10 OCTOBER 2003


The South African Revenue Service's role with respect to the liquidation of the Retail Apparel Group (RAG) has been the subject of intense debate during the past few weeks. In light of the inquiry called by the Master's Office under the Companies Act (s417), resuming on the 28th of October 2003, SARS considers it appropriate to brief the media and the public on our role in this matter.

SARS' most important objective is to improve tax morality in the country and collect all money due to the fiscus. We consider it our mandate to be uncompromising in our efforts to ensure that the fiscus does not lose any money in any liquidation process. If SARS has a valid claim, then it will pursue that claim through every legal avenue available. It is indeed true that SARS has more vigorously pursued the interest of the fiscus in liquidation cases in recent years. We make no apology for that.

It is therefore not surprising that, ever since SARS has begun to assert its rights as a creditor on behalf of government in the liquidation arena, we found that other creditors and historical role-players who have traditionally not been challenged, find SARS' presence uncomfortable.

A decision was made to liquidate RAP (Retail Apparel (Proprietary) Ltd). SARS was not made aware of this decision. On the day (27th May 2002) while the application for provisional liquidation was being made, Mr. Enver Motala made SARS aware that SARS might have a claim.

We looked into the affairs of the company and raised an assessment of R106m, which formed the basis on which we supported Mr. Motala's application to be a liquidator in the matter.

In the normal course of events, a creditor is not required to prove the validity of their claim when submitting a requisition in support for a particular liquidator. Subsequent to our support for Mr. Motala, we received queries from the already- appointed 4 liquidators asking us to justify our R106m claim. At this point in the insolvency proceedings no other creditor is expected to prove their claim. The other liquidators resisted the appointment of Mr. Motala by making representation to the Master indicating that SARS had no claim. We considered this to be unfair. This resistance, and the refusal of the Master to appoint Mr. Motala, led to SARS approaching the Minister of Justice in terms of Section 371 of the Companies Act to intervene.

This intervention has now been tested in the Courts.

It is often perceived in the liquidations industry that, in spite of the fact that a liquidator is appointed to serve the interests of all creditors, the reality is that liquidators often place the interests of creditors whose support assisted them in getting appointed, above other creditors. It is for this reason that we as SARS have a panel of liquidators as well as a policy that governs their support.

We hold no brief for Mr. Motala's conduct in this matter.

It must be stated plainly that the RAG case has proven to be one in which the traditional roleplayers in liquidations have had to test their respective strengths and interests in order to defend their claims. It is no secret that the banks resisted SARS' entry into this matter initially. It is also no secret that there remain a number of unresolved issues on the role of the banks in respect of liquidations such as their control/stake in liquidators, and the competing interests between the banks and SARS. These matters have been the subject of discussion between the SARS and the Banking Council, as well as SARS and specific banks.

Subsequent to discussions with the Banking Council, two banks have sold off their interest in liquidations.

On the latest events, we must state our position on the following issues: