The administrator tasked with supervising the payment affairs of the KwaZulu-Natal-based development bank, Ithala, will not be allowed to stop the bank from taking deposits, following a high court ruling on Thursday.
This comes after Ithala made a reconsideration application to the Pietermaritzburg High Court, which set aside an earlier ruling.
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The Prudential Authority of the South African Reserve Bank (Sarb), which is responsible for regulating the country’s banks, appointed Johan Kruger as repayment administrator at Ithala in December last year.
This comes after the Prudential Authority had not granted Ithala another exemption notice, permitting it to conduct banking activities in the absence of a licence.
Ithala’s attempts in the past to obtain a banking licence were unsuccessful and it had to rely on the exemption notice to conduct deposit-taking activities.
Kruger, as Ithala’s repayment administrator, applied to the Pietermaritzburg High Court for an order to have his powers extended, so he would be allowed to among other things recover and take possession of the bank’s assets. He requested the matter to be heard in camera, which had been granted.
On 22 December, Judge Robin Mossop, granted an order to allow Kruger to, among other things, institute proceedings in terms of the Banks Act; and empowered Kruger to recover and take possession of the bank’s assets.
However, a rule nisi was issued, allowing Ithala to show cause as to why any assets recovered and which are in the possession of Kruger should not remain in his possession.
In its reconsideration application, Ithala claimed Kruger had failed to place material facts and evidence before Judge Mossop when he sought the court order.
Ithala argued among other things that, before the order was granted, it held various meetings with the Prudential Authority after the body had refused the further extension of its exemption.
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“During these meetings, the Prudential Authority had expressed its intention to appoint Kruger as the repayment administrator, but said he would merely be a caretaker,” Ithala said in a statement on Thursday.
“The Prudential Authority also made it clear that there would be no disruption to salaries and remittances currently paid through Ithala and that the repayment administrator would ensure that such monies are received and released,” the development bank added.
Ithala claimed the Prudential Authority gave the assurance that it would not be required to stop taking deposits. It therefore continued taking deposits under supervision of Kruger.
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However, despite the discussions with the Prudential Authority and assurances given about Kruger’s role, Ithala instituted an urgent application against the Prudential Authority in the Gauteng Division of the High Court, in which it sought an order to suspend the winding-down of its deposit-taking activities and the appointment of Kruger as repayment administrator.
The Prudential Authority lodged a counter-urgent application asking that Ithala be directed to cooperate with the repayment administrator regarding further depositing activities. Both applications were consolidated, and in a consent the powers of the repayment administrator were limited.
In Thursday’s court hearing, acting Judge Immanuel Veerasamy of the Pietermaritzburg Division of the High Court ruled that the previous court order of Judge Mossop be discharged and that Kruger’s application (to take possession of Ithala’s assets) be struck from the role.
Legal costs
Kruger must also pay Ithala’s legal costs.
Veerasamy said the previous order “created an injustice to Ithala” because it was obtained in Ithala’s absence on an urgent basis.
“There was a material non-disclosure of facts which might have influenced the outcome of the application had Ithala been present,” Veerasamy said.
Ithala is of the view that the dismissal of Kruger’s application means Ithala may continue to take deposits. Thulani Vilakazi, the CEO, said he hoped the Prudential Authority “took cognisance” of the ruling.
“The government set up Ithala to mobilise financial resources and to provide financial and supportive services to the people of KwaZulu-Natal, especially the poorest of the poor in deep rural areas. The government, must, therefore do everything possible to support Ithala in fulfilling its mandate of banking the unbanked,” Vilakazi said.
* The Prudential Authority is yet to comment on the ruling.
