---

IN THE HIGH COURT OF SOUTH AFRICA

(TRANSVAAL PROVINCIAL DIVISION)

CASE NUMBER:-32874/2006

NOT REPORTABLE DATE: 30/10/2007

In the matter between ;-

EVERNU PLASTICS (PTY) LIMITED Applicant

and

THE MANUFACTURING DEVELOPMENT BOARD 1^st Respondent THE MINISTER OF TRADE AND INDUSTRY 2^nd Respondent

­­­­­­­­­­­­__________________________________________________________________

JUDGMENT

­­­­­­­­­­­­­­­__________________________________________________________________

MOKGOATLHENG J:

INTRODUCTION

(1) This is an application to review the decision by the first respondent refusing incentives to the applicant in terms of the Small Medium Enterprise Development Programme (SMEDP).

(2) The SMEDP came into existence in terms of the Manufacturing Development Act No. 18 of 1993. The SMEDP has identified manufacturing as a qualifying activity.

(3) The applicant is a manufacturer and distributor of houseware plastics. The qualifying project is a new project or an expansion of an existing project involved in qualifying activities. Clause 11.4.1(b) of the guidelines a defines an existing project as a;

1. an entity that is in production; or

2. an entity which is not in production but has no liquidation action orders i.e. it can start production at any time;

(4) Clause 11.5.3 provides that, “when an investment is made in second hand machinery and equipment, irrespective of whether it has been imported, an investment of at least an equivalent amount in new machinery and equipment, based on an approved application figures, must be made before the end of the first financial year (this does not include foreign investors) Where second hand plant and machinery demonstrates an acceptable level of technology it may qualify for incentives at the discretion of the Board without the equivalent investment in new machinery”.

(5) On the October 2003, the applicant applied for, incentives in terms of Clause 11.5.3 of the first respondents SMEDP guidelines. The first respondent did not, approve the application. The first respondent Boards decision taken on the 21^st June 2006, stated “The Board does not approve the application for standard SMEDP incentives as the project is regarded as an existing business and the equivalent investment was not made in year 1.

(6) The applicants lodged an appeal. The appeal was dismissed. The first respondents stated that “The Board upholds its previous decision and does not approve the application for standard SMEDP incentives, as the project is regarded as a continuation of an existing business and the equivalent investment in machinery equipment was not made in year 1. This is a final decision”.

(7) The applicant contends that;

(a) it commenced business and production on the 1^st June 2003;

(b) its total shares are registered in the name of its only shareholder Titanium Investment Limited which is an entity registered in the Seychelles;

(c) he shareholders of Titanium Investment Limited are Pakistani businessmen M Chahpra and K Chahpra both resident and domiciled in Pakistan;

(d) it purchased the plastic manufacturing business Nu-Plastic (Pty) Ltd for R9 800 000.00 and took delivery of same on the 1^st June 2003;

(e) the risk and benefit of the business passed to it on the 1^st June 2003 after it had paid the full purchase price;

(f) Nu Plastic (Pty) Ltd had ceased trading on the 1^st June 2003 and is currently a dormant company;

(g) it is a new entity and was registered as a VAT vender as from the 1^st June 2006;

(h) its manufacturing activities are funded by a loan in the amount of R4 489 633.00 advanced by a foreign company and investor Prestige Finance Limited; and

(i) as a manufacturer and foreign investor it qualified for eight incentives in terms of the guidelines issued by the first respondent in respect of the SMEDP as contemplated by section 5(4) of the Act;

(8) The applicant contends further that ;

1. there is no definition in the guidelines of what is meant by “continuation of an existing business”;

(b) on the 1^st June 2003 there was a cessation of trading by Nu-Plastics (Pty) Ltd and the commencement of a new business;

(c) as a foreign investor controlled and owned by a foreign company, the requirement that an equivalent investment in machinery and equipment was not made in year 1 is not applicable to it;

d) the reasons proferred by the first respondent in refusing its application and appeal are irrational and unjustifiable.

