Ithala Bank has lodged an urgent application to the Pietermaritzburg High Court in a bid to access the frozen funds to pay staff salaries after the South African Reserve Banks's Prudential Authority (PA) in January suspended all activities on the bank's accounts.

The matter was heard on Monday in the Pietermaritzburg division of the KZN High Court sitting in the Durban Labour Court, before Judge Muzi Ncube.

The PA has argued that Ithala was legally and technically insolvent while the bank has approached the high court, in the interim, in an urgent bid to compel the PA's Repayment Administrator (RA) Johannes Kruger, to give it access it R863 million in frozen funds to pay staff.

Kruger is seeking to overturn a November 2024 court ruling which said he overstepped in his powers when he sought to take control of operations at Ithala

Judge Ncube, in November, ruled against the RA's application to stop operations which were not deposit- taking, however, the RA appealed the decision which paved the way for the halting of all operations, including the freezing of funds and this also prevented the bank’s debtors from making payments to the bank.

On Monday, Ithala’s counsel Sandile Khumalo SC, said despite Judge Ncube's order being successfully appealed by the RA, the order must be effected.

Khumalo said this was necessary as by the time the Supreme Court of Appeal hears the matter, there would be significant harm done to the bank’s staff and depositors, who could not access their funds.

The bank wants access to non-deposit-taking operations, arguing that is not putting any depositors at risk as it would not be taking new deposits, Khumalo said, adding that the bank had already agreed to not take new deposits.

Khumalo asked the court to allow the bank to access the R863 million that was already in its account.

“Your lordship, all we are asking for is for the bank to be allowed access to operations that are non-deposit-taking. The staff has nothing to do with the non-compliance issues and they need their money to make ends meet,” said Khumalo.

Furthermore Khumalo asked the court to also determine whether social grant funds that had transferred to the bank by the South African Social Security Agency could be defined as deposits, arguing that the government cannot be defined as depositor when it pays grant recipients through a bank.

He said the RA’s argument that its duty is to protect the banks depositors' money may lead to the bank collapsing because of its non-compliance with financial regulations.

In response to the bank’s application, the RA’s lawyer, Etienne Threon SC said the RA is opposed to the application because the R863 million was still the depositors’ money and it is the duty of the PA and the RA to protect these funds.

Theron also dismissed the assertion that social grant funds could not be defined as deposits, saying once the money is transferred to a bank, it becomes an asset of the bank.

Theron said in addition, social grant funds emanate from taxpayer' money and it is the PA's responsibility to protect these.

"It is important that it is treated as deposits because should anything happen to the bank, the South African Social Security Agency which deposits the money, will be liable for it," Theron said.

KwaZulu-Natal MEC for Finance, Francois Rodgers, who attended yesterday's proceedings in a statement said it was 'very clear that the past unlawful behaviours that may have been conducted on the part of Ithala are not to be excused'.

"However, I remain against the systematic closure of Ithala for suspicious motives.

“We need to find a solution, within the legislative framework, that is in the best interest of the province and the depositors of Ithala”.

Judgment was reserved.

willem.phungula@inl.co.za