FSRA vs. Likhwane court battle rages on as the regulator appeals High Court Judgement
THE Financial Services Regulatory Authority (FSRA) says the High Court misdirected itself in over 20 respects when making the judgment delivered on October 24, 2023, by Judge Bongi Magagula on their application to liquidate the Likhwane Beneficiary Fund.
According to the Notice of Appeal filed by the authority’s lawyers on November 14, 2023, they noted that the court a quo erred and or misdirected itself in one or more on several respects.
The authority stated that the court a quo erred in law and in fact in finding that their ground for liquidation was a fraud and that even though the investments made by the Fund may have been outside the threshold the averment of unlawfulness does not support the basis for liquidation as may have been anticipated in section 73(2) (b)(i) of the FSRA Act.
They said the court a quo ought to have found that the investment beyond the threshold was unlawful or unauthorized and thus the Authority was entitled to apply for liquidation as per section 73(2)(i)(ii) of the FSRA Act.
They also stated that the court a quo erred in law and in fact in finding that the FSRA did not state when it realized that the Fund was no longer able to pay its beneficiaries and how the intervention of the liquidator was to alleviate the anormally and therefore that the application did not satisfy the requirements of urgency under Rute 6 (25) (a)(b).
The FSRA said the court a quo erred in fact and law in finding that they did not disclose that there was a complaint that had been fired by the Likhwane Beneficiary Fund against the FSRA which was pending with the Financial services ombudsman and thus failed to meet the requirements of an exparte application, more especially because there was no complaint pending against the FSRA, that ought to have been disclosed.
In their appeal notice papers, the Authority shared that the court a quo further erred in fact and law in finding that the appointment of the liquidator would hamper the pursuit of the alleged complaint before the financial services ombudsman.
They said the court ought to have found as conceded by the Fund that same was dismissed for lack of jurisdiction.
“The court a quo erred in law and in fact in finding that the Master of the High Court should have been cited and served with the liquidation Application moved under the provisions of the FSRA Act,” read the court papers.
They further stated that the court a quo misdirected itself and or erred in law and fact in the interpretation of the law regarding liquidations of entities that fall under the supervision of the FSRA and made incorrect and unsustainable suppositions of the legislator, ‘s intent.
According to the court papers, alternatively, the court “t a quo erred in law and fact in dismissing the liquidation on the basis that the FSRA ought to have cited and served the Master of the High Court.
They added that the court a quo erred in law and in fact in finding that the FSRA’s application did not address and or should have addressed what other alternative measures had been explored.
“The court a quo ought to have found that the question of alternative measures is not a requirement of law, particularly under the rubric of section 73 (2) (b) of the FSRA Act which the Application was premised on,” read part of the notice.
Furthermore, in the notice, the FSRA said the court a quo misdirected and or erred in law and fact in finding that they failed to allege or prove what solutions would be brought by the Liquidator that could not be implemented by the Fund’s trustees and further to make considerations of incompetence and dishonesty of the trustees in dismissing the application.
According to the notice of appeal by the Authority, the court a quo also erred in law and fact in finding that despite proof of the violation of the FSRA Act and Regulations, the liquidation of Likhwane Beneficiaries Fund was not the best response to alleviate the breach and in finding that there were other remedies available to the Appellant.
They further stated that the court a quo erred in law and fact in finding that despite the breach of the Regulations which was the 5 per cent threshold, the decision to liquidate the Fund was a drastic measure that did not serve the interest of the minor children.
“The court a quo erred in fact in finding that the liquidation of Fund on the basis of imprudent or questionable conduct is not justified as same was made under the FSRA’s watch,” added the Authority.
Moreover, the FSRA said the court a quo erred in law and fact in finding that despite the Likhwane Beneficiary Fund’s investment in Ecsponent/ESW that endangered its reputation or threatened its solvency, the FSRA failed to pass the test of section 73 (2b) (i).
They stated that the court ought to have found that the Ecsponent/ESW and Lingedla investments threatened the Fund’s solvency and further rendered it insolvent.
The FSRA added that the court a quo erred in fact in finding that all investments made by the Likhwane Beneficiary Fund were known and that there was documentation relating to where they were made and for how much.
“The court a quo erred in law and in fact in finding that if the FSRA itself had played its supervisory role proactively and effectively, probably the Fund would not have found itself in this situation,” read the court papers.
They explained that the duties and role of the Authority as supervisor and regulator of the financial services provider and the Authority’s supposed failures were not scrutinized in the proceedings to justify this finding by the court a quo.
“The court a quo erred in law and in fact in finding that the Appellant did not apply its mind reasonably and judiciously in reaching the decision to invoke Section 73 (2)(b) of the FSRA Act of 2010,” read the court papers.
The FSRA in their appeal notice also said that the court erred in law and fact in finding that it was not in the interest of the beneficiaries to liquidate the Fund.
“The court ought to have found that it is in the best interest of the beneficiaries that Likhwane be liquidated so that an equitable distribution can be made to all beneficiaries in their order of legal preference,” said FSRA in the papers.
The court papers stated that the Authority said the court erred in law in finding that before they could decide to apply section 73(2)(b) of the FSRA Act they must first account for how they fulfilled its objects of supervising the safety and soundness of ESW Investment and of how it protected the 1st to 8th Respondents as stakeholders.
“There is no legal justification for this position, and the FSRA was under no obligation to do so,” read the court papers.