The Prudential Authority, a division of the South African Reserve Bank, has applied to the Pietermaritzburg High Court for the provisional liquidation of Ithala SOC Limited.
Ithala, while referred to as a bank, was not operating under a banking license. The financial institution was granted a special exemption the Minister of Finance in terms of the Banks Act 94 of 1990, under which they could conduct business as a banking service.
The exemption allowed for Ithala to accept deposits for a limited period, during which time it was to regularize its operations in order to qualify for a banking licence.
However, despite several extensions to the deadline and a final exemption notice issued by the Prudential Authority on 22 July 2022, Ithala had failed to comply with the stipulated conditions.
Action Aimed at Safeguarding Depositor Funds
The Prudential Authority’s application for liquidation is believed to have been taken in the interests of safeguarding the approximately 257 000 depositors of Ithala. They have confirmed that this is due to the appointed liquidator being able to utilise insolvency legislation to recover and distribute their funds to the greatest extent possible.
The Prudential Authority, responsible for the prudential regulation of banks and insurance companies within the South African Reserve Bank (SARB), has appointed a Repayment Administrator responsible for the repayment of deposits.
The appointment of the Repayment Administrator was confirmed by the Pretoria High Court in December 2023 and Ithala was ordered to cooperate with the Repayment Administrator.
Non Compliance of Led to Closure
The final exemption notice lapsed on 15 December 2023, with Ithala failing to meet all the conditions outlined in it. It has been common knowledge to all parties that the granting of an exemption to Ithala was temporary and subject to certain conditions. Ithala had to ultimately obtain a banking licence in terms of the Banks Act or cease all its deposit-taking activities.
The Repayment Administrator, appointed by the SARB, has established that Ithala is currently technically and legally insolvent, exposing depositors to potential loss of their deposits.
Ithala also failed to provide sufficient capital commitments or secure a legally binding renewal of the guarantee over its deposits from its principal shareholder, the Provincial Government of KwaZulu-Natal.
Account Access Frozen
The liquidation application means that depositors’ accounts will have to be closed to allow for the pending court processes.
This measure has been put in place to avoid a run on the funds held by the institution and allow for a fair and orderly distribution of available funds.
National Treasury has written to the Prudential Authority, advising that the government will guarantee their funds. In the interim, depositors have been advised to urgently make alternative arrangements to address their banking requirements and the Prudential Authority has undertaken to communicate further details following the court hearing.