South Africa

Reserve Bank Application

‘Hopelessly insolvent’ VBS to be liquidated

THOHOYANDOU, SOUTH AFRICA – JUNE 20: VBS Mutual Bank customers queue outside the branch, hoping to withdraw money they saved for stokvels and burial societies on June 20, 2018 in Thohoyandou, South Africa. (Photo by Gallo Images / Sunday Times / Antonio Muchave)

It took only minutes for the North Gauteng High Court to approve the liquidation of VBS Mutual Bank on Tuesday. Despite the debate over whether it should be rescued, the Reserve Bank's application was unopposed.

VBS Mutual Bank’s operations will officially be wound up after the North Gauteng High Court ordered its final liquidation on Tuesday.

The application was brought by the SA Reserve Bank’s (SARB) Prudential Authority and was unopposed despite some in the ANC, the EFF and minority shareholders calling for the bank to be revived.

Judge Johan Louw granted the liquidation application in a matter of minutes after the parties had agreed on a draft court order to place VBS under final rather than provisional liquidation.

SARB placed the bank under curatorship in March due to a liquidity crisis. An investigation by Advocate Terry Motau and Werksmans Attorneys detailed how R1.9-billion was looted by the bank’s senior leaders and their associates as they enticed municipalities to make deposits, which were then siphoned out of the bank.

According to the law, the Master of the Court must appoint a liquidator recommended by the Prudential Authority. The Prudential Authority recommended Sizwe Ntsaluba Gobodo Grant Thornton director Anoosh Rooplal be appointed liquidator.

Rooplal led the curatorship and in court papers Prudential Authority CEO Kuben Naidoo said he should continue to wind up the bank’s activities because he has intimate knowledge of the company, knows what information is needed for criminal and civil investigations and is best placed to recover money that was stolen to pay creditors.

In his affidavit, Naidoo said VBS was no longer serving its purpose as a bank and had no chance of being saved.

VBS is hopelessly insolvent and massive frauds have been perpetuated against it. There is no prospect of entering into any resolution plan in respect of VBS,” he said.

VBS must be wound up on an urgent basis and a liquidator appointed so that the necessary civil and criminal proceedings can be pursued to hold those accountable for the demise of VBS and so as to achieve as a recovery as possible for the creditors of VBS,” Naidoo continued.

The curator’s investigations showed the bank was “hopelessly insolvent” in March 2017 and “far worse” a year later. VBS lied to SARB in its monthly submissions and reconstructing the bank’s financial statements showed it overstated the cash it had on hand by R700-million.

Naidoo said VBS has only 25 employees to assist the curator after a round of retrenchments and branch closures.

National Treasury has guaranteed deposits with VBS of up to R100,000 and opened over 17,000 accounts with Nedbank for VBS customers to access. Around 50% of those accounts have been accessed.

SARB resisted calls to rescue the bank with critics pointing to African Bank, which it saved in 2014 with a R7-billion bailout, a rescue package that also saw R10-billion in recapitalisation from a consortium of other private banks.

VBS should have been saved because it was the country’s only black-owned bank and served mostly poor clients in rural areas, said critics of SARB’s move to liquidate it.

President Cyril Ramaphosa told the National Assembly last week, “The idea of VBS should remain alive. That is a bank that served people in rural areas and the poor. A bank in which the poor had a great deal of confidence.”

He added: “In the end we may revive VBS and raise it from the ashes and re-establish a VBS which is clean and operates along the principles the original VBS was established for.”

The EFF’s Mbuyiseni Ndlozi accused SARB of doggedly trying to destroy the bank while it had saved others in the past. Standing committee on finance chairperson Yunus Carrim said SARB should try to save the bank to support transformation in the industry.

Minority shareholders recently said they had raised R2-billion to save the bank and planned to challenge the liquidation application.

The fallout over the saga continues, with Hawks boss Godfrey Lebeya telling Parliament last week that they were taking statements from witnesses.

The Limpopo government has acted against many of its implicated officials and the SACP suspended its provincial secretary and former Capricorn District Municipality mayor Gilbert Kganyago last week.

The SACP has been accused of receiving R3-million from VBS, according to weekend reports, which the party has denied.

It was reported on Monday that some North West municipalities have ignored instructions from the provincial government to act against implicated municipal managers. DM