In South Africa, both insolvent and solvent companies have the option to do a voluntary liquidation. When a company or close corporation is insolvent, it means the company is unable to pay its debts or its liabilities exceed its assets. When a company is insolvent, it must liquidate in terms of the Companies Act 2008. Once the company is liquidated, a liquidator is appointed to wind up the company’s affairs. The South African Revenue Service (SARS) is automatically informed by the CIPC of the liquidation. After liquidation all the affairs of the company is wound up, including its tax affairs. This article will explain how SARS is dealt with after business liquidation.
The Role of the Liquidator in Finalizing Tax Affairs
Once a company or close corporation is liquidated, SARS is a preferent creditor. There are secured creditors which rank higher than SARS. Preferent creditors are the liquidator’s costs, legal fees, SARS and wages (in that order). When the company is liquidated, SARS is automatically informed of the liquidation as they are linked to the CIPC’s system. The liquidator will file the certificate of appointment once received so SARS is informed twice already at that stage that there is a liquidation. If SARS wants to prove a claim, it must do so just like any other creditor. If it does not prove a claim, it is not recognised as a creditor and will not get paid if there are any proceeds. SARS cannot behave differently after liquidation of a company just because it is SARS. After liquidation, the appointed liquidator becomes the public officer of the company and assumes the role of the representative taxpayer. This means the liquidator is in charge of overseeing the winding-up process, including managing SARS as one of the creditors.
SARS must update the company’s records to reflect that the company is in liquidation. Since the liquidator stands in the shoes of the director, the liquidator must also deal with creditors.
How SARS Handles Tax Debts in Liquidation
The liquidator must Inform SARS of the liquidation of the company. The liquidator must file his certificate of appointment with SARS and engage with SARS regarding the tax and revenue affairs of the liquidated company. The insolvent estate of the company is regarded as an estate by SARS and will be reported as such.
If there are any funds available, the liquidator will pay SARS as a preferred creditor (first secured creditors are paid). If there are no funds available to pay SARS, the debt will be written off.
Should a liquidator fail to comply with the requirements of the relevant tax Act and the Tax Administration Act 28 of 2011, the liquidator could be held personally liable for any tax payable by the insolvent company. The liquidator will be liable because he acts in a representative capacity on behalf of the insolvent company or close corporation. An example of when such a liability will arise is if the lqiuidator dispos of income which could have been paid to the tax revenue of the company or close corporation if those monies were in possession of the liquidator.
Updating the Company’s Details with SARS
The liquidator must update the company’s details with SARS by submitting the certificate of appointment. Until this is done, SARS will continue with debt collection efforts against the company. Once the liquidator’s appointment is officially recognized, SARS will stop sending communications to the company and instead direct them to the liquidator.
Conclusion
It is important to work with an experienced liquidation lawyer to guide you through the liquidation process and ensure SARS is informed of the liquidation. If your business is struggling with SARS debt and you are considering liquidation, speak to the writer who is a seasoned liquidation lawyer.
