Business Law & Tax (BD, June 2022)

BUSINESS LAW&TAX

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Golden energy opportunities

• Low-carbon transition creates possibilities for mining companies

Zinzi Lawrence ENSafrica

The raceto attain net zeroby 2050 requires mining companies to prepare themselves to respond to thedemands of a low-carboneconomy.

To do this,they should start adopting sustainable mining practicesand other nimble solutionssuitable for theirspecificoperations.

The growingthreat ofclimatechange has resulted in countries acrossthe globe making commitmentsin international and domestic instruments toadopt measures tomitigate climate change by transitioning to a low-carboneconomy.

TheSA governmentsees itself asa responsiblecitizen intheglobal village.Thisis evidentinthecountry’scommitments invarious international instrumentssuch as the Kyoto Protocol(1997) and the ParisAgreement (2015), andthecountry’sstatedaspiration to reachnet zero by mid-century inthe Low Emission Development Strategy,publishedin2020.

EXPLORATION

The recently published Exploration Strategyfor the Mining Industry of SA, which seeks toattract exploration investment intothe country and secure a5% share of global explorationexpenditure inthe nextfive years, recognises thesignificance of themineralsofthefutureand the potentialthese minerals have toreinvigorate the country’s miningindustry. These includecobalt, nickel, copper andrare-earth minerals. Theexploration strategyidentifiesthesemineralsof thefutureas“criticalminerals and metals that are essential

The miningindustry remains asignificant player inthe economyandis setto continuetoplayapivotalrole, especially withthe predicted increasein demandforclean technology mineralsor “metalsof thefuture” such as platinum, aluminiumand manganese,tonameafew. Inthecontext ofthetransition to a low-carbon economy, SA facesunique challenges in that more than 70% of energy needsare being met bycoal. However,the transition toa low-carbon economy not onlyposes a major threatto economies and livelihoods but it also places asignificant challenge on miningcompanies to adopt environmentallysustainablemethodsofmining.

forresponding totheshift towardsagreeneconomy” Additionally, accordingto aWorld BankGroupreport titled “Mineralsfor Climate Action: TheMineral Intensity ofthe CleanEnergyTransition”, the production of minerals such aslithium, cobalt and graphitecould increase by500%by2050tomeetthe increasing demandfor clean energytechnologies.

Mining companies must be alive tothe opportunities

THE MINING INDUSTRY REMAINS A SIGNIFICANT PLAYER IN THE ECONOMY AND IS SET TO CONTINUE TO PLAY A PIVOTAL ROLE

presented bythe energy transition andbegin positioning themselves ina manner that willenable themto take full advantage ofthe future commodities market. Some ofthemeasuresminingcompaniescantakeinclude: ● Investing inrenewable energy for the generation of electricity. In theSA context, renewable energyhas the potential toguarantee security of supplywhile also helping miningcompanies to

minimise theircarbon footprints, afactor whichhas become key for major stakeholdersgiventheriseofenvironmental, socialand governance (ESG)principles. In 2021, amendmentsto schedule 2of theElectricity Regulation Act,2006, whichsaw an increasein thethreshold forembeddedpowergenerationfrom 1MWto100MW, madethe useofrenewable energyatminesapossibility; ● Investing insustainable mining practicesto secure and maintainthe social licencetomine.Inthisregard, SA’s robustenvironmental legislation alreadyprovides a goodbasis forminingcompanies;and ● Incorporating ESGprinciplesintheiroperations.

STRATEGY

The opportunityfor themining industry in the transition toa low-carboneconomyis clear and has been endorsed by the governmentin the explorationstrategy. Itisnowinthehandsofall key stakeholders, including the governmentand mining companies, toensure the realisationof thetransitionto a low-carbon,while also deriving substantialeconomicbenefitsintheprocess.

● Reviewed by Ntsiki Adonisi-Kgame, head of ENSafrica’s Natural Resources and Environment department.

GREEN PATH TO THE FUTURE

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LATERAL THINKING

Slap in the face for work bullies

• Business Law & Tax Editor Evan Pickworth talks to Johan Botes, Partner and Head of the Employment & Compensation Practice at Baker McKenzie in Johannesburg. They discuss the new Code of Good Practice on the Prevention and Elimination of Harassment in the Workplace, its key features and why it could be a timely slap in the face for bullies at the office

EP:What isthe Employment Equity Act’s Code of GoodPractice on the Prevention andElimination ofHarassmentintheWorkplace?

JB: In Marchthis year, the employment& labourministerreleased subordinatelegislation,the CodeofGood Practiceon thePrevention andElimination ofHarassmentintheWorkplace(code), toreplacethe CodeofGood Practice onthe Handlingof SexualHarassment Casesin theWorkplace, asamended. The newcode expandssubstantiallyon thedifferent types of violencean employee may experiencein the workplaceand whatsteps employersare requiredto taketo dealwith theseforms ofviolence.

EP: Sowhat arethe four formsof violenceand harassmentin theworkplacelistedby theCodeof GoodPractice?

JB: Sexual violenceand harassment

Thisincludesanyconductthe personknows (orshould know)is notwelcome, offendsthe complainantor makesthe complainantfeel uncomfortable,andinterferes withwork. Thecodelists variousforms ofconduct whichwould amounttosexualviolence andharassment, including unwanted sexual attention and quidpro quo sexualharassment.

The code also compels employersto considerfurther factors ina matter involvingsexual violenceand harassment. These factors includewhether theconduct wasunwelcome; thenature and extent of the conduct; andimpactoftheconduct. Racial, ethnicor socialoriginviolence andharassment

Intermsof thecode,racial violenceand harassmentare typesof conductwhich demean,humiliateorcreatea hostileor intimidatingwork environmentfor acomplainant.This mayinclude conduct which(1) intendsto inducesubmission basedon actualor threatenedadverse consequencesfor thecomplainant and(2) relatesto a person’smembership ofa group.Abusive languageand racistjokes, raciallyoffensive material,racist namecalling, negative stereotyping,offen-

sivebehaviour creatinghostility,exclusion fromworkplaceinteraction andactivities,and marginalisationand threatening behaviour fall under thisform ofviolence andharassment.

Workplacebullying

Workplace bullyingis unwanted persistentconduct (or asingle incident)which is seriousand demeans,humiliatesor createsa hostileor intimidating work environment.Thisconductincludesa widerange ofinsulting, demeaning orintimidating behavioursthat lowerthe self-esteem or self-confidence ofan employee.Some examplesof workplacebullying include harassing, offending, professionallyor

WORKPLACE RULES WILL GENERALLY REFLECT THE VIEWS OF THE SOCIETY WITHIN WHICH THE EMPLOYER IS LOCATED

socially excluding someone, ornegatively affectingtheir worktasks.

Protecteddisclosures

The code setsout when a whistle-blower should be protected.This isdetermined using four stagesof the ProtectedDisclosure Act,namely: (1) whether the disclosure includes informationregardingoneof thecategoriesof impropriety;(2) whetherthe disclosureis protected;(3) whether the whistle-blower suffered anoccupational detriment; and (4)what remedyshouldbeawarded.

EP: Doesthe newcode followinternationalguidance?

JB:Yes, SApromulgatedthis legislation incompliance

with its obligationsas a member state ofthe InternationalLabourOrganisation.

EP: How does the code relateto theEmployment EquityAct, whichalso addressesharassment?

JB:The codefurtherconfirms the statutoryprohibition againstharassment (asfound insection6(1) and6(3)ofthe Employment EquityAct). However, harassment in termsof theEEApresupposesthattheunwantedconduct (harassment) is related to one or moreof theprotected groundsagainst whichdiscriminationis prohibited.If oneemployeebulliesanother becauseof thecolleague’s race,ethnicity, gender,sex, maritalstatus,sexualorientationor otherprotectedcharacteristics(or anyarbitrary ground), theoffending employeehas patentlycommittedharassmentasprohibitedintheEEAandthecode.

EP: But what is the situation whereoneemployeebullies orharasses anotherfor nondiscriminatory reasons?

JB:The protectedgrounds coverarbitrariness aswell. Whereanemployeeharasses another foran arbitraryreason,the misconductcould still qualify as the type of harassmentprohibited inthe EEA and the code. For example,our courtshave heldthat excluding permanentresidentsfrompermanentteachingpositions merely becausethey werenotSouth Africancitizens constituted unfairdiscrimination onan arbitrary ground. Similarly, discriminationon thebasisof Type 1 diabetes status was heldto beakin todiscrimination onthe basis ofHIV. The courtevenfoundthat,onparticularfacts, paydifferentiation on thebasis of provincial orgeographical locationconstitutedunfairdiscrimination.

EP:Does itmean,though, thata complainantmust showharassment orbullyingwasarbitraryifthemisconductwas notmotivated (directlyor indirectly)bya protectedcharacteristic?

JB:Thatwould seemtoplace too great an onus on complainants(and, byextension, employersseeking torid theirorganisations ofharassers and bullies). It cannot beexpected ofanemployer to show thatits troublesome employee’sattackonanother

employeewas motivatedby thevictim’srace,gender,ethnicityor similarprotected characteristics,or bytheperpetrator’sarbitraryconduct.

EP:Referring torecent news eventsas anexample, what wouldbe theoutcome ofan employeeslappinga colleague inthe workenvironment?

JB: Let’s be clear: an employee wouldcertainly havebeen dismissedfor misconductin mostjurisdictions forslappingthe presenterofan award show, or anyone else forthat matter.Employee conductat socialgatherings andeventsgenerallydoesnot escape the reachof their employer’sright todiscipline andterminate forcause. Employeesare routinelydisciplined and evenhave their employment terminated for poor conductat staffyearendfunctionsorclientevents. Actingpoorly (pardonthe pun)infrontofaglobaltelevision audience certainly aggravatesthematter.

EP: In this example, would an employer have to prove that slappinganother employee out of rage constitutes harassment for arbitraryreasons?

JB:Inmyview,thatcannotbe

the requirementas itwill place toogreat aburden on employers to provethe misconduct.

EP:So canemployersmake theirown rulesaround workplaceharassment?

JB:Employers maydeterminetheir ownreasonable workplacerules. Theserules willgenerally reflectthe views of thesociety within which the employer is located. In oursociety, where we sayviolence, harassmentand bullyingare unacceptableto us,the employermayreadily adopt rules to prevent such conductin theworkplace.It candetermine thatemployees may notharass or bully one another for any reason, irrespectiveofthemotivation. Theemployerneednotprove thata complainantcommitted statutoryharassment before terminatingan employee’sserviceforworkplacebullying.

