The Financial Services Tribunal (FST) has clarified the limits of investor recourse against the Financial Sector Conduct Authority in the context of curatorships, confirming that reconsideration proceedings cannot be used to compel regulatory intervention or to obtain information for use in separate litigation.
In decision delivered on 13 April, the Tribunal dismissed an application brought by two investors in Corporate Money Managers (CMM), who sought to require the FSCA to direct the curators to produce a detailed accounting of fees and disbursements over about 17 years.
The Tribunal found that the applicants were not “persons aggrieved” as required under section 230 of the Financial Sector Regulation Act (FSRA), and the relief sought would in any event serve no practical purpose.
The applicants were I-Prop (Pty) Ltd, which invested about R100 million in CMM, and Petro Heydenrych, who invested about R3m.
Long-running curatorship
CMM, a Pretoria-based financial services provider and its related entities, was placed under curatorship in 2009 after an investigation by the then Financial Services Board found that its Cash Management Fund had raised more than R1.1 billion from investors since purported money-market-type returns. The High Court appointed curators to take control of the business and pursue recoveries for investors.
The curators have engaged in extensive litigation, including claims against financial institutions and former directors, as part of efforts to recoup losses.
A 2015 High Court judgment found that the CMM group’s business was conducted “recklessly or with intent to defraud creditors”.
The curatorship has remained ongoing for more than 15 years. By mid-2021, the curators had recovered approximately R474.8m, including a R175m settlement with Absa Capital, while total curatorship costs amounted to about R252.3m. About R77.8m had been distributed to investors at that stage.
The relief sought
The applicants sought reconsideration of the FSCA’s refusal to direct the curators to provide a comprehensive accounting of:
- fees earned;
- disbursements incurred;
- supporting invoices; and
- bank statements reflecting payment.
Although they initially sought a substantive order compelling disclosure, they accepted that such relief was not competent and instead sought a remittal to the FSCA for reconsideration.
The information sought included “the names of the firms paid, as well as the amounts and the dates”, covering a period of approximately 17 years.
The applicants did not assert a direct right to obtain the information from the curators themselves. Rather, they contended that they were entitled to require the FSCA to exercise its supervisory powers to compel the curators to render an accounting.
The Tribunal records that this asserted right was premised on multiple grounds:
- Section 5(6) of the Financial Institutions (Protection of Funds) Act provides that a curator acts under the control of the regulator and may seek directions from it.
- The High Court order required the curators to act in the best interests of investors and authorised them to incur and recover fees and expenses from the assets under curatorship.
- The applicants relied on fiduciary principles, contending that the curators are obliged to render an account to those to whom the duty is owed.
- Regulation 11 requires curators to maintain and submit statements of account with supporting documentation to the registrar.
- Section 33, which guarantees lawful, reasonable and procedurally fair administrative action.
The Tribunal’s decision recorded that the application formed part of broader litigation between the applicants and the curators.
The applicants have instituted:
- Action proceedings against the curators and their attorneys, alleging negligence, including allowing a claim against Absa Bank to become time-barred. The claims are framed in delict, breach of contract, and breach of a court order.
- A separate application (launched in 2024) to compel the curators to distribute approximately R100m to investors, based on an alleged contractual undertaking given in 2020.
The FSCA’s response
The FSCA opposed the application on two principal jurisdictional grounds.
First, it argued that its refusal did not constitute a “decision” under section 218 of the FSRA, because it did not involve the exercise, or refusal to exercise, a statutory power it was obliged to exercise.
Second, it contended that the applicants were not “persons aggrieved”, because their own legal rights were not directly affected.
It further submitted that the applicants were seeking to obtain assistance for their litigation against the curators, and that appropriate remedies were available through court processes, including discovery and applications under section 5(8)(a) of the Protection of Funds Act.
The statutory threshold: ‘person aggrieved’
The Tribunal identified the requirement in section 230 of the FSRA as determinative.
The provision permits reconsideration only by a “person aggrieved” – a requirement that is “not satisfied by every person who has an interest in the subject matter of the decision or omission”.
Citing the Supreme Court of Appeal in Francis George Hill Family Trust v South African Reserve Bank and Others, the Tribunal said the term refers to “a person whose own legal rights or legally protected interests are directly and adversely affected, and not to a person who complains of a commercial, financial, or derivative prejudice”.
It added: “George Hill established that a shareholder is not a ‘person aggrieved’ for purposes of challenging regulatory action against company assets unless their own legal rights are directly affected. The legal interest required is a direct legal right, not a mere financial or indirect interest.”
Legal rights versus financial interests
The Tribunal drew a clear distinction between:
- Direct legal rights, which are personal and capable of enforcement; and
- Indirect or derivative interests, including financial exposure to the performance of a fund or asset pool.
It held that for standing to arise:
- The decision must directly affect the applicant’s own legal position.
- It must involve the alteration, deprivation, or refusal of a recognised right.
The Tribunal emphasised that the fact that investors may benefit from proper administration, or suffer prejudice from depletion of assets, does not convert regulatory conduct into an infringement of their legal rights.
It found that the applicants were not asserting that any decision of the FSCA had altered, extinguished, or refused to recognise a right vested in them. Rather, their objective was to obtain information to enable scrutiny of the curators’ fees and disbursements and, ultimately, to support further challenges.
Regulation 11 and supervisory powers
The Tribunal rejected the applicants’ reliance on Regulation 11, holding that the provisions regulate the curators’ accounting obligations to the registrar and “do not, on their own terms, confer on individual investors a personal right to compel the FSCA, through reconsideration proceedings, to enforce those obligations in a particular manner”.
If the applicants wished to challenge the curators’ conduct or fees, their remedy lay in proceedings directed at the curators in a competent court”. Section 230 of the FSRA is not a mechanism by which an investor may compel the regulator to exercise supervisory powers for the purpose of facilitating such litigation.
Practical effect of the relief sought
Separately, the Tribunal considered whether the relief would serve any practical purpose.
It concluded that even if the FSCA were directed to obtain the information:
- it would not enable the taxation of the curators’ fees;
- it would not advance the applicants’ objective; and
- it would impose a significant administrative burden.
The Tribunal observed: “The only real practical effect is that the FSCA and this Tribunal would be inundated with a plethora of documents with which neither it nor the FSCA could do anything.”
Outcome and implications
The Tribunal concluded that the applicants’ interest was indirect and financial, not legal, and that they were not “persons aggrieved” under section 230 of the FSRA. The application was dismissed.
The Tribunal also rejected the application for costs, describing it as “misguided”, and noting that the relief sought was not competent and would have served no practical purpose.
The decision confirms that reconsideration proceedings under the FSRA are limited to cases where an applicant’s own legal rights are directly affected.
It also delineates the boundary between regulatory oversight and private litigation, confirming that investors cannot invoke the Tribunal to compel the FSCA to exercise supervisory powers or to obtain information for use in separate proceedings, and that challenges to curators’ conduct must be pursued through the courts.
