.89

Penalty 90% R 2 701 960.20

8% interest 504 330.25

1998 assessments 134 318.16

____________

6342 787.50

Payments made (August 97

excluding interest) (9 270 492.36)

Credit Due 2 927 704.86

Based on the above undertaking we withdraw our appeal to the income tax court which was lodged through your office.

We thank you and your office for co-operation and understanding.”

14. When the applicant became aware of this letter he instructed his attorney to ensure that any payment by the first respondent to the second respondent should be made rather to him in his capacity as the liquidator of the corporation and not to the second respondent. On 18 February 2000 his attorney addressed a letter to the first respondent in the following terms:

“We refer to the telephone conversations earlier today with your Mr Coenraad Burger and confirm that we act on behalf of Mr J N Bekker, the liquidator in the insolvent estate of Senoko Enterprises CC. We furthermore confirm that our client in all likelihood will lay claim to any assets of the taxpayers mentioned above which may be released by yourselves.

We therefore urgently require your confirmation that no monies will be paid to any of the taxpayers, nor will any attachment on assets or any agency declarations be lifted, or any security which you may hold over any of their assets be released, without notifying writer hereof so as to provide our client with the opportunity to take actions to secure such assets as may be deemed necessary. It is furthermore confirmed that you have already informed personnel of the office of this arrangement. Your urgent reply by telefax will be appreciated.”

15. This was followed by a further letter on 22 February 2000 which read:

“We refer to the telephone conversation earlier today with your mr Burger, and confirm that we were informed that a tax credit in favour of mr. W Senoko was calculated in the amount of R3 234 212.22. We furthermore confirm that we were informed that the assessments and any payment of the credit would not take place before close of business on 24 February 2000, and neither will any attachments, agency declarations or other security over assets held by the Receiver of Revenue be released before that time.

It is our instructions to request that you urgently furnish us with particulars of any attachments, agency declarations or other securities which you hold over the assets of mr. Senoko. It is further our instructions to request you to pay the aforesaid credit amount to our client in his capacity as liquidator of Senoko Enterprises CC. Our client is entitled to the payment by virtue of the fact that the courts have already found that all assets of mr. Senoko was obtained from monies belonging to Senoko Enterprises CC (in liquidation).

Kindly respond to our request for payment of the tax credit as a matter of extreme urgency, as we will have to take immediate steps to protect the interest of our client and secure payment of the tax credit from you, should you not be prepared to pay the amount to my client voluntarily.”

16. Thereafter the applicant felt compelled to bring this application and to seek the relief in the notice of motion, namely for payment or delivery of any part of R9 269 499,60 as well as various policies and shares earlier seized by the first respondent. On account of his having subsequently established that the shares and policies have become worthless, the applicant has limited his claim to that set out in prayer 1.1 of the notice of motion being for recovery of the balance of the seized bank deposits.

17. In his answering affidavit the second respondent drew attention to the fact that he had brought an application to review certain decisions of the Master in relation to his objection to the liquidation and distribution account, in particular the claim of the MEC. He argued that if the review application was successful he would become entitled to a substantial liquidation dividend, thus rendering the present application unnecessary.

18. Accordingly, when the matter was placed on the roll on 28 February 2002, Swart J handed down an order by agreement between the parties in the following terms:

“NA AANHOOR van die advokate namens die applikant en die tweede respondent en na deurlees van die geliasseerde stukke, word as volg gelas by ooreenkoms tussen die partye:

1. Die aansoek word sine die uitgestel hangende die afhandeling van die aansoek onder saaknommer 30880/00.

2. Hangende die afhandeling van die aangeleentheid vermeld in paragraaf 1 supra en, tot bepaling, hetsy by wyse van hierdie aansoek, soos gewys of aangevul deur enige van die partye na aanleiding van die uitslag in saaknommer 30880/00 of andersins van wie geregtig is op die ondergemelde bates of opbrengste daarvan, word die eerste respondent gelas om die bedrag van R9 269 499.60 en die balans van die bedrae, bates of opbrengste daarvan van die fondse en bates vermeld in paragrawe 1.2 tot 1.6 van die applikant se kennisgewing van mosie hierin, aan die applicant se prokureur van rekord oor te betaal en/of te oorhandig om deur hom onderskeidelik op rentedraende trustrekenings of veilige bewarig gehou te word, tor krediet van die partye in hierdie saak ingevolge artikel 78(2) A van die Wet op Prokureurs.

3. Paragraaf 2 supra is onderhewig daaraan dat die bedrae en bates, soos gehou deur die applikant se prokureur, aan die eerste respondent oorbetaal en oorgedra moet word in die geval waar die applikant se aanspraak daarop onsuksesvol sou wees.

4. Die applikant en die tweede respondent word gelas om alle samewerking te gee om uitvoering aan paragraaf 2 supra te laat geskied.

5. Die voormelde prokureur van die applikant sal geregtig wees om sy redelike koste vir die hou van die bedrae en bates daarteen te verhaal.

6. Koste van hierdie aansoek word voorbehou.”

19. The application under case number 30880/2000 referred to in the order of Swart J was eventually settled on 4 October 2005 on the basis that the MEC’s claim against the corporation and liquidation would be admitted in the amount of R37 425 760,69. The result is that the corporation is indeed insolvent with a shortfall, according to applicant, in the amount of approximately R12 million.