EP:Can theemployer’s internalrules bemore stringentthan thosesuggested in the EEA and the code?

JB:The companymay instructitsstaffthatitisunacceptable to slanderor malign acolleague, performanyact whichhumiliates, insultsor demeansa colleague,withhold work-related informationorsupplyincorrectinformation,ostracise orexclude the employee from work, or any of the other examples of harassment mentioned in item4.7.5 ofthe code.However, the employermay clarifythatsuch conductisprohibited irrespective of whetherit constitutesdiscriminationornot themere act of committing such conductwill constituteworkplacemisconduct.

Thus, where an employee assaultsanother becausethe employee was offended by a colleague’sremarks, itwould notmatter thatthevictim’s race,genderorotherprotectedcharacteristics orany arbitrarygrounds playedno roleintheperpetrator’smotivation.The prohibitedconduct neednot constitutediscriminationunder theEEA andcodefor ittoconstitute workplacemisconduct.

EP:What happenswhen employees misbehave becausetheir conductis motivatedby orinfluenced by their base views of peopleof differentcategories thanthemselves?

JB: Such conductshould be eradicatedfrom theworkplace withthe fullmight that the EEA and code offers employers. However,emp-

EMPLOYERS MUST ALSO ENSURE THEIR POLICIES AND PRACTICES ARE COMPLIANT WITH THE CODE OF GOOD PRACTICE (ALREADY IN FORCE)

loyers should nothesitate to exitemployees fromthe workplacewho assault,bully orharass othersundercircumstanceswhere itmaybe difficult to prove the reason constitutesunfairdiscrimination. Employers may rely on theirown workplacerules, thecommon lawandvarious otherguidelines onunacceptablebehaviour toframe theallegations againstthe employee. Misconduct by any othername woulddismissassweetly.

EP:What shouldemployers donext?

JB:Employers mustalso ensuretheir policiesand practicesare compliantwith the Codeof GoodPractice (whichis alreadyinforce). Forward thinkingemployers ofthe modernworkforce have alreadyimplemented, or arein theprocess of updating,policies thatcomprehensively outlineproceduresensuring allemployees feelsafe andprotectedfrom all forms ofharassment and bullyingintheworkenvironment.

BUSINESS LAW & TAX

How Steinhoff decision was arrived at

• Ruling on

the retailer gives welcome clarity that an external company can be wound up in SA

Nomfundo Nkosi, Phylicia Naidoo & Paul Crosland Webber Wentzel

Arelevant ruling in the Steinhoff case gives welcome clarity on the status ofinsolvent external companiesinSA.

The recognitionand incorporation of external companies is provided for in SA legislation.External companies wererecognised in the CompaniesAct 61of 1973 (the 1973 act)and this recognition wascontinued inthe Companies Act 71of 2008 (the 2008act). Thequestion whether a SA court has the necessary jurisdictionto bring aboutthe winding-up of an external company has important consequencesfor foreign-registered entities, especially largemultinational corporations operatingin our jurisdiction.

The question recently cameto theforein theWesternCape Divisionof theHigh Court in thecase of AJVH Holdings and Others v Steinhoff Int Holdingsand Other (theSteinhoffcase).

Althoughthis waspartly addressed inthe Supreme Court ofAppeal (SCA)judgment of SacksteinNO v Proudfoot SA(Pty) Ltd, which dealt with the position in terms of the 1973act, in the

recent Steinhoffcase Slingers Jwas calledonto considera similar question,following thecoming intoforce ofthe 2008act.

The court was,inter alia, asked todetermine whether an external company can be considered asa “ company ” in termsof theapplicabledefinitionfoundin the2008act, read with the remaining provisions of the 1973act. It is worth notinghere that, despite itsrepeal, certain transitional arrangements pertaining towinding-up and

IN MAKING ITS DETERMINATION, THE COURT APPLIED CERTAIN TRITE INTERPRETATION PRINCIPLES DETAILED BY THE SCA

liquidation found in the 1973 act stillapply toinsolvent companies by virtue of Schedule5,Item 9ofthe 2008Act.

Inthe Steinhoffcase,certain contingent creditors (the applicants) of Steinhoff International Holdings NV (the respondent, or Steinhoff) broughtan applicationforits provisional winding up. This application was opposed by Steinhoff, and various finan-

cial creditors andthe Dutch administrators (the intervening parties) intervened and opposedit.Intheintervention and opposition application, the court’s jurisdictional competence to wind up Steinhoff as an external company was challenged the only aspectof thejudgment discussedhere.

To decide whether it had jurisdiction, the courthad to determinewhethertheapplicable definition of “ company ” would bemade withreference to either section 1 of the 2008actorsection337ofthe 1973act.

Intermsof section337of the 1973 act,a “ company ” was defined to include “ a company, externalcompany andany otherbodycorporate” (our emphasis), while section 1of the2008 actdid not provide for an external company in itsdefinition of a “ company ”

Froma plainreadingof thesedefinitions,itisclearthe 1973act considersa “ company ” to includeanexternal company, but the2008 act does not. This explains why the court inthe Sackstein case dealtwith thedefinition ofa“company”inthemanner itdidin2003.Sincethe2008 act cameinto forceon May1 2011, the question would needto berevisited,given thatthe 2008actdeparted fromthedefinitionusedbyits

CASE CLOSED

antecedentlegislation.

Slingers Jessentially had to interpret the transitional arrangements foundin Schedule 5,Item 9and what impact,if any,theywould have on determining which definition of “ company ” would applyunder the2008 actwhenitcametothequestion ofthe winding-upof an insolvent externalcompany. (The court accepted that, for the purposes of presenting argumenton thequestionof jurisdiction, it would be accepted that Steinhoff was commerciallyinsolvent.)

The arguments advanced by Steinhoff andthe intervening partieschallenging the court’s jurisdiction were that the remaining provisions of Chapter 14 of the 1973 act only applied tocompanies as definedin the2008 act,and which are insolvent. They argued thatthe provisionsof section337couldnotbeused to changethe definitionof a companyasit existsinthe 2008act andthat, ifthe applicants failed to show that Steinhoff wasa companyin termsof the2008 act,then the court hadno jurisdiction towinditup.Theyessentially chose to read Item 9(1) of schedule5asfollows:

“Despitethe repealofthe 1973 act, until the date determinedin termsofsub-item (4), Chapter14 of the1973 act continuesto applywith respectto winding-upand liquidations of companies duly defined interms of the 2008act,as ifthe1973act hadnotbeenrepealedsubject tosub-items(2)and(3).”

COUNTERARGUMENT

The applicant’s counterargumentwas thatChapter 14 of the 1973 act had to be appliedin itsentirety, includingits definitions.They submitted thatItem 9(1)of schedule5could alsoberead asfollows:

“Despite therepeal ofthe 1973 act, until the date determinedin termsofsub-item (4), Chapter14 of the1974 act continues toapply underthe 2008act withrespect tothe winding-up and liquidations ofcompanies,as ifthe1973 act hadnot beenrepealed subject to sub-items(2) and (3).”

Inmaking itsdetermination, thecourt appliedcertain trite interpretationprinciples detailedby theSCA, namely thatwhen embarkingupon aninterpretative exercisethe reader must applyan objec-

tive approach, considering the languageof theprovision, readingitincontext,andhavingregard toits purposeand the background to its preparationand production.The interpretation must be one of ordinary grammaticalmeaning unlessthat wouldresult inanabsurdity.

Thecourt favouredthe applicant’s argument and believedit wasconsistent withthe mandatetoproperly contextualise thestatutory provisionswhen theyare applied.After applyingthe principlesprovided bythe SCA,thecourt heldthatthe definitionunder section337 ofthe1973actwasapplicable, becausefavouring the2008 actdefinition wouldrender section 337 of the 1974 act unnecessary.It wouldhave the result ofrepealing section 337 of the 1973 act, which wasnot thelegislature’s intention.

Thecourt foundthat, ifit werethe legislature’s intention,theintentionwouldhave beenstated clearlyand unequivocally when settling onthecontentsofSchedule5. Accordingly,it wasfound aSAcourtdoeshavejurisdictionto windup anexternal company.

Tobacco laws throw light on ‘indoor public place’

Jonathan Goldberg & John Botha Global Business Solutions

When the stateof disaster was lifted by President Cyril Ramaphosa onApril 4,regulationsrequiring thecontinuedwearingofmasks,protocolsatgatheringsandstipulationsregarding entryacross SAborders werepublished, tobeappliedforatransitional periodof30days. Theseregulations ranin paralleltothe CodeofPractice on ManagingCovid-19 at the Workplaceas wellas the Hazardous BiologicalAgents regulations,both ofwhich.

have noend date.When the reviewdatein respectofthe April4 regulations arose on May 4, thedepartmentof health publisheda lastminute Gazetterenewal. This basically requiredthe continued mandatorywearing of masks, protocolsat gatherings andstipulations governing entry into SA through borderposts.

FINAL COMMENTS

Theserequirementsarelikely toremaininplaceforthenext three months untilthe social partners atNedlac have founda wayforwardand final commentson the

department ofhealth regulationshavebeenreceived.

On May 4,the legal requirement towear masks when enteringand being inside an “indoor public place” wasextended. Aswe said, this is likely to remain thecase foratleast the next three monthswhile the health ministerreceives and considers publiccomments in respect ofthe regulations relating tothe surveillance andcontrolofnotifiablemedicalconditions.

But whatconstitutes an “indoor publicplace”? The truth is there isno clear definition inCovid-19-related

lawin thisregard.Reference should then be made to the World HealthOrganisation (WHO)whichhasservedasa pointofreferenceformanyof SA’s policyprovisions. The WHO defines “indoor public place” as “any indoorplace accessible tothe public, including placesaccessible by appointmentor permission during thenormal courseofwork”

Ifone considersthisdefinition,then mostplacesof employmentwouldfallwithin the definition of “indoor public place” as itwould be possible for membersof the publictoaccesstheirpremis-

esfromtimetotime,evenifit isnotafrequentoccurrence.

For example, labour inspectors, visitors, suppliers and volunteersmay enter manufacturing premisesin terms of anappointment or with permission.These premises do notexist in a vacuumandtherealityisthat third parties willenter these from timeto timeand they need to beprotected from threats totheir healthand safety.

