VIP LIQUIDATION: OVER E37M TAX DEBT, 900 JOBS AT STAKE

MBABANE – Jobs of approximately 900 employees of one of the oldest security firms in the country, VIP Protection Services (PTY) Limited, are on the line.

The company yesterday obtained an interim order for voluntary liquidation and one of the reasons, is that it purportedly owes Eswatini Revenue Service (ERS) over E37 million in respect of unpaid VAT. A company usually applies for voluntary winding up if its liabilities are more than its assets. This essentially means that the company cannot operate its business function anymore and can apply to be winded –up (liquidated). The interim order for the winding up of the company was issued by Judge Bongani Sydney Dlamini. He also granted an order for the appointment of Paul Mulindwa and Jose Rodrigues as joint provisional liquidators of the security firm.

In her affidavit, in support of the application, Sarah Jane Thomson, who is the director, informed the court that the applicant (VIP Protection Services (PTY) Limited) carried on business of providing security services, including guarding and cash security services in Eswatini. “The company  has been carrying on business for a number of years, however, over  the last few years, it has experienced financial difficulties, principally due to certain disputes that it had with Eswatini Revenue Service,” submitted Thomson. She brought it to the attention of the court that the most recent financial statements for the year ended June 30, 2021, revealed inter alia that the total current and non-current assets amounted to E11 294 192, while the liabilities amounted to E30 990 000.38.  Thomson informed the court that the company was insolvent and was unable to pay its debts on an ongoing basis.

“The major cause of the company’s financial difficulty relate to a dispute it has with the Eswatini Revenue Service (ERS). ERS has imposed a liability for E37 958 159.45 in respect of unpaid VAT,” contended the company director. It was further her submission that this amount comprised of a principal amount of E17 971 519.05 and interest amounting to E19 896 640.40. “The amounts arise from a legal fiction which has been created in the VAT Act of 2011. Over the years, whenever, the applicant issues an invoice, that invoice includes a value added tax at 15 per cent. The ERS requires the company on all invoices at the end of the calendar quarter that invoice render whether or not payment has been made,” she argued.

According to Thomson, in effect the company was required to pay VAT on monies that it had not received and this had compounded over the years with the application of penalties and interest. She averred that the applicant tried to engage ERS on this issue and in particular to highlight that it was simply unable as a business to pay over VAT to it (ERS) in the circumstances where it (VAT) had not been paid to it.

Thomson said regrettably the ERS refused to accept this explanation and insisted on payment, regardless of whether or not the company had been paid. She argued that the company could not pay VAT it had not received as it did not have cash flow to sustain this. The director pointed out to the court that all VAT had been paid for and invoices rendered to ERS. “On December 14, 2021, the applicant addressed a letter to ERS, seeking to enter into a payment arrangement for the settlement of this debt and it (company) has attempted to make payment thereof. However, ERS has rejected that proposal and has instead, placed such stringent repayment terms that has made it impossible for the company to trade,” alleged the director. As result of the company’s failure to address the concern of the ERS, Thomson submitted that it was unable to obtain tax compliance certificate, which in turn meant that it was unable to tender for any work.  She said the company was unable to meet its financial obligations and debts as and when these arose, however, the ‘artificial claim’ of ERS has allegedly created an insolvent state of affairs.

Contended

Thomson contended that in light of the fact that this issue could not be resolved, despite the company’s best efforts, it resolved to wind itself up on the grounds of insolvency. “The company employees approximately 900 personnel and although their jobs will be in jeopardy, the directors are duty bound to ensure that the company does not continue to operate in insolvent circumstances, where it is clear that it will not be able to trade its way out of the position. These employees will most likely lose their jobs due this artificial debt created by ERS,” submitted Thomson. She then informed the court that this was therefore a proper case for the High Court to grant a winding up order in terms of Section 287 of the Companies Act.

According to Thomson, the liquidation of the company would inter alia; enable the liquidator to properly investigate the affairs, assets and liabilities of the company, with a view to an equitable distribution of the residue thereof to all creditors in their order of legal preference; enable the liquidator to more readily collect any debts due and payable to the company; prevent the company from incurring further debt in the course of ordinary business activities, thereby increasing its liability to the obvious detriment of not only the applicant but also other creditors. The director further argued that the liquidation of the company would prevent it from conducting business in an insolvent and/or fraudulent and reckless manner. The company was represented by Lindokuhle Methula of Henwood and Company in Mbabane.

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