The troubled Ithala Bank has won a court battle to recover more than R10 million in a loan advanced to a business consortium that wanted to establish a milk processing plant over a decade ago.
Ithala, an entity under the KwaZulu-Natal department of economic development, has been embroiled in a tug of war with the South African Reserve Bank (SARB) for decades.
At the heart of the schism are the financial and insurance provider’s license conditions, which bar it from operating as a fully-fledged bank and only allow it to run services at the whim of SARB.
The SARB’s South Africa Prudential Authority (PA) has filed a provisional liquidation petition for Ithala SOC Limited at the Pietermaritzburg High Court.
Johannes Kruger, a repayment administrator appointed by the PA last year to look into Ithala affairs, has ruled that Ithala was legally and technically insolvent, giving effect to the court action.
The move affects about 257 000 Ithala depositors.
The latest court action by Ithala is seen as an attempt to recoup some of the unpaid loans that have added to its woes.
The bank’s financial provider wing, the Development Finance Corporation, on November 30, 2011, concluded the loan agreement of about R11 453 034 to one Loyisa Consulting and Projects CC.
The funds were to assist Liziwe Pepeta, Donald Luthando Pepeta, and Luyolo Lennox Kaula, the partners and shareholders of the business, in establishing a milk processing plant.
The project spectacularly failed.
As a result, the partners could not meet their loan agreements, and it fell into arrears. Ithala concedes in court papers seen by the Sunday World that it had tried in vain to reason with the trio to pay back the loan.
The entity further explains that the court action was the last resort.
“The applicant alleges that the first respondent thereafter breached its repayment obligations to it, fell into arrears with its payments, and did not make good the arrears when called upon in writing to do so.
“When the first respondent failed to do so, the applicant cancelled the loan agreement on 30 June 2023,” reads the court judgment meted out by the Pietermaritzburg High Court this week.
In their answering affidavit, the respondents disputed Ithala’s claim, explaining that it had applied to the financial provider to grant them a grace period on the ground that they had hit a snag that impacted their ability to service the loan timeously.
The business owners also claim that they had told Ithala they had devised a new business strategy that would assist in their plan to service the loan.
They contended that Ithala was nonchalant. However, the court did not budge on
the arguments advanced by the respondents.
The court subsequently ordered that the businessmen fork out R10.1m jointly and severally. It further ordered that they should also pay Ithala at a rate calculated at 2%.
The court also ordered that an over 810-hectare farm owned by the company held by deed of transfer be declared specially executable and that Ithala perfect the general notarial bond by the company in respect of all its movable assets to the value of more than R2.8m is attached.
Ithala SOC Limited is currently facing an uncertain future after the South African Reserve Bank’s wing Prudential Authority applied for its liquidation.
The move puts in a precarious position the more than 250,000 bank’s depositors.