THE REQUIREMENT TO WEAR MASKS WHEN ENTERING AND BEING INSIDE

AN ‘INDOOR PUBLIC PLACE’ WAS EXTENDED ON MAY 4

Currently, according to theSA TobaccoProductsAct, 83of 1993,no personmay smoke anytobacco product in any indoor public place. Thisprohibition appliestoall business premisesand, as such, the use of the word “public”shouldnotbeusedto seek toexclude certain workplaces fromthe application ofthe wearingof masks aslong asthis is requiredbylaw

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BUSINESS LAW & TAX

Geoscience rules now in tune with law

• A Council for Geoscience is to be set up to which certain data on exploration must be submitted

Stephen Motsusi ENSafrica

Tomanageandpromote theexploration, knowledge of and investment in mineralsin SA, the government published the “GeoscienceAct Regulations2022”onMarch30.

Underthe regulationsthe Council forGeoscience (CGS) is to be established, to which itis mandatoryformining/ exploration andupstream energy companiesto submit certain geosciencedata related to theirprospecting and reconnaissanceactivities

Owners ofgeoscience data relatedto prospecting and reconnaissanceobtained after2004 (theyear inwhich the Mineraland Petroleum Resources DevelopmentAct, 2002 becameeffective) are requiredtolodgedataassociated withprospecting with the regional manager of the department of mineral resources & energy,and data associated withupstream oil and gas reconnaissance activities, withthe Petroleum AgencyofSA.

Geoscience data and information related to prospecting andreconnaissancemust be submitted in line withthe applicablelegislative framework. This mainlyrefers totheMineral and Petroleum Resources Development Act,as thepri-

marystatuteinthesectorand thesubmissions would,ata minimum, need tobe those prescribedintheact.

In termsof theact, the minerals resources& energy minister mayprescribe the kind of data to be submitted byholdersofrightsgrantedin terms of theact. Furthermore, section 21of the act provides thatholders of prospectingrightsandreconnaissance permissionsare required tokeep proper

THE ATTEMPT TO HARMONISE THE PROVISIONS OF THE ACT PROVIDES MUCH NEEDED CERTAINTY IN THE MARKET

records at the registered officeor placeof businessof the holder, of reconnaissance or prospecting operations and the results and expenditure connected tothem, as well as boreholecore data or core-log data, whichever is appropriate.

These holdersmust submitprogressreportsanddata intheprescribedmannerand at theprescribed intervalsto theregionalmanager.

Onshore and offshore prospecting and reconnaissance geoscience data and

information from before 2004 (pre-Mineral and Petroleum ResourcesDevelopment Act) aredeemedto behistoricalgeosciencedata.

IntermsoftheGeoscience Regulations, holders of historical geoscience data and information related to prospecting and reconnaissance must notify rather than lodge, as in the case of nonhistorical geoscience data theCGS ofthis dataafter whichtheCGSwill,atitsown expense,makearrangements for the transportation and collectionofthedata.

Although the department ofmineral resources&energyis thecompetentauthority and custodian of geoscience data related to prospecting and reconnaissance obtained on orafter 2004,the CGSis the competent authority and custodian of pre-Mineral and Petroleum ResourcesDevelopment Act datarelated to prospecting and reconnaissance.

DISSEMINATION AND SALE OF DATA

The Geoscience Regulations provide for the dissemination and saleof geosciencedata, albeit only in circumscribed instances.

Geoscience datalodged in terms ofa prospectingright and a reconnaissance permit are to be treated as confidential by the CGS, until the right or permithas lapsedor is

IN THE KNOW

abandoned. Similar protection is affordedto supplies of geosciencedataandinformation related to prospecting and reconnaissance in section30oftheact.

In terms ofthe act, the regional manager is required tosubmitrecordsofinformationand datain respectof reconnaissance andprospectingto theCGS.This includes progressreports and data related to reconnaissance or prospecting operationsandtheassociated results and expenditure, as well as boreholecore data andcorelogdata.

The Geoscience Regulations have been harmonised with the provisions of the Mineral and Petroleum Resources Development Act, in sofar asit permitssharing, withtheCGSgeosciencedata and information related to prospecting and reconnaissance thathas beenobtained by thedepartment ofmineral resources&energy.

All geosciencedata not related to prospecting and reconnaissance may be obtainedbythirdpartiesif:

● The ownersof thegeoscience data provide prior written approval tothe CGS, which mustalso beunderpinned by written confidentiality arrangementsbetween the ownerof thedata andthe

public recipient the request relatesto;or ● Thegeosciencedataisolderthan15years.

The GeoscienceRegulationsprovide thatanyperson is prohibited from engaging in conduct detrimental to the affairs of theCGS, including the improper disclosure of information withoutconsent of the CGS or its board. However, the regulationsdo not provide guidelines on what “improperdisclosure”entails.

All geotechnicalreports, including geotechnicalsite investigation reports, must to be prepared by a person registered as a professional natural scientistin termsof the Natural ScientificProfession Act, 2003or aprofessional engineer or professional engineering technologistin termsoftheEngineeringProfessionAct,2000

The GeoscienceRegulations promote and enhance themandate ofthe CGSto ensure that integrated, systematic and thematic maps and research on the onshore and offshoregeology ofSA is gatheredby theCGS.This will go a long way to facilitate SA’s mineral, energy and agricultural development and tocontribute totheassessment and sustainable management of mineral, geohydrological and geo-envi-

ronmentalresources. The GeoscienceRegulations adequately balance the interestsofthe CGSandthat of onshore and offshore explorers in providing for confidentiality of all geoscience data related to prospecting andreconnaissance.This isanimportant aspect given that certain kinds of geoscience data related to prospecting and reconnaissance such as geochemical and assay data and information, geohydrology information,seismological and geotechnical data is often considered commercially sensitiveinformation and notutilised forresearch purposes in the ordinary courseofthings. The attemptto harmonise theprovisions oftheGeoscience Regulations and the Mineral andPetroleum Resources DevelopmentAct provides much needed certaintyin themarket.What remains tobe seen,from a practical perspective, is how the requirements ofthe Geoscience Regulations will work in thecurrent legislativeframeworkasawhole.

● Reviewed by Ntsiki Adonisi-Kgame, head of ENSafrica’s Natural Resources and Environment department.

Steinhoff judgment makes the most commercial sense

Nomfundo Nkosi, Phylicia Naidoo & Paul Crosland Webber Wentzel

Although the judgment of the Western CapeHigh Courtin the caseof AJVHHoldings and Others v Steinhoff Int HoldingsandOthermightnot bebinding onotherdivisions ofthe highcourt, webelieve the correct interpretation was given tothe applicable legislationand itis unlikelya court ina differentjurisdiction, when facedwith similar facts, wouldcome toa differentdecision.

From apractical perspective, thejudgment makesthe

most commercialsense, especially whereexternal companies holdsignificant assetsinSA andfacehard times.It isinthe interestsof creditors ofan insolvent company (whetherlocal or external) thata liquidator familiar with the rights of creditors inthis jurisdiction, as wellas theSA insolvency law framework,is empoweredto takeimmediatecontrol of theassets and ensure equitable treatmentfor all stakeholders. The judgment ishelpful in givingmore clarityonthe status ofinsolvent external companies in SA.It gives the

shareholders andboards of these companiesadded reasonto considerthe impactof our insolvencylegislation whenit comesto theoperationofsuchcompaniesinSA.

Apointofinterestnotedin Steinhoff’s andthe intervening parties’ arguments discussedaboveistheirreliance onthe caseofCooperativa Muratori &Cementisti and OthervCompaniesandIntellectual PropertyCommission and Other[5](the CMCcase), whichheld thatit wasnot possible to placean external company underbusiness rescue, as it was not included in the definitionof company

intheCompaniesAct2008. Their argumentwas possibly misplaced, because there isno ambiguitywhen it comes to business rescue, a regime which didnot exist priorto the2008 act.As such,the questionofthe impact ofsurviving transitional arrangementsfrom chapter 14 of the1973 act did not haveto beanswered by theSCAintheCMCcase. Curiously, this effectively means thelegislature has allowed insolvent external companies to be wound up bySAcourts, yetthesame doesnot applyto placingan external companyin busi-

nessrescue.Thisisespecially surprising asan external company couldbe placed under judicialmanagement, the rarelyutilised precursor to business rescue under the 1973act.

In addition,the Companies AmendmentBill 2021 does not amend the 2008 act to include anexternal company inthe definitionof a

IT GIVES CLARITY ON THE STATUS OF INSOLVENT

EXTERNAL COMPANIES IN SA

company. Possibly we can assume it is notthe legislature’s intention to make business rescue availableasarelieftoexternal companies underfinancial distress.This mightresultin an inequitabletreatment of external companiesand, by extension, their stakeholders, intheSAcontext. Would afinancially distressed externalcompany be refused anopportunity to restructure itsaffairs and then be forcedto enter liquidation, tothe detriment ofvariousparties? As mattersstand, this appearstobethecase.

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BUSINESS LAW & TAX

VIEWPOINT AFRICA

Clarity needed in Uganda

• Industrial court’s controversial award glosses over distinction between ‘termination’ and ‘dismissal’

Phillip Karugaba & Anita Kenyangi ENSafrica

The IndustrialCourt in Uganda has passed a controversial awardinsisting employers mustgive reasonsbeforean employment contractis terminated (AsiimweApollo v LawDevelopmentCentre).

Theaward contradictsthe Court ofAppeal’s recent decision thatan employer may terminate acontract of employment without giving reasons, providedthat notice or paymentin lieuof notice was given (Bank of Uganda v JosephKibuuka).

TheIndustrial Courtwas expectedto followtheCourt of Appealdecision inthe Kibuukacaseontheprinciple thatalowercourtisboundby thedecisionofahighercourt.

Thisleaves aperplexing state ofaffairs for employees and employers.Should an employer givereasons for termination? Should an employee insiston reasons fortermination?

Termination ofan employment contract on notice orpayment inlieu of notice isa helpfuloption for employers andmay also servean employeeinsome circumstances. Wherethe employee/employer relationship hasdeteriorated and become unbearable,the option to terminate on notice may save both the employer and employeean acrimo-

nious hearingprocess. Itmay serveallparties,includingthe morale ofthe otheremployees ifthe objectionable employeeis simplyletgo withoutinquiry.

The claimantssued fora declaration thatthe terminationoftheiremploymentwas unfair asthe termination letters did not stipulate the reason fortermination. But each claimantreceived three months’payinlieuofnotice.

