Case Note: The income tax position of a creditor on the insolvency and/or business rescue of a debtor

• Citation: (2022) 34 SA Merc LJ 293
• DOI: https://doi.org/10.47348/SAMLJ/v34/i2a6
• Published date: 01 February 2023
• Pages: 293-303
• Author: Legwaila, T.
• Date: 01 February 2023

JOBNAME: SAMLJ Vol 31 Part 1 PAGE: 1 SESS: 11 OUTPUT: Wed Nov 23 09:50:32 2022 SUM: 33463AC1

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Case Note

THE INCOME TAX POSITION OF A

CREDITOR ON THE INSOLVENCY AND/OR

BUSINESS RESCUE OF A DEBTOR

THABO LEGWAILA

Professor of Law, University of Johannesburg

CARIKA FRITZ

Associate Professor of Law, University of the Witwatersrand

I INTRODUCTION

The Insolvency Act 24 of 1936 (Insolvency Act) deals with the law

relating to insolvent natural persons and their estates (preamble to the

Insolvency Act) and to a certain extent, with the winding up of insolvent

companies. The Companies Act 61 of 1973 (Companies Act 1973)

regulates the winding up of insolvent companies and it incorporates

certain provisions of the Insolvency Act (see s 339 of the Companies Act

1973 in this regard).

One of the aspects that the Insolvency Act governs is how the proceeds

from realising assets in the insolvent estate, albeit the estate of a natural

person or of a company, should be distributed amongst the creditors

who have proven a claim against the insolvent estate (ss 95–103 of the

Insolvency Act). In this regard, the Insolvency Act makes it clear what

the creditors can expect regarding an outstanding claim they might have

against the insolvent debtor. However, the initial transaction that gave

rise to the debt obligation in the hands of the insolvent debtor could

have certain income tax consequences attached to it for the taxpayer-

creditor. The question that arises is what income tax consequences the

subsequent sequestration or winding up of the debtor would have in the

hands of the taxpayer-creditor? This is a question that is not explicitly

answered in any one provision, as insolvency and tax provisions

generally concern themselves with the position of the insolvent person.

This question is addressed in Part II of this note.

A related aspect, namely the income tax consequences in the hands of

the creditor where the debtor-company is under business rescue as

002 - SA Mercantile Law - November 14, 2022

293 https://doi.org/10.47348/SAMLJ/v34/i2a6

(2022) 34 SA Merc LJ 293

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