Abstract
LL.M. (Corporate Law)
One of the major effects of the economic crisis in the world is that companies start to neglect the statutorily-imposed duty they owe to the Receiver of Revenue. In South Africa the 2008 Companies Act as well as the Tax Administration Act provide tax debt relief measures in the form of compromises. The first type of tax debt compromise can be facilitated by way of a business rescue process. This procedure provides for a moratorium on legal proceedings and thus affords the company a breathing space while negotiating the terms of the compromise. A business rescue is not always a compromise in the strict sense of the word, as a result of the fact that creditors, for example SARS, cannot be forced to accede to the discharge of part of their claims. A creditor compromise can further be entered into between the company and the creditors under section 155 of the 2008 Companies Act. This procedure however does not provide a moratorium on legal proceedings. A further factor that differentiates it from business rescue is that companies can initiate this specific procedure even if they are not financially distressed. In circumstances where SARS is the only creditor, a compromise in terms of the Tax Administration Act will be more ideal as no court procedure is required. This type of compromise conversely places SARS in a position where it does not have to compete with other creditors and can therefore negotiate terms and conditions that best suits it.
A comparative study shows that Australia’s regulations on compromises are more stringent than South Africa’s, as the Australia Taxation Office follows an all or nothing dictum in that it takes all the assets of the company in a compromise. Though it may promote and cultivate a greater degree of respect towards the state officials and adherence of the rules regulating society, there is no room for the rescuing of companies. It is suggested that the best balance in South Africa can be found in circumstances where the tax debt relief that a compromise offers, could insure that the State would gain financially as a result thereof.