TheIndustrial Courtrelied ontheSupremeCourtcaseof Hilda Musinguziv Stanbic Bank Uganda to hold that reasonsmust begivenbefore termination ofan employee.

The Supreme Court stated in the HildaMusinguzi decision “the right ofan employer to terminate acontract cannot befettered bythe courtsso longas theprocedurefor termination isfollowed to

TERMINATION OF AN EMPLOYMENT CONTRACT ON NOTICE OR PAYMENT IN LIEU OF NOTICE IS A HELPFUL OPTION FOR EMPLOYERS

ensure that no employee’s contractis terminatedatthe whimsoftheemployerand,if itwere tohappen,the employee would be entitled tocompensation”

The IndustrialCourt concluded the Courtof Appealin

the Kibuuka decision had ignored the Supreme Court decision, and therefore held that there was a requirement to give reasons before termination. The Industrial Court also stated thatthe Hilda Musinguzi decisionresonatedwith article4 ofthe International LabourOrganisation (ILO) Termination of Employment Convention 1982, which requires reason begivenbeforetermination.

The awardreignites the debate on whether reasons shouldorshouldnotbegiven by the employer prior to termination of an employment contract.While wedidnot agree with theKibuuka decision,itwasexpansiveonreasonsfornot applyingarticle4 oftheILOconvention.

The Court ofAppeal reasoned that while Uganda domesticated the ILO convention,article 4,inparticular, was notre-enacted in the Employment Act and is therefore not applicable in Uganda. The Industrial Court, in choosingto departfrom the Kibuuka decision, should have explained why it thoughtarticle4stillapplied.

Perhapsthebestapproach is tofocus onthe modesof ending acontract ofemployment bydismissal andterminationbynotice.

An employermay dismiss an employee for misconduct afterahearing.Theemployee is informed ofthe reasons for disciplinary action, the right to representation and the righttofacetheaccusers.

WHAT WORDS MEAN

The HildaMusinguzi case was asituation ofdismissal. The appellant had been accused of gross negligence leading to financialloss to the bank. Shehad beeninformed of her infractions, placed on investigative suspension and subjected todisciplinary hearings, whichrecommendedherdismissal.

The Supreme Court observed that although the termination letter was titled “termination”, the nature and reasons for termination leaned more towards dismissal. Thismay explainwhy the Supreme Court emphasised the need to follow procedure before dismissing an employee toavoid thesituationof anemployeebeing terminated at the employer’s whims. On satisfaction that HildaMusinguzi wasgivena fair hearing, thecourt held thatthedismissalwaslawful.

On the other hand, an employer’s right to terminate the contract of employment by notice or payment in lieu of notice does not relate to misconduct.

Thiswas thekind ofter-

mination thatthe Courtof Appealdealt withinthe Kibuuka decision and the IndustrialCourt intheAsiimweApollo matter.Inboth cases, the termination arose outoftheneedforrestructuringbytheemployer.

It is thereforewrong for theIndustrial Courttointerpret the words “procedure” and “whims” from the Hilda Musinguzi decision as signifying therequirement togive reasons for dismissal and applyingit totheAsiimwe Apollo matter which did not arisefromadismissal.

A dismissalrequires procedures such as investigation andhearing toprotectthe employee from being discharged “at the whim” of the employer, Terminationby notice, on theother hand, only requires giving the employee notice or payment inlieuofnotice.

Both the Courtof Appeal and Industrial Court referred to the Hilda Musinguzi decision in the Kibuuka and Asiimwe decisions,respectively, although each court arrived at itsown conclusion

onthelegalpropositionofthe Supreme Court. A careful reading of the Musinguzi decision shows the Supreme Courtsetoutthelawandprocedure onthe twodifferent modesofterminationalbeitin a not-so-clear fashion. Perhapsthisis wheretheconfusionoriginates.

Forinstance, oncitingits previous decision in Barclays Bank v GodfreyMubiru, the Supreme Court concluded that an employercannot be forcedto keepanemployee against theirwill andthat the Employment Actpermitted termination on notice. However,since thematterarose fromadismissal(notatermination), the Supreme Court added that procedure should alwaysbefollowedsothatno employee is dismissed at the whimoftheemployer. By glossing over the distinction between “termination” and “dismissal” the Industrial Court misapplied the principles in the Hilda Musinguzidecision. The Court ofAppeal is now the finalappellate court in employmentmatters. There isno opportunityfor the SupremeCourt toclarify its decision inthe Hilda Musinguzimatter.

The challengenow fallsto theCourt ofAppeal toclarify its decisionin theJoseph Kibuuka decision and perhaps also commenton the HildaMusinguzidecision. Hopefully, clarification fromthe Courtof Appealwill put this issueto bed and probably settlea numberof “reasons-based” claims from employees who have been terminated(notdismissed).

Case underscores priority of secured creditors

Sheila Pacuto &Tracy Kakongi ENSafrica

The High Court of Uganda recentlypassed adecision (BankOfIndia (U)Limitedvs NCBeverages LimitedAnd Uganda Revenue Authority (CivilSuit 0009of2021) highlighting thepriority ofa securedcreditor inthewinding up orliquidation of a company.

Thecourt furtherchecked the actionsby theUganda RevenueAuthority (URA)of seizing anddisposing securedassets beforethey canberealised byasecured creditor oncommencement ofinsolvencyproceedings.

In thiscase, theBank of India gavea loan toNC Bev-

erages, whichwas secured by debentures.The company filedapetitionincourtforliquidation andlater defaulted ontheloan. Beforethebank could recoverthe loan,the URA seized and disposed of the chargedassets including motor vehicles,a processing plant andmachinery, raw materials, assortedequipment andoffice furnitureto recover unpaidtaxes. The issues beforethe courtwere whether thebank wasentitledto thepossessionand sale ofthe chargedproperty inprioritytotheURA.

The court held that the bank, as a secured creditor, had a rightto the charged assets overall othercreditors of the company.The charged assets formeda “lender’s

fund” from whichthe bank could recoverthe unpaid debtowed.

Accordingtothecourt,the URA’saction ofseizingand disposing ofthe charged assetswasunlawfulandcontrary tothe InsolvencyAct, whichprohibitsthelevyingof distress againsta company upon commencement of insolvency. TheURA was ordered to turnover the proceeds of the saleof the companyassetstothebank.

This decisionshows thata securedcreditormayenforce their securityeven though insolvency proceedingsexist againsta debtor.Thedebtor onlyhasthe righttoredeem chargedassets afterthedebt has beenpaid off.The funds not subjectto thesecured

assetsare heldin trustfor unsecuredcreditors.

Anexceptiontothisruleis that wherea debtor’s assets areinsufficient tomeetpreferential debts(including remuneration and expenses of theliquidation, employees’ salaries accrued over a fourmonth period,payments due under theWorkers Compensation Act (Cap225), unpaid taxes andNational Social Security Fundpayments), thesedebtsshallhavepriority over theclaims ofsecured creditors. The court held that thisexceptiondidnotapplyto thiscase sincethewinding up petitioncrystallised the floating charge andit had not beenshown thattheassets were insufficient tosettle the preferentialdebts.

This caseis significant becauseitreaffirmsthesuperiorposition ofsecuredcreditors andthe protection accorded to themby the Insolvency Act.This decision shows anadvancement of the courtin understanding insolvency proceedings and their purposein ensuring equitable distributionof proceeds from thesale of the company’sassets toacompany’s creditorsbased on their rankingin priority undertheInsolvencyAct.

Previously, insolvency proceedings wereseen asa means bya companyto evadepaymentofitsdebts,as was thecase inthe 2013 decision ofVenture Communications UgandaLimited Company Cause 39of 2011.

The creditors inthe case, includingthe URA,filedan applicationto dismissacompany’spetitionforwindingup onthe grounds the petition was broughtin badfaith to avoidpaymentofoutstanding debts. Thecourt dismissed thepetitionforwindingupon thebasis the petitioner had not adducedsufficient evidence for thecourt to determinethatitwasnotsolvent. The decisionalso tests enforcement andapplication ofthe provisionsof theSecurity Interestsin Moveable Property Act,2019 whichis a fairly recentlegislation on takingsecurityoverchattels.

●

Reviewed by Phillip Karugaba, Head of ENSafrica in Uganda

BUSINESS LAW & TAX

Put energy into managing stakeholders

• Renewable energy projects need to prioritise stakeholder management to avoid pitfalls later

Mihlali Sitefane ENSafrica

The management of keystakeholdersis often placedas a low prioritycompared with the urgency and the need to operationalise renewable energyprojects.

However,this approachis oftenshort-sighted.

Failureto placestakeholder managementat the forefront inthe development of renewableenergy projects may result inthese projects being stalled and could introduce challenges,which may haveabearing ontheirsuccessandlongevity

Foreseeing thesechal-

lenges and meaningfully addressing themis important if SA is to realise the vision in the National Development Plan 2030 tohave an energy sector thatpromotes “ economic growthand development through adequate investment inenergy infrastructureandtheprovisionof quality energyservices that arecompetitivelypriced,reliableandefficient” Inthe contextofrenewable energyprojects, stakeholders include landowners, local communities,lawful occupiers,developers,neighbouring operations,municipalities,farmers andanypersonorgroup ofpersonswho may affect or be affected by the developmentand opera-

tionalisation of the project. Stakeholders are different and so it is crucial to ensure stakeholders are not only identified but are classified andprioritisedappropriately.

For example, stakeholders who haverights toland are keyandmustbeclearlyidentified. Thisis importantfor concluding certain agreements, such assale of land agreements, servitudesor leases and in establishing what their termsof engagementare.

Depending onthe location of theland andcurrent useof the land, stakeholders who have rightsto landmay include individual owners, communities, farmers, associations and, in some

PARTNERS

instances, municipalitiesand mining companies. Failure to properly engage these stakeholders will stallthe project because the surface/land rights, for purposesof constructing the plant or other infrastructure wouldnot havebeensecured.

Where theland isowned bya community(asdefined in theInterim Protectionof Informal Land Rights Act, 1996), the community would need to consentto the alienation of any ofits rights in the land. Furthermore, and as was found inMaledu & Others v Itereleng Bakgatla Mineral Resources (Pty) Limited and Another, it is not sufficient to merely engage

and conclude surface-related agreements with the tribal authority without consulting and engaging the lawful occupiers or ownersof the land concerned. This task may seem simple but, practically,itmayinvolveextensive consultation with many people, and reaching a consensusmaybearduous.

Similarly, theland identified mayalready beringfenced for another purpose, such as mining activities, rehabilitation efforts in line with existingenvironmental approvals, townshipestablishments and other commercial purposes. Timeous and effective engagement with these stakeholders

increases the chances of ensuring that mutually beneficial commercial terms are agreeduponbyallparties. From anenvironmental law perspective,it isimperative to determine whether any interested and affected partiesintheareaarelikelyto oppose or appealthe requisite environmental authorisations, which may lead to the suspension of these authorisations pendingthe outcome of the appeal. This determination requires a proactive approach, as opposed to a reactive approach where the project isdelayedbecauseofineffectivestakeholderengagement.

The approachto stakeholdermanagementmustnot be a box-tickingexercise for thesole purposeofobtaining the requisite licences and authorisations, and securing land rights. Rather, stakeholders must beseen as fundamental to the success of the project. Developers must proactively plan forthe management and engagement of stakeholders atinception, with a long-term view of maintaining relationships, and enjoyinglong-term operational success that has the fullbuy-in ofthe relevant stakeholders.

● Reviewed by Ntsiki Adonisi-Kgame, head of ENSafrica’s Natural Resources and Environment department.

Crucial to get right balance on localisation

Heather Irvine Bowmans

Complex andpotentially unachievable localisation targetshavebeenakeyfactor inthe inabilityofrenewable power producersto bring desperately needednew energy projects onlinein SA, despite SAsuffering extensivepowercutsyetagain

Late lastyear, Transnet complainedthat itis at asignificant disadvantagerelative to its competitors because it iscompelled toprocurerail products throughlocal intermediaries whoadd novalue and inflate prices.This, it said, has reduced itsability to lower the cost of logistics in SA.This despitethecritical role rail has toplay in SA, whichis reelingfromthe pandemic, unrestand the recentKwaZulu-Natalfloods.

The rolewhich competition “policy markers” should playinpromotinglocalisation was recognisedby the department oftrade, industry & competition in the Competition Policy forJobs and Development itpublished in 2021. Apparentlyin support ofthisobjective,inAugustlast year theCompetition Commission issueddraft guidelines on collaborations between competitorsin both

public andprivate sector localisation initiatives.It aims to providecompanies with guidance on how they can engage indiscussions with their rivalsand reachagreements thatenhance local production anddecrease reliance onimports, without fallingfouloftheoutrightprohibitions onprice-fixing and market allocationcontained in section4(1)(b) ofthe CompetitionAct. ThefinalguidelineswereissuedinMarch

Unfortunately, theguidelines take thestance that “localisation willstimulate economic growth and lead to greater economiesof scale for localproducers, greater investment locallyand, ultimately, improved competitiveness inexport marketsin the longerterm” without specifying anyqualifying criteria forthese programmes or referringto theCompetitionActitself.

For example,the guidelinesstatethattheyareaimed at providingguidance to industry andthe government on how industry players may collaborate inidentifying opportunities forlocalisation and implementing commitments relatedto localisation initiatives in amanner that does notraise competition concerns, but don’t make it

clear thatagreements by competitors to increase sourcing oflocally made products shouldonly be undertaken ifthey actually lead toefficiency, technological orpro-competitive gains which outweighany lessening orprevention ofcompetition theymay causein any relevantmarket.Thisisinline withsection4(1)(a)oftheact. Localisation agreements which shieldlocal producers from competitionwithout actually yieldingany benefits should stillbe prosecutedby the competition authorities, particularly ifthese schemes merelyprotectexistinginefficient localmonopolies Localisation ruleswhich harm competition without yieldingthesebenefitsshould be permitted by the competitionauthorities onlyifthey meet one of the criteria for exemption set out in section 10oftheCompetitionAct.

Although these grounds for exemptionwere expandedwhen theCompetitionAct wasamended in2019and now include “competitiveness and efficiency gains that promote employment and industrial expansion”, the exemption processenvisagedbysection10oftheactat least requiresthe commissionto conductaproper

assessment ofthe claimed benefits ofa localisation scheme, followinga transparent andinclusive public commentprocess.

The commission’s guidelines are sadlysilent on the role andresponsibilities of the publicsector whenpromotinglocalisation.

Clear guidanceto regulatorssuchas NersaandIcasa, as wellas government departments and stateowned entitiessuch as Eskomwouldbehelpful.

Thecommissioncould,for example, havehighlighted that whileincreasing localisationisakeypartofgovernment’s strategyfor growth and development,it should bepursued inamanner which doesnot substantially lessen orprevent competition, unless there are clear compensating pro-competitive,technologicalorefficiencybenefits.

They shouldhave suggested aproper assessment be undertaken ofthe impact of proposedlocalisation rules on competitionin themarkets they willimpact on shouldbeundertakenpriorto implementing theserules, preferably onlyafter the affected competitorsand customers havehad an opportunity tocomment on

the designand proposed scheme for implementation oftherules.

Where localcontent rules whichare lessharmfulto competition areavailable, theyshouldbeadoptedahead of those whichare more harmful. Ideally,local content requirements should be phased in over time rather than implementedimmediately, since this would allow localmarketstobuildcapacityandpreservecompetition.

Applying theseprinciples, together with a basic regulatory impact assessment, wouldhave avoidedthecurrentimpasse intherenewables space, in which prescription of theminutiae of local manufacturingof key components has rendered these projects difficult, if not impossible,toimplement.

The commissionshould applysimilarprincipleswhen it imposes conditionsin relation tolocalisation inmergers, oraccepts agreements reached betweenmerging parties andgovernment departmentsinthiscontext.

The recentmerger in which IHSacquired MTN’s mobile towerportfolio isa good example. WhileIHS SA and MTN committedto a condition forthe merger which requiredthem topro-

cure asubstantial proportion of thegoods andservices required forthe construction of tower sitesand their management, maintenance and security fromsmall and medium enterprisesor historically disadvantaged personsbased inSA, thisconditionwasexplicitlystatedtobe subject to them agreeing on commercial terms,including quality,servicestandardsand most importantly,competitivepricing.

Localisation maybe helpful to support SA’s economic recovery and may be in line with the president and Treasury’s jointefforts tourgently effect structuraland economic reforms. However, this needs to be adequately balanced againstthe considerable benefitsthat competitivemarkets delivertoconsumers.

Our competitionauthorities have an important role to playnotonlyinprotectingthe ability oflocal suppliersto participate inthe economy, butalso inpreservingand enhancingcompetitioninkey SAinput markets,andproviding localconsumers with competitive pricesand productchoices,in linewiththe objectives ofthe Competition Act.Getting thebalanceright iscrucial.

BUSINESS LAW & TAX

Beware rogue rescue routes

• Ruling highlights that courts will not tolerate abuse of procedure

Eric Levenstein Werksmans

Inthe recentlypublished Deloitte Africa RestructuringSurvey, itwas statedthat businessrescueisexperiencingacrisisoftrust.

The survey highlighted that financial stakeholders oftenview theactionsof business rescue practitioners withscepticism.

Therecent judgmentof the Pretoria high court in commissioner forthe SA Revenue Services(Sars) v Louis Pasteur Investments (Pty) &others highlights issuesrelevanttotheabuseof the businessrescue procedure andwhere business rescue practitioners (BRPs) weretaken totask forthe manner inwhich thebusiness rescueprocedure had beenconducted.

The applicant,Sars, approachedthe courtforan orderforthe finalwindingup of LouisPasteur Investments (Pty) Ltd(LPI). Notwithstanding the fact thatLPI was both commercially andfinancially insolvent, thecourt also heard anapplication for rescission ofthe orderconverting thebusiness rescue proceedings into liquidation proceedings, as wellas an application forthe discharge oftheprovisionalwinding-up order.

LPIhad enteredbusiness rescue in June2012, after which a Mr Naude was appointed asthe business rescuepractitioner(BRP).

Aformal businessrescue planwas adoptedinNovember 2012. Sarsobtained judgments in 2010and 2011 againstLPIto thevalueof about R13m,which were neverchallenged.

In2013, Sars commenced anauditofLPI’sbusiness,and revised its claim to an amount ofabout R200m.

After becomingaware that LPI had been placed into business rescue,Sars institutedproceedings in2017to convert thebusiness rescue proceedings into liquidation proceedings.

InOctober 2018,Naude resigned as BRP. After a lengthy delay,a newBRP, Mr Prakke, wasappointed in February 2019.In March 2021,anorderwasgrantedin termsofsection132(2)(a)(ii)of the 2008 Companies Act to convert thebusiness rescue proceedings toliquidation proceedings.

Theconversion ofthe businessrescuetoliquidation proceedings wasopposed by PrakkeandLPI ontwomain grounds.Thefirst was that it was not competentfor a creditor like Sars to bring an application forconversion of

IT WAS HELD THAT A CREDITOR LIKE SARS WAS ENTITLED TO APPLY TO CONVERT BUSINESS RESCUE

PROCEEDINGS TO LIQUIDATION

thebusinessrescueproceedings into liquidation proceedings. The second ground of opposition was that, having regard to thereport of Prakke,the businesswasin fact capable of being rescued despite thefact the 10-year expiryperiod ofthebusiness rescue planwas inNovember2022.

In terms ofsection 132(2) ofthe act,businessrescue

BUSINESSES IN TROUBLE

proceedings maycome toan end in threeways. First, where acourt setsaside the board resolution or court order that commenced business rescue proceedings, or orders the conversion of businessrescuetoliquidation proceedings. Second, where the BRPfiles forthe termination of business rescue proceedings. Third, where the business rescue plan falls away, either becauseit was not adopted or, alternatively, because it was substantially implemented.

MillarJheld thataplain reading of section132(2) confirmed these werethe separateanddistinctroutestoterminate business rescue proceedings.

The BRP and LPI argued thatonlya BRP can convert business rescue proceedings to liquidation proceedings. MillarJpointedoutthatwhile courts have previously said BRPs may bebest suited to apply for the conversion of proceedings to liquidation, thatdoesnotmeanonlyBRPs canmake suchanapplication. Indeed, section 132(2)(a) issilent onwho shouldbring theapplication.

As such, it washeld that a creditorlikeSarswasentitled to apply to convert business rescue proceedings to liquidation.

Furthermore, theBRP and LPIarguedthat theSarsdebt arose prior to the adoption of thebusiness rescueplan.As such, in termsof section 152(2)readwithsection152(4) oftheact, theclaimscould not beenforced exceptto the extent envisaged inthe businessrescueplan.