(9) The first respondent contends that the applicant purchased the business of Nu-Plastics (Pty) Ltd “as a going concern” as evidenced by applicants’ brochure which stated inter alia that ‘Having started Nu-Plastics (Pty) Ltd in 1980 and now under the banner of Evernu Plastics (Pty) Ltd, the company has been serving the houseware market in Southern Africa for the past 24 years.”

(10) The contends that it was “not a new business” as it purchased the assets of Nu-Plastics (Pty) Ltd, the first respondent contends this assertion by stating that the applicant as used machinery and equipment, that it operates from the same premises formerly utilized by the latter, and manufacturers the same products as Nu-Plastics (Pty) Ltd, further that it commenced trading before the 1^st June 2003 but that it now it does so under a new name.

(11) The first respondent disputes that the applicant is a foreign investor and states that the latter only has a foreign investor but is not necessarily a foreign investor as defined in its guide line.

(12) The first respondent contends that in July 2003 it clarified the difference between foreign investors and local investors, and states that, a foreign investor is in defined as follows, ”If an investor can prove that he/she has been living in the RSA for a period of less than five years or is still staying overseas, he/she can be regarded as a foreign investor and The Board further approves that only newly incorporated legal entities or shelf companies which did not trade before or have not accumulated losses, that are manufacturing for the first time in RSA will be regarded as foreign entities, only if the shareholders of such an entity are foreign investors and have a minimum of 50% foreign shareholding.”

(13) The first respondent contends that the applicant is not regarded as a “newly incorporated entity” but as a continuation of an existing business under another guise irrespective of being incorporated under a new name.

(14) The applicant contends that the first respondent’s Management Committee erroneously informed its Board that the requirement to invest an equivalent amount in new machinery and equipment was applicable to foreign investors as per revised Board’s policy, and argues that this proposition is clearly wrong and is in conflict with Clause 11.5.3 of the SMEDP guidelines, which states that this requirement does not include foreign investors, that the Board therefore took a decision on incorrect information.

(15) The applicant argued that the fact that it acquired the business “as a going concern” with effect from the 1^st June 2003, does not mean that it (the applicant) is the same business entity as Nu-Plastics (Pty) Ltd.

(16) The SMEDP guide lines make provision for new projects and expansion projects. The applicant lodged its application as a new project. In my view the question is whether, firstly, the first respondent’s decisions are rationally connected to the evidential material before it, and secondly, whether the applicant was an existing project or a new project at the time it applied for incentives.

(17) The initial crisp question the first respondents’ Board had to grapple with was whether the respondent was a new project or an expansion of an existing project.

(18) Clause 11.5 of the SMEDP regulates the acquisition of second hand machinery and equipment by a manufacturer (locally) with an investment in qualifying assets above R5 million up to R100 million.

(19) It is common cause that Nu-Plastics (Pty) Ltds had before the 1^st June 2003 already applied for and received incentives in respect of its machinery and equipment.

(20) The applicant purchased Nu-Plastics (Pty) Ltd “as a going concern.” In my view a business is purchased and transferred as a going concern if pursuant to the transfer, the purchaser/transferee is able to continue substantially the same business without interruption and without having to alter its nature.

(21) The factors considered in determining whether a business has been sold as “a going concern” are multifarious. It is not a prerequisite that the purchaser must take over the liabilities of the business. It is sufficient if the purchaser takes over all the assets, the existing contractual obligations and the customers.

(22) In assessing whether the business was purchased and transferred “as a going concern” courts have regard to the substance and not the form of the transaction. In this regard the remarks and the Constitutional Court in v University of Cape Town and Others 2003(3) SA 1 CC although in a labour law related background.

“in paragraph 119G-120B by parity of reasoning relevant and instructive, “a number of factors will be relevant to the question whether a transfer of business as a going concern has occurred, such as the transfer or otherwise of assets both tangible and intangible, whether or not workers are taken over by the new employer, whether customers are transferred and whether or not the same business is being carried on by the new employer. What must be stressed is that this list of factors is not exhaustive and that none of them are decisive individually. They must all be considered in the overall assessment and therefore should not be considered in isolation.”

