Commissioner, South African Revenue Service v Van der Merwe NO and Others

The sixth respondent, Pela Plant Proprietary Limited (in liquidation), was placed under final winding-up on 16 September 2014 due to its inability to pay debts. Prior to its winding-up, the company had sent heavy duty earthmoving equipment valued at approximately R25 million to the Democratic Republic of Congo for operations. When the equipment (23 items) was returned to South Africa in March and June 2014, it was entered into a warehouse with deferment of customs duty and VAT. Fourteen items were subject to credit sale agreements with various banks, which became subject to a hypothec in favor of the banks under section 84(1) of the Insolvency Act. Nine items belonged to the company outright. The equipment remained in the warehouse under UTI (seventh respondent) with storage costs of R12,000 per day. The Commissioner claimed that approximately R8.5 million in duty and VAT was payable to clear the equipment. The liquidators sought release of the equipment without payment of duty and VAT to deal with it under insolvency laws. The Commissioner opposed, arguing that sections 20(4), 38, 39, 47A, 19(1), 19(6), 19(7), 19(9), 107(2)(a)(i), 114(aC) and 114(1)(b)(i) of the Customs and Excise Act precluded release unless duty and VAT were paid in full.

• Whether the Customs and Excise Act 91 of 1964 (specifically sections 20(4), 38, 39 and 114) creates an embargo preventing liquidators from taking possession of property in the custody of the Commissioner without first paying customs duty and VAT
• Whether the law relating to insolvency permits liquidators to deal with company property according to insolvency laws even though duty has not been paid
• Whether section 114 of the Customs Act creates a statutory lien that takes priority over the insolvency regime
• The proper interpretation of the Customs Act and VAT Act when read together with the Insolvency Act 24 of 1936 and Companies Act 61 of 1973
• Whether the Commissioner's claims for customs duty and VAT enjoy priority over other creditors' claims in insolvency

The appeal was dismissed with costs, including costs of two counsel. The order of the High Court (Annandale AJ) was upheld, requiring the equipment to be released to the liquidators to be dealt with in terms of the laws of insolvency.

Sections 20(4), 38, 39 and 114 of the Customs and Excise Act 91 of 1964 do not create an embargo preventing liquidators from taking possession of property in the custody or control of the Commissioner for SARS and dealing with such property according to the laws of insolvency, even where customs duty and VAT have not been paid. These provisions are directed at ordinary situations where goods attract liability for customs duty and do not address the special situation of insolvency, which is comprehensively dealt with in the Insolvency Act 24 of 1936. The statutory lien created by section 114(1)(aC) of the Customs Act serves to provide SARS with additional security but does not exclude goods from the operation of the insolvency regime. The Insolvency Act makes specific provision for the preference that claims for customs duty and VAT enjoy in sections 99(1)(cA) and (cD), and this ranking cannot be bypassed by reference to provisions of the Customs Act. The fundamental principle of insolvency law is that all creditors, including SARS, are subject to the provisions of the Insolvency Act unless statutes specifically provide otherwise by express provision or necessary implication.

The court specifically refrained from determining whether the statutory liens afforded by the Customs Act constitute 'security' as specially defined in the Insolvency Act, noting this as a difficult question that was unnecessary to resolve for purposes of the judgment (paragraph 21). The court observed that the Customs Act serves not only fiscal purposes but also other State interests such as protecting local manufacturers through anti-dumping provisions and implementing State policy (paragraph 8), though this did not affect the outcome. The court noted that if the Commissioner's interpretation were accepted, it would lead to absurd results where equipment would end up in a state warehouse to be sold by SARS under section 43 of the Customs Act, contrary to the purpose of the insolvency regime which is to realize all property at best value in the interests of all creditors (paragraph 25). The court commented that few purchasers would be willing to pay SARS before being able to take delivery of equipment, and no purchaser would pay if the value of duties and VAT exceeded the value of the equipment itself (paragraph 25).

This case is significant in South African law as it clarifies the relationship between customs and excise legislation and insolvency law. It establishes that the Insolvency Act provides a comprehensive scheme for dealing with insolvent estates and that fiscal legislation such as the Customs Act must be read subject to insolvency principles unless there is express legislative provision to the contrary. The judgment reinforces the fundamental principle of insolvency law that all creditors, including SARS, are subject to the provisions of the Insolvency Act and the creation of a concursus creditorum. It prevents SARS from using statutory liens and customs provisions to effectively bypass the insolvency regime and obtain preference over other creditors contrary to the ranking established in the Insolvency Act. The case also demonstrates the importance of purposive interpretation to avoid absurd results and injustice when different statutes potentially conflict. It provides important guidance on the rights and duties of liquidators in relation to assets subject to claims by SARS for customs duties and VAT.