MillarJdisagreedwiththis contention, pointing out that both those provisions deal with theenforcement ofdebt which is distinguishable from a conversion application.

Another argumentfor the discharge of the winding-up orderwas thatLPI wasstill capable of being rescued. Thiswas despiteLPIbeing factually and commercially insolvent.

To evaluateLPI’s argument, the courtexamined the business rescue plan, which had two notablefeatures. The first was thatholders of LPI’s

WHILE

IT IS TRUE MOST BUSINESS RESCUES TAKE LONGER THAN THE STATUTORY TIME FRAME, IT IS FAIR TO SAY 10 YEARS IS UNUSUAL

debentures (with a liability valueof aboutR50m)had converted theirclaims againstLPI intoequity.Second, the plan envisaged it wouldtake10yearstorescue the company. The court pointed out thatthis was anomalous inthe sensethat section 132(3) ofthe act sets the default durationof business rescue proceedings at threemonths.

While itis truemost businessrescuestakelongerthan the statutory timeframe, it is fairtosay10yearsisunusual, tosaytheleast.

Prakke arguedthat the

plansetoutaroadmaptosolvency, mainly through the liquidationof fixedassetsand the litigation ofclaims against other entities, most notably Louis Pasteur Holdings (Pty) Ltd(LPH) LPI’s holding company. Millar J disagreed, saying the BRPwas effectively winding upthe companyandnotrestoringittoan entity that could continue trading, an outcome envisagedbytheact.

As the plan did not make provision for the settlement of the tax liabilities, as well as the factLPH wasitself in business rescue, the court held that theextension of business rescueproceedings would effectively allow payment to somecreditors to the detriment of others. Such transactions would not be consonant with the concept ofbusinessrescue.

The courtexamined the underlying philosophyof businessrescue, asset outin section 128(1)(b) of the act. In this regard,Millar Jpointed outthatbusinessrescueisfor the “temporary supervision” of a company. In dismissing theBRP andLPI’s attemptto extend business rescue proceedings, Millar J referred to DrEric LevensteininSA Business RescueProcedure (Lexis Nexis), who emphasises a drawn-out business rescue plan thatis aimed at delaying an inevitable liquidation is undesirable, and oughttobediscouraged.

Ultimately, MillarJ came to the conclusionthere was no commercial or rational basis toallow thebusiness rescueto continue.Asthe court rightly pointed out,

THERE WAS NO COMMERCIAL OR RATIONAL BASIS TO ALLOW THE BUSINESS RESCUE TO CONTINUE business rescue proceedings aredesigned toprovidea shield for acompany to protectit andenableit totrade out of financial distress. Business rescueproceedings cannotand shouldnotbe used by companiesor BRPs asa swordto keepcreditors at bay,without regardto whetherornotthereisarealisticprospectofsuccess. Illustrating itsdispleasure withthemannerinwhichthe business rescue proceeded, as well as the inappropriate opposition tothe liquidation application,thecourtmulcted the BRP (Prakke)with a personalcosts order.Thejudgment lambastedthe BRP’s approach tothis litigation, implying itamounted not onlytoan abuseofbusiness rescue procedure, butalso to anabuseofthecourt. Thisshould beawarning toallBRPs whoconductlitigation in adilatory manner More importantly, it is a clear indication courtswill not hesitate to punishBRPs who actcontrary tothepurpose and objectivesof business rescue.

Judgments like thiswill go someway torestoringpublic trust in businessrescue and will providesupport to counter theproposition of there being a “crisis of trust” inSA’srescueprocedure.

BUSINESS LAW & TAX

Change in definition for ETI purposes

•

‘Monthly remuneration’ rethink may potentially increase the number of qualifying employees

EY South Africa

The Employment Tax Incentive (ETI) continuesto playa rolein thegovernmentpolicyofcreating employment opportunitiesfortheyouthofSA.

The 2022 South African budgethighlights includeda 50%increase inthemaximummonthly valueofthe ETIclaimed byemployers, whichwas effectivefrom March12022.

The 2021 Taxation Laws AmendmentAct alsoincludedalate changeinthedefinitionof “monthly remuneration” for ETIpurposeseffectivefromMarch 12022.The change may potentially increase thenumber ofqualifying employees and encourage employers to introducemore candidatesto theirprogrammes.

The ETI isa government initiativetoaddresstherateof youthunemployment inSA by providingthem withan

opportunityto obtainwork experienceandskills.

The ETI was introduced in January 2014and willbe availableto employersuntil February282029.

The programme encouragesemployers toaccept youngunskilled labourby reducingthe employer’s cost of hiring through the costsharing mechanismwith governmentfunding. TheETI amountis claimedby decreasingthe monthlyPAYE payableto theSouthAfrican RevenueServices (Sars),by theincentive amountcalculatedfor eachqualifying employee. Theincentive claimed isavailable overa 24-month qualifying period ofemployment.

Ensuring themonthly incentiveis calculatedaccurately is critical in ensuring theemployer remainscompliant. If theemployer incorrectly calculatesthe ETI,the employer may besubject to penaltiesandinterest.

Remunerationforpurpos-

esofcalculatingETI:

Before March 1 2022, monthly remunerationfor ETI purposes wasbased on thedefinition ofremunerationasdefined intheFourth Scheduleof theIncomeTax Act.Remuneration inthe FourthSchedule includesall cashamounts andtaxable benefits.

Changein thedefinitionof “monthlyremuneration”:

Effective March 1 2022, monthly remunerationis remunerationas definedin the FourthSchedule ofthe Income Tax Act,less noncash benefitsand lessnonsection 34(1)(b)(BCEA)deductions.

The below list outlines the nonsection 34(1)(b) (BCEA) deductions thatwould reduce monthly remuneration:

● Repaymentofanadvance

● Loanrepayment

● Staffpurchases

● Trainingcosts

The common noncash benefitsapplicable toqualifyingemployees whichwould

beexcluded frommonthly remuneration may include thefollowing,butarenotlimitedto:

● Housing

● Medicalaidemployercontributions

● Employer contributionsto pensionorprovidentfund

The below list includes someof thedeductions (among others)that willnot reduce monthly remunerationasthey qualifyassection 34(1)(b)BCEAdeductions:

● Garnisheeorder

● Income protectionpolicy premiums

● Maintenanceorder

Thechangeinthemonthly remuneration definitionwill broadenthenumberofqualifying employees,allowing employerstoclaimmoreETI.

Payroll software providers willhave toamend their software andinclude a separate wagetype thatwill

CONSUMER BILLS

The many roads to access justice

Accesstocourtsand therighttojust administrativeaction providedforinsections33 and34oftheBillofRights areessentialrightsinour constitutionaldemocracy.

Withouttheabilityto enforcethedemocratic valuesofhumandignity, equalityandfreedom,they meanverylittle.Thecourts havedoneafinejobin upholdingthosevaluesbut formalcourtprocessallthe waytotheConstitutional Courtisslowandexpensive. Fortunately,manyother bodiesprovideefficientand inexpensiveaccesstojustice.

TheLowerCourtsBill publishedinApril2022 proposestoaddmunicipal courtstothelist.Municipal courtswillbeestablishedat therequestofamunicipal councilfortheadjudication oftheby-lawsofthe municipalityconcerned. By-lawsarelocallaws thatdealwithallsortsofday-

PATRICK BRACHER

to-dayissuessuchas servicesandtrafficthatneed quickresolutionanda specialcourtisagoodidea. Therearetwoconcerns. Thenationalgovernment canassignpowersto municipalitiestoprovidethe facilities,andtodesignate judicialofficers,prosecutors andofficialsforthecourts whichisnotallsomething theyshouldbedoingin relationtotheadjudicationof theirownlaws. Itcarriestheriskoflossof respectfortheprocess.Ithas beenknownsinceRoman timesthatnemojudexin causasua nobodyshould bejudgeintheirowncase.

Theprovisionoffacilitieshas alsonotbeenthestrengthof municipalgovernancenor necessarilywithintheirtight budgets.

Second,municipalcourts areunlikelytoflourishin smallermunicipalitieswhere accesstojusticeismost remotefromtheresidentsin thoseareas.Wewillhaveto keepacloseeyeonits implementation.

Ifthegovernment’sother promisetoimprovethe rentalhousinglawstocreate well-functioningtribunalsto addressdisputesbetween ownersandtenantsisalso realised,localdispute resolutionwillgetaboost.

Letmegetbacktothe biggerpointaboutaccessto justice.Therearemany successfultribunals resolvingdisputescheaply andquickly.Financial servicesissuesarebeing resolvedbythesuccessful FinancialServicesTribunal backedbybanking,

insuranceandintermediary ombudswhoquicklyand fairlyresolveconsumer issues.

Thepensionlawsare upheldbythepensionfund adjudicatorwithrecourseto thetribunalforthe dissatisfied.Thesuccessof theCCMAindealingquickly withemploymentlaw disputeshasbeenrecognised fordecades.

Twothingswork particularlywell.The tribunalsandombudsare staffedbyexperienced lawyerswhohaveaclose understandingofthelaws andtheparticularissuesthey dealwith.Thisisnottosay youalwaysneedlawyers, butaworkingknowledgeof justprocessesisabonus.

Second,behindevery tribunalistherightofaparty aggrievedbyadecisionto approachthecourtsto reviewanyproceduralor factualoutcome.Areviewis notarehearing,andthe

specifically accumulatethe correctwage elementsand exclude those that have been specifically identifiedas excluded.Thewagetypesper employermay differsubstantiallyandthiswillbedifficult tostandardise ormonitor. There isno one standard formula for allpayroll users, therefore creating uncertaintiesand furtherpossiblemisstatementsintheETIclaims.

MORE AUDITS

Previouslyit wouldhave beenpossible forSarsto determineif theETIamount claimedwas correctand whether the employeewas a qualifying employee,from the taxableremuneration reported.The changemay result inmore Sarsaudits, andfurtheradministrationfor employers whoconsider introducingthisincentive.

Thecost ofadministration

mayoutweigh thebenefit, especiallyif penaltiesfor noncompliance becomea norm. Webelieve thismay nothavebeentheintentionof thelegislatedamendment.