(23) It was correctly submitted by first respondents’ counsel Ms Neukircher that to determine whether the applicant is an existing or a new entity or project, one has to have recourse to the totality of the factual matrix. One cannot do so by only examining the incorporation of the applicant in isolation. In other words the essence of the inquiry is what reposes and exists beyond the corporal veil.

(24) In my view the applicant is not a new business or new project which commenced trading and production on the 1^st June 2003. It is a continuation of a an existing business formerly known as Nu-Plastic (Pty) Ltd under a new guise, and incorporated as the applicant.

(25) In my view in terms of the SMEDP guidelines an investment in machinery and equipment can be made only in terms of Clause 11.4.1, through the purchase of the machinery and equipment only, existing project(s), and this would be done in contemplation of commencing a new project, and if in terms of Clause 11.4.1 (a) of the SMEDP guidelines, the machinery and equipment did not receive concessions /incentives, the total investment may qualify for incentives at the discretion of the Board provided that the new owner(s) invest at least an equivalent amount in machinery and equipment at cost before the end of the first full financial year.

(26) A reading of this clause excludes any existing projects and shows that this relates to new projects initially commenced with second hand machinery and equipment, and does not relate to an existing project or an entity that is in production, or an entity which is not in production but has no liquidation actions or orders against it. It follows that the applicant does not fall within the purview of Clause 11.4.1. Correspondingly the investment referred to in Clause 11.5.3 is intrinsically/investment in second hand machinery and equipment acquired and purchased for the purposes of commencing a new business project or entity.

(27) To qualify for incentives such new business project or entity, an investment in new machinery and equipment, based on approved figures, must be made before the end of the first full financial year.

(28) In my view even if it is accepted that the “EP2” which clarified the difference between foreign investors and local investors, does not apply to the applicant because at it argues, it was not aware of this clarification, and it was not available at the time the applicant applied for the SMEDP incentives, the crux of the matter is that such a proposition does not assist the applicant because it is not a new business or project.

(29) The critical hurdle the applicant had to traverse according to his

version in order to qualify for incentives in terms of Clause 11.5.3 as a foreign investor, is that the applicant has to be a new project, and not an on going concern in whatever guise.

(30) The applicant’s contention that it did not incur accumulated losses or did not trade before the 1^st June 2003, and was manufacturing for the first time on the 1^st June 2003 as a foreign investor has no merit, because as correctly pointed out by Ms Neukircher, the applicant on its own version “took over a Nu-Plastics (Pty) Ltd, a business existing for the past 24 years, and continued with the business of that entity under a different name utilizing the same premises with substantially the same customers base as the previous entity.

(31) The applicant’s contention that the guidelines do not contain the definition of “an existing business of a continuation of an existing business” has no merit.

(32) Whether a project is “an existing business or a continuation of an existing business” is a factual conclusion arrived at after an objective enquiry into the facts, and after a proper objective consideration thereof.

(33) In my view the first respondent’s Board applied its mind to all the facts, in both the initial application and appeal and arrived at a rational objective conclusion which is rationally and logically connected to the evidential material before it.

(34) In the premises the application for review is dismissed with costs.

Dated the – October 2007 at Pretoria.

___________________________

MOKGOATLHENG J

JUDGE OF THE HIGH COURT

DATE OF HEARING: 19^TH JUNE 2007

DATE OF DELIVERY OF JUDGMENT:

COUNSEL FOR APPLICANT: MR M S OMAR

COUNSEL FOR RESPONDENT: MS B NEUKERCHER

ATTORNEY FOR APPLICANTS: ROOTH AND WESSEL

TELEPHONE NUMBER: 012-452-4000 MR ABT VAN DER HOVEN

ATTORNEY FOR RESPONDENT: STATE ATTORNEY

TELEPHONE NUMBER: 012-309-1576 MR GR MCGREGOR

---