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Business rescue – SARS told to stand in line (for now).

G&T_SARSSARS has always enjoyed a privileged position in liquidation matters because its claims are “preferent”, in other words whatever money may be left in the liquidation pot after secured creditors and staff claims have been settled goes to SARS first.

As a result concurrent creditors, who only get a look in if there’s anything left after SARS has had its fill, will normally have little hope of receiving any dividend at all. As an old rule of thumb puts it: “You have about a 5% chance of getting about 5 cents in the Rand”.

Your recovery odds just got better, if…

If – and only if – a distressed company is in business rescue rather than liquidation, your odds of getting at least something back just got better. The High Court has recently held that in rescue proceedings, SARS loses its preference and joins the queue with the other unsecured creditors – not only does it lose its liquidation preference, but it has no special voting rights when a business rescue plan is under consideration.

What that means in practice is this – even if a rescue attempt fails in its primary objective of restoring the company to viability and paying all creditors in full, there is at least now more chance of a reasonable payment accruing to creditors generally.

Of course SARS’ loss of preference in a business rescue situation stems from the current wording of the Companies Act, which could well now be amended to put SARS back at the head of the queue. But perhaps that won’t happen, and anyway for now at least it seems that concurrent creditors have one more reason to prefer a genuine (and viable) rescue attempt over final liquidation.

© DotNews, 2005-2013. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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