Judgment summary
These were the return dates of two provisional sequestration orders granted on 15 October 2024, heard simultaneously though not consolidated [1, 2]. One application concerned the personal estate of Mr Ngwane Roux Shabangu (case number 121282/2023) and the other concerned the Roux Shabangu Family Trust, IT 4848/05 (case number 121275/2023) [1].
The applications arose from undisputed tax indebtedness to SARS. Prior to the sequestration applications, SARS had obtained a final preservation order under section 163 of the Tax Administration Act 28 of 2011 [1].
After the hearing, the Trust purported to settle its tax debt in full. SARS declined to withdraw the applications, citing uncertainty about the source of funds and the possibility that the payment constituted an impeachable transaction. A number of supplementary affidavits were filed by both parties after the hearing [10-18].
The court held that all statutory requirements under section 12(1) of the Insolvency Act 24 of 1936 were satisfied, that sequestration would be to the advantage of creditors, and that the applications were neither mala fide nor an abuse of process. Final sequestration orders were granted in both matters [34, 35].
Background
Mr Shabangu owed SARS R126,068,305.80 for the 2006 and 2009 to 2020 tax periods based on his own tax returns. By 5 August 2024, the amount had increased to R221,151,047.33 due to interest. There were no outstanding objections or appeals concerning the original and additional assessments [5].
On 22 April 2024, tax returns were filed on behalf of Mr Shabangu for the 2021 and 2022 years of assessment, claiming credits of R129,588,870.00 that would have extinguished his tax liability. These returns were fraudulent. Mr Shabangu acknowledged that fraud was committed but attributed it to his tax advisor. His subsequent admission of the underlying tax liability rendered the fraud irrelevant to the sequestration proceedings [4].
The Roux Shabangu Family Trust owed SARS R7,046,501.10 in respect of income tax for the 2008, 2011, 2013 and 2016 years of assessment, a debt also not disputed [6].
SARS argued that requests for a debt compromise under section 200 of the Tax Administration Act constituted an act of insolvency under section 8(e) of the Insolvency Act, and that Mr Shabangu's correspondence indicating inability to pay constituted an act of insolvency under section 8(f) [7].
Provisional sequestration orders were granted on 15 October 2024. The application against Mr Shabangu's personal estate was originally brought against both Mr Shabangu and his wife, as SARS could not determine their marital regime. During the provisional sequestration hearing, SARS accepted that section 21 of the Insolvency Act would afford sufficient protection to the concursus creditorum, and the provisional order was granted against Mr Shabangu's estate only [3].
Core dispute
The principal question was whether final sequestration orders should be granted against Mr Shabangu's personal estate and the Trust [21, 22].
The respondents' main objection was that the sequestration applications were mala fide and an abuse of process [9, 29]. Mr Shabangu contended that SARS was running an integrated campaign against him with a hidden agenda, and that SARS pursued litigation even after the Trust paid its tax debt, suggesting an ulterior motive [18].
A subsidiary dispute arose after the hearing when the Trust purported to settle its full tax liability. SARS refused to treat this as extinguishing the debt for the purposes of the applications, arguing that the source of the funds was unknown, that the payment may have been an impeachable transaction given that both the Trust and Mr Shabangu were under provisional sequestration at the time the loan was allegedly procured, and that neither had legal capacity to encumber assets or attract liabilities without the consent of the provisional insolvency trustee [10, 13, 16, 33].
A further issue was whether outstanding costs orders, including the costs of the section 163 application and costs incurred by the joint provisional trustees, remained owing and provided an independent basis for continuing the applications [10, 14, 15].
Court findings
The court confirmed that section 12(1) of the Insolvency Act requires an applicant to establish: a liquidated claim of at least R100.00 against the debtor; commission of an act of insolvency under section 8 or factual insolvency; and an advantage to creditors. For a final order, proof on a balance of probabilities is required [21, 22].
The court found it incontrovertible that the threshold requirement of indebtedness existed when the applications were launched and the provisional orders were granted [23]. Both Mr Shabangu and the Trust had committed acts of insolvency under section 8(f) by being unable to pay their debts to SARS, and the requests for debt compromises under section 200 of the Tax Administration Act constituted acts of insolvency under section 8(e) of the Insolvency Act [23].
On the question of advantage to creditors, the court held that a trustee's investigative powers, including the ability to interrogate the insolvent, examine financial records and set aside certain dispositions, could produce a reasonable prospect of pecuniary benefit to creditors even where no assets are immediately identifiable [25, 26]. The court was satisfied that the complex and convoluted financial transactions involving Mr Shabangu and the Trust, together with the disputed source of the funds used to pay the Trust's debt, demonstrated a clear need for investigation under the Insolvency Act [27, 28].
The court rejected the mala fide and abuse of process arguments. It held that SARS had proceeded on the basis of undisputed debts and admitted acts of insolvency, and that seeking sequestration to investigate convoluted financial affairs could not be characterised as an abuse of process or as mala fide [31]. The payment of the Trust's tax debt after the provisional sequestration order and after the final hearing did not automatically preclude the granting of a final sequestration order, and did not render SARS' persistence with the application abusive [32, 33].
The court held that SARS' argument, that the payment could form part of an impeachable transaction and that SARS could not be a party to such a transaction, had merit [33].
The earlier argument that SARS lacked authority to bring sequestration applications given other collection remedies in the Tax Administration Act was abandoned by the respondents, and the court confirmed that section 177 of the Tax Administration Act empowers SARS to institute a sequestration application for an outstanding tax debt [20].
Outcome
The court granted final sequestration orders in both case number 121282/2023 and case number 121275/2023 [35]. The costs of the applications were ordered to be costs in the sequestration [35].
Major issues / areas of contention
- Whether SARS had the authority to bring sequestration applications given other collection remedies available under the Tax Administration Act 28 of 2011, specifically section 177.
- Whether the statutory requirements for final sequestration under section 12(1) of the Insolvency Act 24 of 1936 were satisfied, including the existence of a liquidated debt of at least R100.00, commission of an act of insolvency under section 8, and advantage to creditors.
- Whether fraudulent tax returns filed on 22 April 2024 claiming credits of R129,588,870.00 affected the underlying tax liability, and whether Mr Shabangu's subsequent admission of liability resolved this issue.
- Whether requests for a debt compromise under section 200 of the Tax Administration Act constituted an act of insolvency under section 8(e) of the Insolvency Act.
- Whether the Trust's post-hearing payment of its tax debt of R7,046,501.10 extinguished the basis for its sequestration, including whether the payment may have been an impeachable transaction made without the consent of the provisional insolvency trustee.
- Whether the source of the funds used to settle the Trust's tax debt was legitimate, given discrepancies in the accounts provided by Mr Shabangu and the Trust.
- Whether the sequestration applications were mala fide and an abuse of process, as contended by Mr Shabangu.
- Whether sequestration would be to the advantage of creditors, and the role of the trustee's investigative powers under the Insolvency Act in establishing that advantage.
- Whether outstanding costs orders, including costs from the section 163 preservation application and costs of the joint provisional trustees, provided an independent basis for continuing the sequestration applications after the Trust's tax debt was paid.