The South African Reserve Bank (SARB) has come in for scathing criticism from the high court, which ruled it had abused its draconian exchange control powers.
The court said the Bank did this by revoking approval for Ibex (the former Steinhoff) to transfer funds to foreign creditors and threw out its claim that the official who authorised the payments had no authority to do so.
“The SARB did not observe the heightened standards required of it in litigation. The SARB was not candid and did not place a full and fair account of the facts before the court,” said Gauteng high court judge Sulet Potterill. She ruled that the Bank must unblock all payments to the foreign creditors that it approved in April 2024 and allow all future approved payments to flow.
The case goes back to July, when the Bank’s financial surveillance (exchange control) department refused to allow Ibex to pay more than R9bn to its international financial creditors, just three months after the department had given permission for this.
Ibex took the Bank to court to get it to release the funds, and in September the Bank agreed to release the bulk of the R9bn.
But the Bank then counter-applied to the court to review its own approvals for the deal, arguing that these were unlawful because the financial surveillance official who approved the Ibex transactions did not have the authority to do so.
In its judgment last week, the court firmly rejected this argument, which differed from the reasons it gave Ibex at the time it blocked the funds in July.
The court found that the Bank had shown no evidence that Johan Kruger of its financial surveillance department was the person who granted the approvals. And in any event, the Bank’s own internal rules allowed for managers of his level of seniority with the appropriate delegation to grant approvals up to R10bn without taking these to the relevant deputy governor or the governor’s executive committee.
“There is not a single document supporting the contention that the approval was granted without authority by Kruger or the department head,” the judgment said.
It cannot be ignored that the SARB first tried to block the [transfer] for completely other reasons, and only when the urgent application was launched did the lack of authority arise
— Judgment
“It cannot be ignored that the SARB first tried to block the [transfer] for completely other reasons, and only when the urgent application was launched did the lack of authority arise.”
The Bank’s version in its counter-application was “palpably implausible”, the court said.
Steinhoff’s agreement to repay its foreign creditors over a three-year period to June 2026 stopped them from pulling the plug on the bankrupt group, preventing a fire sale of its assets and helping to save up to 50,000 jobs in South Africa.
The Bank’s decision to renege on its approvals prompted concerns in the market that it could be negative for investor confidence if the Bank could arbitrarily change its mind on exchange-control decisions.
Almost all of the international creditors are distressed debt funds to which the commercial banks sold their Steinhoff loans. Ibex owes them about €10bn (about R200bn).
Its assets in South Africa, mainly its 30% stake in Pepkor, are worth about R30bn, while the rest of its assets abroad are worth a further R25bn-R30bn.
The R9bn, which was the proceeds of a sale of Pepkor shares, was part of the South African assets earmarked to pay the international creditors in terms of a series of approvals granted by the Bank in April last year.
“The SARB has not set out a single fact as to why the blocking order was issued, why it is lawful and why it should not be set aside,” the court found. “These facts are peculiarly within their own knowledge and their silence thereon is inexcusable.”
The court ruled that the blocking order must be set aside.
Steinhoff’s previous management, led by the late Markus Jooste, perpetrated South Africa’s biggest fraud, creating fictitious offshore shell companies to inflate profits and hide losses, the full extent of which emerged in late 2017.
Separately, the Bank last year forfeited R6bn of Ibex funds on the grounds these were the proceeds of historical contraventions by the group. This is the subject of a separate appeal by Ibex.
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