Summary of Judgment

1. Introduction

The matter concerned an application for the final sequestration of the respondent’s estate brought in terms of section 83(3)(b) of the Banks Act 94 of 1990. The application was instituted by the Prudential Authority (as statutory successor to the Registrar of Banks for purposes relevant to these proceedings) against Ms Vuyokazi Confidence Jafta, the respondent.

The application followed a provisional sequestration order granted in the Eastern Cape Division, Gqeberha, by Revelas J on 24 March 2022. The present judgment dealt with whether that provisional order should be confirmed and made final, and with a series of preliminary objections (points in limine) raised by the respondent to resist final sequestration.

The dispute arose in the context of alleged involvement in the Travel Venture Institution (TVI) scheme, described as a pyramid scheme that had been the subject of prior litigation. The general subject-matter was the exercise of statutory powers under the Banks Act to address the alleged unlawful conducting of the business of a bank, including the issuing and enforcement consequences of a repayment directive under section 83(1), and the statutory deeming of non-compliance as an act of insolvency justifying sequestration proceedings.

2. Material Facts

Following suspicion that the respondent was involved in TVI, Mr Johannes George Kruger was appointed to conduct an inspection into TVI’s business practices. The purpose of the inspection was to establish whether TVI and its associates were conducting the business of a bank without being registered, contrary to the Banks Act. During this inspection, it was established that the respondent was an advanced member and distributor of TVI.

On the basis of the inspection’s outcome, the Registrar of Banks (now replaced by the Prudential Authority for these purposes) was satisfied that the respondent had obtained money by conducting the business of a bank without registration in terms of section 17 of the Banks Act, or without authorisation under section 18A(1).

A repayment directive was then issued against the respondent under section 83(1) of the Banks Act and served on her on 5 May 2014. It was not in dispute that the respondent received service of the directive and failed to comply with it, and also failed to respond to it.

After an application (moved by Mr Kruger) for the attachment of the respondent’s immovable assets succeeded, the applicant lodged sequestration proceedings relying on section 83(3)(b). The provisional sequestration order was ultimately granted on 24 March 2022, and the present proceedings concerned whether final sequestration should follow.

The court recorded that a solvency report indicated that the respondent was factually solvent, but concluded that she was legally insolvent because she was deemed to have committed an act of insolvency by failing or refusing to comply with the repayment directive. The report further indicated that sequestration would benefit victims of the TVI scheme because there were allegedly sufficient assets to cover the total amount of deposits stated to be R1 405 519.17.

3. Legal Issues

The central legal questions concerned whether the applicant had established the requirements for a final sequestration order under the Insolvency Act framework as augmented by the Banks Act’s special deeming provisions, and whether any of the respondent’s points in limine prevented the granting of final sequestration.

The issues were predominantly questions of law and the application of law to largely common-cause facts, particularly the common-cause facts that the respondent was served with a repayment directive and did not comply with it. The respondent’s opposition depended mainly on legal characterisations and statutory interpretation, including whether prescription could apply, whether the applicant had standing and authority, and whether the directive (and thus the cause of action) was legally valid.

More specifically, the court was required to determine whether sequestration proceedings founded on section 83(3)(b) were susceptible to a prescription defence; whether the applicant (including through the Deputy Registrar and later substitution by the Prudential Authority) had the necessary locus standi and authority; and whether the papers disclosed a cause of action, given the respondent’s contention that the directive was a nullity due to alleged statutory non-compliance.

4. Court’s Reasoning

On prescription, the court rejected the respondent’s contention that the claim had prescribed under section 11(d) of the Prescription Act 68 of 1968. It reasoned, first, that the application was not brought on behalf of investors/creditors as ordinary claimants but was brought by the applicant in the exercise of statutory powers under the Banks Act. The court further held that the repayment directive did not give rise to a “debt” as understood for purposes of the Prescription Act and that prescription therefore did not apply in the manner contended for.

The court also approached the prescription point through the nature of sequestration proceedings themselves. Relying on Collet v Priest 1931 AD 290, it emphasised that sequestration proceedings are not proceedings instituted for the purpose of enforcing payment of a debt, but rather to set in motion legal machinery to have a debtor declared insolvent, affecting the debtor’s status and vesting the estate in the Master. In addition, the court referred to Prudential Shippers SA Limited v Tempest Clothing Co. (Pty) Limited 1976 (2) SA 856 (W) as authority for the proposition that winding-up proceedings do not constitute proceedings “for the recovery of a debt”. The court noted that section 9(2) of the Insolvency Act 24 of 1936 supports this conception because a sequestrating creditor’s claim need not be due (enforceable) at the time of the application; the liquidated-claim requirement functions to ensure sufficient interest, not to enable enforcement through the sequestration order itself. On this reasoning, the prescription defence could not succeed.

On locus standi and authority, the respondent advanced two principal arguments: that the applicant was not a creditor with a liquidated claim as contemplated by section 9(1) of the Insolvency Act, and that the Deputy Registrar lacked authority because he did not enjoy the Registrar’s powers in the absence of a directive from the Registrar. The court rejected these submissions. It held that the Deputy Registrar was empowered by section 4(2) of the Banks Act, which authorised the Deputy Registrar to perform the functions of the Registrar, and that the founding affidavit’s averments were sufficient to establish competency to bring the application.

