Prudential Authority: Ithala Bank's survival must respect the rule of law

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a day ago

The future of Ithala bank continues to argued in court
Image: Doctor Ngcobo / Independent Newspapers
The need to preserve the existence of Ithala Bank cannot override the rule of law, as Ithala was always required to comply with the Banks Act; this was the argument heard by the three Judges (full bench) at the Durban High Court on Friday.
This is because the Ithala's Repayment Administrator (RA) and the South African Reserve Bank's Prudential Authority (PA) are appealing the Pietermaritzburg High Court decision that the entity can continue to conduct its business.
Ithala held an exemption from the PA, which allowed it to take deposits. That exemption expired in December 2023.
In January, the PA filed for Ithala's liquidation, and Johannes Kruger, the RA, instructed Absa Bank Limited to freeze all Ithala's accounts following the expiration of the exemption. However, Ithala continued to accept deposits and failed to assure the PA that it would cease its deposit-taking activities.
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As a result of Kruger's instruction, Ithala's day-to-day running effectively stopped on January 16, 2025.
Ithala took this to the Pietermaritzburg High Court, and Judge Muzi Ncube interdicted and restrained Kruger from issuing any instructions. He said, pending the outcome of the liquidation appeal, Ithala could continue with its day-to-day running. T he Judge also stated that Kruger lacks operational and management control over Ithala's day-to-day operations.
Moreover, Judge Ncube said if Ithala was forced to close its doors, members of the public would not be able to access their funds, and those who are South African Social Security Agency (Sassa) recipients would not be able to access their grants. He said the bank could be sued by unpaid service providers, and it could be evicted from its lease premises.
Additionally, the Judge granted PA and Kruger leave to appeal his ruling at the Supreme Court of Appeal (SCA) and made an order for his ruling to remain in force, pending the appeal.
In written arguments heard by the full bench, Kruger said Ithala should not frustrate his ability as RA to take over the operations and its assets to achieve the objective of his appointment. On December 18, 2023, the PA appointed Kruger as the RA. His appointment related to the repayment management of deposits collected unlawfully by Ithala.
He asked for the full bench to set aside the orders made by Judge Ncube to give the bank the green light to function.
'If depositors will suffer harm and Ithala also claims that it will suffer harm, for purposes of the interim interdict, this court will weigh the balance of convenience,' the PA argued.
The PA further argued that, according to sections 18(1) and 18(3), Judge Ncube should have rejected Ithala's application if it meant that depositors would also face irreparable harm, as this would violate their rights.
'Granting the orders would also go against the clear responsibilities outlined in the Banks Act, which are designed to protect depositors' interests,' read the arguments.
In its response, Ithala said both PA and Kruger believe that they have the effect of suspending the constitution of the country, the basic conditions of the Employment Act 75 of 1997, the Companies Act of 71 of 2008, and the Income Tax Act 58 of 1962, amongst others.
'They believe they can unilaterally decide to halt the operations of a State-owned company and cancel all its contracts with its employees and service providers without a court order in circumstances where there is a pending litigation before the Courts over the extent of their powers,' Ithala said in its written arguments.
It added that on January 20, 2025, Kruger, in defiance of an existing court order, unilaterally determined that salaries and benefits of Ithala employees would not be paid.
Ithala warned that if the full bench rules in favour of PA and RA, the bank will shut down before the SCA appeal on its liquidation is heard.
The provincial government, which has joined the fight in support of Ithala, said the findings of Judge Ncube were correct.
'Ithala has been placed in limbo through the conduct of Kruger,' it said.
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