20. The issue which I am therefore called upon to decide is whether the amount held by the applicant’s attorneys in terms of the order of 28 February 2002 should now be paid or delivered to the applicant.

21. The applicant’s case is that the money seized by the first respondent from the second respondent’s bank accounts is in the wording of section 362(1) of the Companies Act of 1973 money “in his hands to which the company is prima facie entitled”, and that he is accordingly entitled to an order paying it to him.

22. The second respondent, as I have indicated, contends that the money paid to him and held in his bank account was a legitimate payment of salary and dividends and that his response to the questioning in the insolvency enquiry does not amount to an admission that the monies were wrongfully transferred to him. Moreover, he submitted that the difference of interpretation amounted to a dispute of fact which cannot be resolved on motion, particularly because the relief sought was in effect a reivindicatio in respect of which the applicant bore an onus of establishing the corporation’s ownership of the money and other assets on a balance of probabilities.

23. I am unable to accept the submission of Mr Williams, who appeared for the second respondent, that the applicant must establish the requirements of a reivindicatio on account of his failure to disclose his reliance on section 362(1) of the Companies Act in his founding papers. The liquidator’s remedy is statutorily sanctioned for the purpose of protecting the creditors and there is no logical reason for excluding the liquidator’s entitlement to invoke it if and when objectively the pre-conditions for it have been met.

24. As for the scope of section 362(1), I accept the submission of Mr Preiss, who appeared for the applicant, that the expression “in his hands” used in the provision means legally vested in and thus contemplates holding by lawful cause and would extend to monies held on deposit in a bank account to which the second respondent had access in terms of normal banking arrangements. The real question therefore is whether the evidence establishes that the corporation is prima facie entitled to that money. That the amount of R9 269 499,60 was transferred from the corporation to the second respondent’s bank accounts is common cause. The only point in dispute is whether such payment was made to satisfy the second respondent’s lawful contractual entitlements to salary or dividends.

25. As mentioned earlier, there appear to be no reliable financial statements kept in terms of section 56 of the Close Corporations Acts which requires inter alia that accounting records relating to payments to members should contain sufficient detail of individual transactions to enable the nature and purpose thereof to be clearly identified. The only document giving any insight at all into the financial affairs of the corporation is annexure “WS6” to the second respondent’s answering affidavit. This is a letter addressed by the second respondent’s attorneys to the Commissioner of the South African Revenue Service incorporating a reconstructed income statement of the corporation for the periods 1 March 1994 to 28 February 1998. It reflects an amount paid or payable as “members salary” to be in the amount of R1 713 247. That amount would have been absorbed by the payment of R2 218 417 of the corporation’s money to the company on 11 December 1996, which the second respondent justified before De Klerk J as being remuneration due to him in respect of services rendered to the corporation. In other words, on the second respondent’s own version, the second respondent has made claim to two amounts as remuneration and dividends, namely: R2 218 417 and R9 269 499,60, but the only accounting record he adduces in support of his claim is the reconstructed income statement setting his remuneration for the period at the substantially lesser sum of R1 713 247. In addition, there is no contract of employment, letter of appointment, dividend resolution or bank statement reflecting any obligation to pay regular monthly or quarterly payments in a fixed amount.

26. The applicant, in order to succeed under section 362(1) of the Companies Act, must show a prima facie entitlement to the money transferred to the bank accounts. The fact that the amount of R9 269 499,60 belonged to the corporation prior to its transfer to the second respondent’s bank accounts is common cause. The applicant’s assertion that it was transferred without lawful cause has been met with the unsubstantiated claim that the money was owed as salary and dividends. In the absence of any further evidence from the second respondent, who after all was the controlling mind of the corporation, the prima facie evidence of the corporation’s entitlement becomes sufficient proof of that entitlement, especially when the second respondent’s own evidence discloses that he was entitled to a lesser amount which had already been paid.

27. Put in another way, the evidence adduced by the applicant supports an inference that the money is money to which the corporation is prima facie entitled and in the circumstances of this case it lay exclusively within remit of the second respondent to adduce additional facts to rebut the prima facie evidence of the corporation’s entitlement, which he singularly has failed to do. In the premises one may reasonably infer that the corporation is prima facie entitled to the money, and hence the applicant likewise to the relief he seeks. Moreover, the applicant is entitled to such relief on the facts stated by the respondent together with the admitted facts in his own affidavits and accordingly there is no need to refer the matter to trial or for the hearing of oral evidence.

28. With regard to costs, they should obviously follow the result and should include the costs of all previous appearances which were reserved on account of postponements at the instance of the second respondent. The importance, complexity and nature of the matter is such as to justify the employment of two counsel.

29. In the premises, I make the following orders:

a) The applicant’s attorneys of record are directed to pay to the applicant the amounts held in trust in terms of paragraph 2 of the order of this court dated 28 February 2002.

b) The second respondent is directed to pay the costs of this application including the costs of the appearances on 12 June 2001 and 28 February 2002, such costs to include the costs of employing two counsel.

J MURPHY

JUDGE OF THE HIGH COURT

Counsel for the applicant Advocates DA Preiss SC and NJ Louw, Pretoria and counsel for the respondent, Adv JO Williams SC, Pretoria.

Attorney for applicant, De Wet & Fourie c/o Wehmeyer Attorneys and attorney for the respondent, Maponya Inc.