This blog was co-authored by Adrienne Hendricks, Candidate Attorney.

The Prudential Authority (the Authority) applied for provisional sequestration of the respondents’ joint estate under sections 83(3)(b) and 84(1A)(c) of the Banks Act (the Act).

The respondents participated in the Travel Ventures International Scheme for which they marketed significantly discounted travel vouchers for international travel and accommodation. This scheme amounted to the unlawful carrying on of a business of a bank and a pyramid scheme in contravention of the Act.

The Authority is tasked with investigating persons suspected of unlawfully carrying on the business of a bank. If that person is found to be unlawfully carrying on such business, the Authority may issue a repayment directive to that person to repay all monies obtained plus interest in terms of section 83(1) of the Act.

The Authority argued that it had directed the respondents to repay the money obtained by unlawfully carrying on the business of a bank. The respondents did not comply with, review or appeal the directive and were therefore deemed to have committed an act of insolvency in terms of section 83(3)(b) of the Act. The Authority also argued that the repayment administrator’s report found that the respondents were factually insolvent in terms of section 84(1A)(c) of the Act. The respondents denied that they were factually insolvent.

The main legal question was whether, under sections 83 and 84 of the Act, a deemed act of insolvency is sufficient for a sequestration application, or if the Authority must also prove the respondents’ factual insolvency.

Sections 83 and 84 of the Act empower the Authority to apply for the sequestration of a person subject to a repayment directive. Section 83(3)(b) provides that a person who fails to comply with a repayment directive will be deemed to be unable to pay the debts owed or to have committed an act of insolvency. Section 84 permits the Authority to apply for sequestration if the administrator’s report concludes that the person is factually insolvent.

The court held that the respondents were deemed to have committed an act of insolvency and “[a]n act of insolvency is a statutory concept which obviates the necessity of proving actual insolvency”.

The court:

  • held that the Authority is not required to prove both an act of insolvency in terms of section 83 and factual insolvency in terms of section 84. Instead, the repayment of the amount identified in the repayment directive is secured and administered in the repayment process managed under section 84;
  • considered whether “insolvent” in section 84(1A)(c) of the Act includes both factual and technical insolvency, and found that under the Insolvency Act, a debtor’s estate may be sequestrated if the individual is factually insolvent or has committed an act of insolvency.

The powers of the Authority to apply for sequestration are broad, and failure to respond to a directive is sufficient for the Authority to seek sequestration, without having to prove the person’s actual insolvency. But individuals or entities subject to a directive from the Authority can apply for review or appeal of the directive if they wish to contest its contents.

The full judgment can be accessed here: Prudential Authority v Dlamini and Another (36/2023) [2024] ZASCA 133 (2 October 2024) (saflii.org)