The respondent also attacked the later substitution of the Registrar of Banks by the Prudential Authority, suggesting it was an attempt to circumvent authority defects and that it was raised impermissibly in reply. The court considered the substitution to be directly supported by section 300(2) of the Financial Sector Regulation Act 9 of 2017, which mandates substitution of the Prudential Authority in pending proceedings commenced before the section took effect. The court therefore found nothing improper in the applicant following what it regarded as the statutory substitution mechanism.

On failure to disclose a cause of action, the respondent accepted service of the directive and non-compliance but contended she could ignore it because it was a nullity. This argument was based on two complaints: that the directive was not authorised by the Registrar as contemplated in section 83(1), and that it did not stipulate the “true amount” unlawfully obtained, allegedly required by section 84(4)(a). The court dismissed both. It found that the directive annexed to the founding papers showed it was issued from the office of the Registrar of Banks, and it reiterated its conclusion on the Deputy Registrar’s competence.

Regarding section 84(4)(a), the court interpreted the provision to mean that a repayment administrator is appointed simultaneously or soon after the issuing of the section 83(1) directive, and that one of the administrator’s functions is to conduct further investigations to establish, among other things, the true amount unlawfully obtained. On this basis, the court held that it was not a requirement under section 83(1) that the directive itself reflect the true amount, because determining the true amount is part of the subsequent investigatory function of the repayment administrator.

The court then treated the statutory deeming provision as decisive for the cause of action. It held that once it was established that the respondent had been served with a payment directive and had failed or refused to comply, nothing more was required to show a basis for sequestration because section 83(3)(b) deems such failure or refusal to be an act of insolvency for purposes of sequestration law. The solvency report’s finding that the respondent was factually solvent did not, in the court’s view, prevent sequestration because the statutory deeming provision established legal insolvency through an act of insolvency, and the report further supported benefit to creditors given the asset position described.

Having dismissed the defences and being satisfied that the requirements for final sequestration were met, the court concluded there was no reason not to confirm the provisional order.

5. Outcome and Relief

The court made the provisional sequestration order final, confirming the order granted on 24 March 2022.

The court ordered that the costs of the application would be costs in the insolvent estate.

Cases Cited

Collet v Priest 1931 AD 290.

Prudential Shippers SA Limited v Tempest Clothing Co. (Pty) Limited 1976 (2) SA 856 (W).

Kruger v Mothapo and Another (82907/2014) [2015] ZAGPPHC 984 (11 December 2015).

Legislation Cited

Banks Act 94 of 1990 (including sections 4(2), 17, 18A(1), 83(1), 83(3)(b), 84(4)(a)).

Prescription Act 68 of 1968 (including section 11(d)).

Insolvency Act 24 of 1936 (including sections 9(1) and 9(2)).

Financial Sector Regulation Act 9 of 2017 (including section 300(2)).

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the respondent’s failure or refusal to comply with a repayment directive issued under section 83(1) of the Banks Act constituted, by virtue of section 83(3)(b), a deemed act of insolvency justifying sequestration proceedings. It held further that sequestration proceedings are not proceedings for the recovery of a debt and are therefore not defeated by a prescription defence framed as if the proceedings were ordinary civil debt enforcement. The court rejected challenges to the applicant’s locus standi and authority, including objections to the Deputy Registrar’s competence and the substitution of the Prudential Authority, and it rejected the contention that the directive was a nullity for not stating the true amount unlawfully obtained. On the facts accepted or established, it confirmed the provisional sequestration and made it final, with costs in the insolvent estate.

LEGAL PRINCIPLES

A sequestration application is directed at placing the debtor’s estate under sequestration and setting insolvency machinery in motion; it is not, in its nature, a proceeding for an order compelling payment of a debt, even though the court may have to be satisfied about underlying allegations.

Non-compliance with a repayment directive issued under section 83(1) of the Banks Act is, by statutory deeming under section 83(3)(b), treated as an inability to pay debts or an act of insolvency for purposes of sequestration law, enabling the statutory regulator to apply for sequestration notwithstanding general law to the contrary.

For purposes of sequestration, the statutory and insolvency-law inquiry may distinguish between factual solvency and legal insolvency arising from the commission (or deeming) of an act of insolvency, and the statutory deeming provision may ground the necessary legal conclusion.

The Deputy Registrar’s competence to perform functions of the Registrar may be grounded in section 4(2) of the Banks Act, and substitution of the Prudential Authority for the Registrar of Banks in pending proceedings is governed by section 300(2) of the Financial Sector Regulation Act 9 of 2017.

Section 84(4)(a) of the Banks Act contemplates that the “true amount” unlawfully obtained may be established through further investigation by an appointed repayment administrator after or alongside the issuing of a repayment directive, and is not necessarily a prerequisite that must appear in the directive itself.