Specificreference tothe ETI abusein the2022 South Africanbudget speechhighlightedthat governmentproposesthe EmploymentTax Incentive Act of 2013 be amendedto includeunderstatementpenalties onETI reimbursements that are improperlyclaimed. It is worthwhileto note Sars audits in respect of ETI claims continueto bea focus areaand taxpayersshouldbe aware of the high penalties andinterest theymaybe exposedto wherenoncomplianceis identified.The responsibility of accurately calculatingthe paymentdue toSars remainsthat ofthe employer/company.

courtsarelimitedtosetting asideunfairproceduresand irrationaldecisions.While reviewsleadstoslowand expensivecourtchallenges,it hasaneffectontheentire process.Anyadjudicating bodyknowstheimportance ofafairhearinganda reasonableapproachtothe factsinanydispute.

Theimportanceof administrativelawisoften forgotten.Mostoftheactions ofgovernmentthataffectour dailylivesstemfrom administrativedecisionsthat canbechallenged. Administrativelaw, overlappingwith constitutionallawandvalues,

THERE ARE MANY SUCCESSFUL

TRIBUNALS

RESOLVING

DISPUTES CHEAPLY AND QUICKLY

governsourlegalrelations withallpublicauthorities exercisingpublicpowersand functionswhich,ultimately, thecourtsregulateand control.Theadministrative bodiesmaydealwith technicalandbudgetary issueswheretheyhavemore experienceandexpertise thanacourt. Thatiswhythedecisionis challengednotaccordingto whetheritisthesame decisionthecourtwould havereachedonthefacts, butratherwhetheritis reasonableandrationalin relationtothereasonsgiven. Thatavoidstoomay disgruntledlosersrushingto courtinthehopeofabetter throwoftheirdice.

Let’shopeallthesegood valuesarebuiltintothe hearingsofthemunicipal courtswhentheyappear.

●

Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

BUSINESS LAW & TAX

When does a resignation take effect?

• Labour court ponders whether resignation can be unilaterally withdrawn, and the employer relationship

Fiona Leppan, Kgodisho Phashe & Liso Zenani CDH

What happens when an employee tenders andthen unilaterally seeks to withdraw a resignation?Thiswasthequestion beforethelabourcourt(LC)in Mohlwaadibonav DrJS Moroka Municipality(Case NoJ718/21)(March182022).

Atthe beginningofApril 2021,MrMohlwaadibona,the applicant,resigned fromthe employ of Dr JS Moroka Municipality due to ill health.

On April 15 2021, he attemptedtowithdrawhisresignation and indicated he was preparedto resumehis dutiesfourdayslater.

As the municipality had been under administration sinceJanuary 2020,Mr Mhlanga dealt with the matter in his capacity as the appointed administrator.He informedthe applicant the municipalitydid notaccept thewithdrawal,buttheappli-

cantclaimedheonlyreceived thiscommunication onApril 232021,afterhavingreported fordutyon April192021,by which time he had already receivedhisAprilsalary.

Despite Mhlanga’s earlier communicationto theapplicant, on May10 2021 Mr Monkoe, who was the acting municipal manager,advised Mohlwaadibona he had acceptedthe withdrawalof hisresignation.

The questions before the LabourCourt werethreefold: whatistheeffectofaresignation on the employment relationship? Whendoes aresignationactually takeeffect? Canaresignationbeunilaterally withdrawn and,if not, what would berequired to

THE

ONLY WAY TO REVIVE THE CONTRACT OF EMPLOYMENT WOULD BE THROUGH A FRESH OFFER AND ACCEPTANCE

revivethe employmentrelationship?

The courtheld thatresignationisby definitionavoluntary and unilateral act that puts anend tothe employment relationship.Moreover, ittakeseffectthemomentitis communicated to the employer,and itisincapable ofbeing withdrawnunless the employerconsents toit. That istrue evenwhere an employee iscontractually obligedtoserveanoticeperiodand failsto honourthat obligation.

The court indicated that once the resignationhas takeneffect,theemployer’sconsent to withdraw it is equivalent to are-employment or a rehiringof theemployee,but itisnot tantamounttoareinstatement.

The court maintained that since the applicant had communicatedhis resignationto hisemployer onApril 12021, theresignation tookeffect immediately.When hecommunicatedhis intentionto withdrawthe resignationon April 15, hewas in effect seeking re-employment.

TIME TO SAY GOODBYE

Mhlanga’scommunicationon April15wasasufficientrejection ofthe applicant’s withdrawalandneitherthelatter’s decision to reportfor duty on April 19 northe payment of his salaryon April25 altered thatfact. What’s more, becausethe actingmunicipal manager hadno authorityto effect re-employment, the court found hislater acceptance of theapplicant’s withdrawal tobe invalid andof no forceandeffect.

In essence, thecourt gave

credence to thefact that whenan employeevoluntarilyelects tocommunicate theirintention toterminate the employmentrelationship, thatelectioncannotbeunilaterally withdrawn onceit has beencommunicated tothe employer. Wherethe employeewas boundto serve a noticeperiod, their failure to serve that period will not negate the effect of theresignation, asthe employment contractwill stillhavereachedanend.

Theonlywaytorevivethe contract of employment wouldbe throughafresh offerandacceptance which amountsto rehiringorreemployment.This canoccur if theemployer optsto consentto thewithdrawal ofa resignation,but theemployer’srepresentative whoconsents to thewithdrawal must be a person authorised to rehireor re-employ;anything tothe contrarywould be invalidand of noforce and effect.

Time is of the essence in tax disputes

Angelique Stronkhorst & Bobby Wessels

AJM

Disputes withthe commissionerof theSARevenue Service (Sars)recently relate moreto theprocess thanthe substantive natureof the matter in dispute.In particular, thepast twoyears have seen a sharp rise in disputes that centreon administrative issues. The actionsperformed by Sars, anorgan ofstate in public administration,are governedbytheprovisionsof the TaxAdministration Act No28 of2011(TAA). Inthe alternative, shouldthe TAA not provideadequate remedies orshould thoseinternal remedies beexhausted, a taxpayercan turnto theprovisions ofthe Promotionof Administrative JusticeAct No 3 of2000 (Paja)to provide relief fromprejudicial action

onthe partofSars. Paja mandates fairness in tax administration whereadministrative action adverselyaffects the rightsofataxpayer. In March,the Supreme CourtofAppeal(SCA)handed down a judgmentin which it uphelda decisionof thehigh court in favourof Sars. The issue beforethe SCAwas whether the decisionby Sars not to allow Sasol Chevron Holdings Ltd (the taxpayer) to submitan applicationtothe VAT RefundAuthority isa decisionthatcanbereviewed intermsofPaja.

More specifically,the court wasconfronted with the question ofwhether the taxpayer metthe requirements in termsof section 7(1)(b) ofPaja. Section7(1)(b) requiresa taxpayertoinstitute review proceedings within180 daysafter thetaxpayer wasinformed of administrative action. This

requirementyieldstwopertinentquestions. Thefirstis when a decisionis regarded astakenordeemedtobetaken for purposes of section 7(1)(b) of Paja and, furthermore, whetheran application for review can be entertained where a taxpayer failed to institute areview application timeously andsubsequently erred insubmitting anapplication forextension interms ofsection9(2)ofPaja.

Thedispute inthiscase solely relatesto timing,being whether thetaxpayer filedits review applicationwithin the prescribed180-dayperiod.

The proverbialclock starts to tick assoon as the reason forthe administrative action becomesknown or when it reasonably ought to have become known to a taxpayer.In termsofthe judgment,itiscleararespondent isonly involvedor implicated ina lawsuitonce

service hasbeen effected.An application forreview insection 6(1) of Pajawill only fulfil the prescriptsof section7(1) should itboth beissued and servedontheaffectedparty. Where a taxpayerfails to submit itsreview application intimeand anapplicationfor extension is absent, the issue of unreasonablenessbecomespredetermined. The taxpayeris consideredunreasonable perseor unreasonable fromthe outset. Theabsence ofan application for extension bars the court fromconsidering the substantivemeritsofthejudicial review.Whether the decisionisunlawfulbecomes irrelevant asthe unreasonable delay on the taxpayer’s side validatesthe unlawful impugneddecision.

Thereis nodoubtthat section7(1) ofPajaacts asa time limitationprovision, the noncompliance ofwhich

produces inevitableresults for taxpayers.A taxpayer cannot, inthis regard,be oblivious ofthe prescribed rules andconsequences in termsof theprovisionsof Pajaand mustat alltimes manage their affairs in pursuanceof ajust andreasonable outcome. The SCA ruled strong judgmentagainst the taxpayerfor notbringingthe application withinthe prescribedtime andalongwith its lateapplication failingto submit anapplication for condonation. Dispute proceedings, whether interms ofPaja or theTAA,are subjecttooneroustime limitations,theprocedures andunderlying requirements ofwhich are often complex. A failure on theside ofataxpayer tomeet the prescribedtiming provisions can often, on that basis alone,bethe reason the outcome of a dispute is unfavourableforataxpayer.It isparamountforalltaxpayers toobtain usefulandproper tax adviceand appreciatethe pertinent role ofdispute and reviewproceedings. While taxpayers are offeredthenecessaryprotectionseitherintermsofPajaor the TAA to ensure they are notsubjecttounfairadministrative action,it isimportant fortaxpayers toremainloyal to the timelinesprescribed in terms of thelegislation if they wish for their caseto be successful.As theysay,time reallyisoftheessence.

IT IS CLEAR A RESPONDENT IS ONLY INVOLVED OR IMPLICATED IN A LAWSUIT ONCE SERVICE HAS BEEN EFFECTED

BUSINESS LAW & TAX

Supply chain failure clauses

• Recent events and the disruptions to logistics show contractors need legal protection

Tyron Theessen & Megan Jarvis

Webber Wentzel

Current logistical bottlenecks present high risks for contractors in completing capitalprojects, for miners andother industries,andtheyneedtoprotect themselvesagainstpenalties.

Supply chaindisruptions, whichemergedas aresultof Covid-19lockdownsin2020, and were joined by rising inflation towards theend of 2021, have intensifiedin the first part of 2022. With the Russian invasionof Ukraine and theCovid-19 shutdown in Shanghai, it looksas if disruptionsmayworsen.

Theother sideoflogistical disruption and thewar in Ukraineis thatitis causinga spike in theprices of certain commodities, and therefore mining companiesare more anxiousthan evertoaccelerate expansionprojects even astheir contractorsarebattling to secure the necessary inputs.

Forexample, theshortage of microchips,which are usedin avastrange ofconsumer products, including cellphones andautomotive vehicles, stemmednot only fromthe closureoffactories butalso risingdemandfor technology, when more employees had to work from home. Three-quartersof microchip production is located in East Asia, accord-

GOODS IN TRANSIT

ingtotheNewYorkTimes.

