CSARS v Van Zyl and Others (37351/2020 )

Facts

There are numerous respondents to this application. For the purposes of this summary, we will only discuss two groups of respondents, namely the Van Zyl group and the Lubbe group.  The first group (“the Van Zyl group”) consists of Mrs Van Zyl, MsVan Zyl and a company called Viking Pony Properties 135 (Pty) Ltd. Mr Van Zyl is excluded from this group. The second group (“the Lubbe group”) consists of Mr Lubbe, a company called Express Model Trading 123 (Pty) Ltd and a trust named Malube Trust. 

Based on an affidavit provided by the South African Revenue Service (“SARS”), Mr Van Zyl operated a scheme whereby fraudulent VAT returns were submitted by companies under his control between 2006 to 2014. The fraudulent refunds were reversed by SARS, and the amounts demanded back from the companies that submitted the fraudulent VAT returns. In addition, SARS authorised audits of all the taxpayers who either participated in or benefited from the scheme.

The audit findings indicated that a significant amount of VAT, as well as income tax, was due by Van Zyl and the other respondents. On 11 August 2020 SARS obtained a provisional preservation order (“provisional order”) against the respondents as contemplated in section 163 of the Tax Administration Act No 28 of 2011 (“the TA Act”). This order prevents the disposal or removal of any realisable assets which may frustrate the collection of tax.

A curator bonis, charged to manage the preserved assets, was appointed to perform the necessary investigations and two reports were filed.  He had been in regular contact with the respondents, who are natural persons.  This, inter alia, resulted in the release of funds to Mrs Van Zyl.  Similarly, the current bank account of Mr Lubbe was also released from the provisional order, to allow for the deposit of his salary and processing of his debit orders.  However, it was found that some of the respondents failed to disclose relevant information in their opposing affidavits. 

Issues

In opposing the confirmation of the provisional order, each group raised separate issues, as to why the provisional preservation order should not be confirmed, and are listed below.

The Van Zyl group

Issue 1:  Whether the preservation order sought is an abuse of the provisions of section 163 of the TA Act;

Issue 2: Whether the appointment of the curator was unnecessary and “grossly invasive”;

Issue 3: Whether the preservation order constitutes an overreach in relation to the tax debt; and

Issue 4: Whether SARS failed to disclose all material facts when the initial order was sought.

The Lubbe group

Issue 1: Whether the preservation order sought is an abuse of the provisions of section 163 of the TA Act;

Issue 2: Whether there are realizable assets;

Issue 3: Whether there is risk of dissipation; and

Issue 4: Whether the preservation order would have practical utility if it was confirmed.

Finding

The Van Zyl group

The respondents allege that the application and reliance on section 163 of the TA Act constitutes an abuse of the process. The court found that on a review of all the evidence and voluminous documentation, but in particular, with reliance on the vast sums of money which have been channelled back and forth between the various entities and respondents, that SARS had been justified in being concerned about further manipulation of funds and transfers, amounting to dissipation of assets from one taxpayer to another or to an undisclosed third party, all of which might frustrate the recovery of tax debts.  Resorting to the mechanism created by section 163 of the TA Act cannot, under these circumstances, amount to an abuse of process.   

With regards to issue 2, the court again referred to the substantiating documents provided by SARS and the inferences of money laundering and tax evasion that was drawn which appears to be justified.  Also the conduct of the curator to release funds and accounts to allow for daily expenses, as well as allowing the sale of certain immovable property to proceed, further discourages findings of abuse or unnecessary invasion.

When the court considered issue 3, it was found that for one respondent, Mrs Van Zyl, it appears that the argument, that the extent of the preservation order amounts to overreaching, had merit. For Mrs Van Zyl, the preservation of assets in excess of R20million in respect of estimated tax debt which, from all indication received from SARS’s counsel, amount to some R12 million, appears excessive.  However, for the other respondents in the Van Zyl group, the estimated tax liability exceeded the preserved assets.

With regards to issue 4, much was made by counsel for the Van Zyl group that no actual dissipation has been proven, and that not all funds received were ill gotten gains, and that it cannot be said that all onward payments amounted to dissipation. In evaluating this argument, the court again referred to the fraudulent actions by the respondents and explained that section 163 of the TA Act attempts to preserve what is needed to secure a tax debt in order to avoid the frustration of recovery from whatever else may have been left undisclosed.

The Lubbe group

When the court addressed issue 2 (issue 1 having been addressed above) regarding the Lubbe group’s statement that there are no assets to realise, the court noted that this was not correct, since the curator determined that Mr Lubbe’s net asset value, excluding his tax liability, to be R1,210,616.21.  This included one immoveable property. Since Mr Lubbe acted negligently in his fiduciary duties as a director of his companies, it rendered him liable to SARS in respect of the tax liabilities of the companies. Mr Lubbe’s argument that the immovable property was not purchased from illicit money, but from the proceeds of his previous residence, did not have merit. The court stated that the acquisition of an asset need not have been by way of illicit refunds to make it subject to a preservation order.

With regard to issue 3, the Lubbe group argued that there are no assets owned by the other respondents included in the Lubbe group, and therefore, there are no assets to dissipate.  Mr Lubbe did tender the registration of an interim caveat against the immovable property, “until the dispute has been finalised”.  SARS argued that, absent a cession of the proceeds of any sale of the property, the caveat will only serve to prevent further encumbrance or transfer of the property should Lubbe sell it. The court reminded all that the tax liability is confirmed and final since none of the internal procedures as provided within the TA Act has been initiated by the respondents in the Lubbe group. 

When the court addressed the final issue for the Lubbe group, it found that if Mr Lubbbe tendered the registration of an interim caveat against his immovable property, then there would be no need for a preservation order against him, and should constitute a “condition” of the preservation order as contemplated in section 163(1) of the TA Act. However, the court was of the view that the preservation order should be confirmed in respect of the corporate entities within the Lubbe group.

The provisional order granted on 11 August 2020 was confirmed against the Van Zyl group with the exception of the limited amount for Mrs Van Zyl.

Regarding the Lubbe group, the provisional preservation order was also confirmed, with the exception of Mr Lubbe.  Mr Lubbe will be discharged from the order if, within 60 days from the date of the confirmation order, or such longer period as may be granted by SARS, a caveat over the immovable property is lodged with the Registrar of Deeds.

Find a copy of the court case here.

17/02/2022