The Prudential Authority (PA) and Repayment Administrator (RA) Johann Kruger are heading back to court, to appeal a High Court ruling that cleared the way for Ithala SOC Limited to resume operations – minus deposit-taking – while its liquidation hangs in the balance.
Ithala is expected to resume its core operations today (12 May), excluding deposit-taking, following a ruling by the High Court in Pietermaritzburg that set aside the PA’s decision to freeze its accounts.
Although widely referred to as a bank, Ithala has never held a banking licence. It operated under a long-standing exemption from the Banks Act, which expired in December 2023. This meant it was no longer legally allowed to accept deposits. Despite a directive issued by the PA in October 2023 ordering Ithala to cease deposit-taking and repay existing deposits within 14 business days, the institution continued operating as usual.
On 18 December 2023, the PA appointed Kruger as RA to oversee the return of unlawfully collected deposits and to safeguard the interests of depositors. A few days later, on 21 December, the Gauteng High Court confirmed and expanded Kruger’s authority. The court prohibited Ithala from continuing to accept deposits and ordered that any dealings with deposits be managed under Kruger’s direction.
On 16 January 2024, the PA filed for Ithala’s liquidation, triggering the freezing of about 257 000 depositor accounts to prevent a potential bank run. The matter, originally set to be heard on 30 January, has been postponed, with no new date scheduled.
In parallel, Kruger instructed Absa to freeze all Ithala’s bank accounts, cutting off access to client funds and preventing the institution from paying salaries, service providers, or receiving payments from debtors and grant funders.
The court proceedings on 17 March revolved around Kruger’s application to overturn a ruling by Judge Muzikawukhelwana Ncube from November 2024, which had curtailed his powers. Ithala, in turn, asked the court to uphold the ruling and grant interim relief pending the outcome of the liquidation application. In an application filed on 22 January 2025, Ithala sought permission to continue operating while the liquidation matter was pending—effectively asking for the freeze on its accounts to be lifted.
Read: Legal battle over Ithala’s future heats up as liquidation looms
In a judgment delivered on 9 May, Judge Ncube granted Kruger leave to appeal the November 2024 decision to the Supreme Court of Appeal (SCA). Crucially, however, the judge also ruled that Ithala must be allowed to continue normal operations, excluding deposit-taking, while the appeal process is under way.
The ruling clarified that Kruger’s appointment in terms of section 84 of the Banks Act does not extend to Ithala’s daily operations. Judge Ncube stated that Kruger has no authority over Ithala’s functional departments, such as human resources, finance, treasury, or marketing. In addition, he may not interfere with management, replace authorised signatories, or obstruct normal operations – unless doing so is necessary to prevent dissipation of assets relevant to his mandate.
The court emphasised that the Ithala board retains full management authority under the Companies Act and the Public Finance Management Act.
To prevent further disruption, the court interdicted Absa from blocking debit transactions or refusing payment instructions from Ithala’s authorised signatories, particularly with respect to salaries, pensions, medical aid, and operating costs. It also barred the RA from instructing Ithala’s bankers or service providers in a manner that interferes with the institution’s day-to-day business or its ability to collect income.
Until the liquidation matter is concluded, Ithala may continue operating in the ordinary course of business – excluding the acceptance of deposits as defined by the Banks Act – and meet its financial obligations.
Judge Ncube deferred the question of legal costs to the SCA.
In a statement released today, the PA said it is important to note that the RA has, in any event, complied with the court’s prior order not to take control of Ithala’s non-deposit-taking operations.
“However, the RA has been unable to isolate depositor funds from other funds as Ithala has never maintained a separation between its deposit-taking activities and its other business operations.”
KZN welcomes the judgment
The judgment was welcomed by KwaZulu-Natal MEC for Economic Development, Tourism, and Environmental Affairs, Reverend Musa Zondi, who said: “This judgment upholds the rule of law and affirms our commitment to preserving institutions that exist to serve the people of KwaZulu-Natal. Ithala remains a vital development finance institution, and we will continue to safeguard its integrity and mandate.”
He added that the KZN government would continue consulting with legal counsel to understand the implications of the ruling and any further appeals.
KwaZulu-Natal Finance MEC Francois Rodgers also welcomed the decision and reaffirmed support for Ithala. Rodgers, who attended the hearing, said: “We have always contended that Mr Kruger has never acted in the best interests of Ithala and its retail depositors. It should be remembered that this is the second time that Judge Ncube has affirmed that Mr Kruger has overstepped in his powers. Unfortunately, we are concerned that some of the damage caused by his actions may prove impossible to reverse.”
Rodgers called Kruger’s conduct “unfortunate”, saying it had caused “untold pain” to residents, jeopardised small businesses in the province, and hampered Ithala’s ability to function.
He added: “Ithala serves a niche market of mainly rural residents who are not easily assisted by large commercial banks. Attempts to systematically shut the entity down are malicious and laden with greed. They demonstrate a total disregard for indigent residents.”
Although the PA and Kruger are set to appeal the ruling, Rodgers said this would not deter the province’s efforts.
“The GPU [Government of Provincial Unity] remains committed to ensuring the survival of Ithala.”
In response, the PA has stated that its primary mandate is to protect depositors.
“In this context, while the PA understands the frustration and difficulty this situation may cause for depositors, the freezing of accounts remains a necessary and prudent step to safeguard the depositors’ remaining funds. This measure aims to ensure a fair and lawful distribution process of depositor funds while awaiting the outcome of the liquidation application.”
In the meantime, depositors remain unable to access their funds. Although Finance Minister Enoch Godongwana has confirmed a R2-billion guarantee to repay Ithala’s retail depositors, National Treasury has previously stated that details on how to access the guaranteed funds will only be provided once the court has ruled on the liquidation application – leaving about R2.47bn in deposits frozen.
Read: R2bn Ithala guarantee sparks row over fiscal risk to KZN
Read: Ithala’s fate hangs in the balance amid legal battles and funding disputes
No date has yet been set for the liquidation hearing, because the parties are still in the process of exchanging pleadings.