Anotherarea ofacute shortage over thepast two yearshas beensteel, asnot only were millsshut during Covid-19 but, whenthey restarted, they underestimated the extent ofthe economic recovery. Thishas causeda spike in the cost of certain steelproducts.

Thecosts andtimelines for importinggoods have

COVID-19 CASES CONTINUE TO AFFECT THE OUTPUT OF SUPPLIERS, MANUFACTURERS AND CONTRACTORS AT VARIOUS LEVELS

increased dramatically,with a500%increaseinthefreight costsofusinga12mcontainer to send goods by sea from ChinatoSA.

Additionally, Covid-19 cases continueto affectthe outputofsuppliers,manufacturersandcontractorsatvarious levels ofthe supply chain. An outbreakof Covid19atasupplierorsubsupplier compromises itscapacity to complete productiontimeously, which in turn delays delivery to manufacturers andcontractors.

Thesedelays andheightened costsare causingcontractors andoriginal equipment manufacturer(OEMs) toseekwaystomanagerisks and disclaimresponsibility fortimeandcostoverrunson

large capitalprojects. Material adverseevent orforce majeure clausesmay not help, asthe materiality thresholdmay notbe metin respectof theformerand supply chaindisruption is unlikelytobeconstruedasan unforeseen orunavoidable eventinrelationtothelatter.

Withno immediateprospect of thisproblem being resolved, contractors that need to procure critical capitalitems reliantoninputs such as steel,microchips or the logisticschain arehaving to considerincluding additional clausesin theircontracts toprotect themselves from the ramifications of failingtodeliverwithinexpected timelines. Contractors need toacknowledgethatthereare

THE KNOCK-ON EFFECT OF RISK TO CORPORATE REPUTATION SHOULD BE CONSIDERED WHEN SELECTING A SUPPLIER

higher levelsof commercial risk andmanage thesein differentways.

Wherethere areconcerns that a potentialdelay in the supply chainwill havean unintentional knock-on effect onthe construction period,the timeforcompletion andthe defectsdate (and these delaysare not

attributabletothecontractor), the contractormay consider including back-to-backprovisionsincontractswithsuppliers to mitigate these risks. In addition to providing for contractual relief, contractors should reducetheir reliance on a single critical source of supply andlook foralternatives.Sourcingproductsclosertohomeorusinglocalproductsmayalsoalleviaterisk. Theknock-on effectof risk tocorporate reputation should beconsidered when selecting asupplier andthe relevant geopolitical risk ought to form part of this evaluation. Sustainability of supply may forman important partof environment, social andgovernance (ESG) reportingforcontractorstoo.

Digital Sars dispute process less taxing

Joon Chong

Webber Wentzel

TheSA Revenue Service (Sars) has enabled its current disputeprocess oneFilingto employers requestinga remissionor objectingand appealingagainstadministrative penalties on late or nonsubmission of EMP501 Employer Reconciliation Declarations FromApril 232022,Sars will nolonger acceptmanually filed disputes against the EMP 501 administrative penalties, accordingto anote

issuedtoemployers. Since Sarsinstituted administrative penalties on the late ornonsubmission of EMP501EmployerReconciliationDeclarations in2021, employershave beenusing the manual ADR1 for objections and ADR2 for appeals, becausethe electronicdispute process wasnot availableoneFiling Sarshas imposedthe administrativepenaltyforlate ornonsubmissionoftheEMP 501returns for2021/2022 whichwasdue byMay31 2021. The penalty will be 1%

onciliation period(that is, for thatyearofassessment).

TheSars eFilingsystem has now been updated to allowthe requestforremissionof theadministrative penaltiesimposedintermsof the EMP301 assessment issuedto theemployer,and further from thatthe objectionandappealprocessofthe disputes.

We believe thisis a positive stepthat willassist employers and Sars to managetheir disputeprocess moreefficiently. Wenote, however,that

thedispute processfor employment tax incentive (ETI)adjustments is not alwaysavailable oneFiling. Manyemployers havebeen subject to rigorous audits by Sarson theirETI claimed.In certain instances,employers havehad tosubmit theirETI objectionsand appealsfor everyperiodthathasanadditionalassessment ataSars branch. Wehope theelectronic dispute process forETI will alsoconsistently beavailable on eFiling forall employers fortheirETIdisputes.

BUSINESS LAW & TAX

Creditors and self-interest

• When is it inappropriate for creditors to vote against the adoption of a business rescue plan?

Phylicia Naidoo & Christopher Holfeld Webber Wentzel

Creditors who voteagainstthe adoption ofa business rescue plan out of self-interest, without considering the rightsof other affected parties,may risk having theirvotes deemed inappropriatebyacourt.

A creditor of a company undergoing business rescue proceedingsisentitledtovote on theproposed business rescue plan.However, for somecreditors, votingforthe approval ofthe business rescue planwould not achievetheirobjectives.

If you decideto vote againsttheplaninthehopeof a betterone being proposed or thecompany being liquidated instead,could your vote bedeemed inappropriate, andthe resultant rejection ofthe business rescueplanbeatriskofbeing setaside?

Intermsofsection153(1)(a) ofthe CompaniesAct, ifa business rescueplan is rejected, thebusiness rescue practitioner isentitled to advise, atthe meetingcalled forconsideration oftheplan, that the companywill apply to court to setaside the result of the vote bythe holders of voting interestsor shareholders,onthegroundsthatit was inappropriate.(Alternatively, thebusiness rescue practitioner mayask the holdersof votingintereststo vote for approval to prepare andpublisharevisedplan.)

Ifthe businessrescue practitioner takesneither of

these steps,any “affected person ” in termsof section 153(1)(b)(i)(bb) whois present atthe meetingmayapply toa courtto setasidethe resultof the vote bythe holders of votinginterestsorshareholders,onthegroundsthatitwas inappropriate.

“Affected person” is defined in section 128 of the Companies Actand includes shareholders, creditorsof the company, registered trade unions representingthe company’s employeesand individual employeesor their representatives whoare not represented bya registered tradeunion.

Ifanapplicationismadeto setaside theresultof avote onthe groundsthat itwas inappropriate, interms of section 153(7) ofthe Companies Act, a court may grant theorderifitissatisfiedthatit

CREDITORS HAVE TO TAKE INTO ACCOUNT THE IMPACT ON OTHERS … IT IS VITAL TO LOOK AT THE BIGGER PICTURE

isreasonable andjust todo so,havingregardto:

● The interestsrepresented bythe person/swhovoted against the proposed businessrescueplan;

● Provision, ifany, madein the proposed rescue plan withrespect totheinterests ofthatperson/s;and

● A fair and reasonable estimate of thereturn to that personorthosepersonsifthe

discover more

company wereto be liquidated.

In the case of Ferrostaal GmbH and Another v Transnet SOC Ltd t/a Transnet National Ports Authority and Another (the Ferrostaal case) the Supreme Courtof Appealhad todeal with whether votes were inappropriate andaccordinglywhether theyshould beset aside after abusiness rescue planwasrejected.

Theapproachtakenbythe court wasformulated inthe case of FirstRand Bank Ltd v KJ Foods CC(the FirstRand Bank case).The courtneeds to determine whetherit is reasonable andjust toset aside the relevant vote against the business rescue plan by takinginto account thefactorsset outabovein terms ofsection 153(7)of the Companies Actand allcircumstances relevant to the case,includingthepurposeof businessrescue.

The interpretationof the term “inappropriate”needs to take place withinthe wider contextofthe objectsofbusiness rescue, including the provision of the efficient rescueandrecoveryoffinancially distressedcompanies, ina waywhich balancesthe rights and interestsof all the relevant stakeholders, including all creditors and employees.

In determiningwhether a vote against the adoption of a business rescue plan is inappropriate ornot, acourt needs to consider all the facts and circumstances and make avaluejudgment.

Inthe Ferrostaalcase,the appeal was instituted by Ferrostaal GmbH and Atlantis

FINDING DIRECTION

Marine ProjectsProprietary Limited, the shareholders of thecompanyinbusinessrescue, Ferromarine Africa (Pty) Ltd(FMA).

FMA did not have any employees, business or assets,aside fromitslease agreement with Transnet SOC Ltd t/a Transnet National Ports Authority (Transnet), which it sublet. Transnet voted against the business rescueplan asit wascommercially unviable and failed to adequately protect the interests of Transnet, the majorcreditorofFMA.

Transnet alsoreasoned that the implementation of the business rescue plan could not achievethe legislated objective of facilitating the efficient rescue and recovery of financially distressed companiesin away that balances the rights and interestsofallstakeholders.

Also,it reasonedthatthe liquidationof FMAwouldbe advantageous toTransnet. The courtdid notset aside Transnet’s votes rejecting the

business rescue plan. The court found the arrangement set out inthe business rescue plan encroached on the abilityof Transnettoexercise its contractual rights with FMA infuture andwas heavily skewed against Transnet. Therewere nootheraffected persons whoseinterests neededtobeprotected.

Accordingly, Transnet’s opposition to the business rescueplancouldnotbeconsidered as unreasonable and its vote againstthe adoption of thebusiness rescueplan wasnotinappropriate.

In contrast,in the FirstRand Bank case, the company in business rescue, KJFoodsCC (KJF),hadmore than 200 employees, who would be able to continue working forKJF ifthe business rescue plan was adopted. IfKJF wasliquidated, they would lose their employment. If the proposed business rescue plan was approved, FirstRandBank’s claim wouldbe settledin full by wayof paymentsmade

overaperiod oftime.Other creditors of KJFwould also benefitif thebusinessrescue planwasapproved. Another aspectthat the courtconsidered wasthat,if the businessrescue planwas approved, concurrent creditorsof KJFwouldreceive 100cintherandinsteadofthe 51cinthe randtheywould receive upon liquidation of KJF.Takingintoconsideration all the factsand circumstances, thecourt heldthat FirstRand Bank’s vote to reject the business rescue plan wasdue toself-interest andwasinappropriate. Creditors haveto takeinto accountthe impactonothers when determining whether tovoteagainsttheadoptionof a businessrescue plan,not onlyhow thedecisionwill affect them ortheir companies directly. It is vital to look at the bigger picture before casting a vote, or risk it being deemed inappropriate, if selfinterestis themotivationand other stakeholdersinvolved arenotbeingconsidered.

/123RF CATALBY