PFC Properties (Pty) Ltd v Commissioner for the South African Revenue Services and Others; Brita De Robillard NO and Another v PFC Properties (Pty) Ltd and Others

PFC Properties (PFC) was an asset-holding company. SARS conducted an audit on PFC for tax periods 2007-2018 regarding VAT and income tax, issuing revised assessments totaling over R52 million for VAT and over R5 million for income tax. PFC had claimed input tax on construction of a residential property (Serengeti property) which Mr and Mrs De Robillard used as their matrimonial home. When objecting to SARS' assessments, PFC offered security by undertaking not to dispose of three properties and to hold any sale proceeds in trust pending dispute resolution. Despite this undertaking, PFC sold all three properties at vastly undervalued prices (including the Serengeti property valued at R50 million but sold for R11.5 million with only R1 million paid). PFC also disposed of luxury yachts worth R45 million and R13 million for R12 million and R570,000 respectively. SARS launched winding-up proceedings on 26 February 2021. Shortly thereafter, PFC changed its registered address from Gauteng to KwaZulu-Natal. On 30 March 2021, days before the winding-up hearing, the trustees of the De Robillard Family Trust (DRFT trustees), PFC's sole shareholder, launched a business rescue application in the Pietermaritzburg High Court. PFC failed to file opposing papers in the winding-up application, instead relying on section 131(6) of the Companies Act which provides that a business rescue application suspends liquidation proceedings. The winding-up order was granted on 13 April 2021 by the Gauteng Division. In the business rescue application, the DRFT trustees made unsubstantiated claims about PFC's financial position, failed to answer comprehensive opposing affidavits from SARS and the trustees of Mr De Robillard's insolvent estate, failed to enrol the matter for hearing, and instead applied for a postponement. When the postponement was refused, counsel for PFC left the court without proceeding with the business rescue application.

• Whether the business rescue application constituted an abuse of court process
• Whether a business rescue application launched as a stratagem to avoid winding-up suspends liquidation proceedings under section 131(6) of the Companies Act 71 of 2008
• Whether there was a reasonable prospect of rescuing PFC as required by section 131(4)(a) of the Companies Act
• Whether it was just and equitable to wind up PFC
• Whether applicants in an abusive business rescue application should be non-suited
• The proper interpretation of sections 131, 132 and 133 of the Companies Act regarding the relationship between business rescue and liquidation proceedings

Both appeals dismissed with costs, including costs of two counsel where employed. The winding-up order granted by the Gauteng Division of the High Court, Pretoria on 13 April 2021 was upheld. The dismissal of the business rescue application and refusal of the postponement application by the KwaZulu-Natal Division of the High Court, Pietermaritzburg was upheld.

A business rescue application launched as a stratagem to avoid winding-up proceedings, without any genuine prospect of rescuing the company and for the ulterior purpose of delaying liquidation, constitutes an abuse of court process warranting the non-suiting of the applicants. Such an abusive application is not validly "made" within the meaning of section 131(6) of the Companies Act 71 of 2008, and therefore does not trigger the statutory moratorium suspending liquidation proceedings. The legislature could not have intended that an abusive business rescue application would have the effect of suspending legitimate winding-up proceedings. Where a company has dissipated all its assets, is factually and commercially insolvent, has lost its substratum, is not conducting business activities, makes unsubstantiated and contradictory claims about its financial position, and fails to establish reasonable grounds for a reasonable prospect of rescue as required by section 131(4)(a), it is just and equitable to wind up the company.

The Court noted that because of its finding on abuse of process and non-suiting the applicants, it was not necessary to consider the proper interpretation of sections 131, 132 and 133 of the Companies Act or the parties' submissions regarding the relationship between business rescue and liquidation proceedings. The Court observed that business rescue proceedings are not to be used to afford an opportunity to those behind a company's operations to avoid accounting for their stewardship. The Court noted with concern the pattern of conduct by the De Robillards including the previous liquidation of another company (Doltek), the withdrawal of legal proceedings against SARS after seven years, and Mrs De Robillard's claim at an inquiry that she knew nothing about PFC's affairs despite being a director and deponent to affidavits about its financial position. The Court emphasized that the power to non-suit for abuse of process must be exercised with great caution given the prejudice that may be caused to a litigant whose claim will not be decided, but found no such prejudice here given the applicants never intended to prosecute the application.

This case is significant for establishing important principles regarding the abuse of business rescue proceedings to thwart legitimate liquidation applications. It clarifies that: (1) Business rescue exists to rehabilitate companies capable of being restored to profitability, not to delay winding-up or avoid accountability; (2) An abusive business rescue application does not trigger the moratorium in section 131(6) of the Companies Act because such an application is not validly "made" as contemplated by the section; (3) Courts have inherent power to non-suit parties who abuse court processes, even where they claim a right that would otherwise be vindicated; (4) The Villa Crop principles on abuse of process apply to business rescue proceedings; (5) Courts will scrutinize the timing, bona fides, and factual foundation of business rescue applications, particularly where launched shortly before liquidation hearings; (6) Section 131(4)(a) requires a "reasonable prospect" of rescue based on reasonable grounds, not mere speculation; (7) Dissipation of assets, failure to answer allegations in founding papers, contradictory financial information, and abandonment of applications are strong indicators of abuse. The judgment reinforces that business rescue is a remedy for genuinely distressed but viable companies, not a procedural shield for insolvent companies seeking to evade creditors or consequences of mismanagement.