Pyramid scheme Travel Ventures Institution (TVI) or Travel Ventures Marketing Agency has cut a swathe of destruction through vulnerable communities in SA. This month, a supreme court of appeal decision spoke of how Travel Ventures’ distributors had "brutally taken advantage of informal communal savings structures" like stokvels.
A staggering R1.6bn is estimated to have been invested with TVI. "Distributors", drawing people into the scheme and taking their money, included church ministers, politicians and civil servants. Among these was Paulos Zulu of Newcastle, who opened bank accounts in the name of TVI.
Five years ago the registrar of banks concluded that TVI was conducting the business of a bank without being registered and that Zulu’s affairs should be scrutinised by investigator Johannes Kruger. He soon identified that TVI investment funds had been used to buy Zulu’s assets, and the registrar, satisfied that Zulu had obtained money by unlawfully conducting the business of a bank, appointed Kruger as a "repayment administrator" tasked with "managing and controlling" repayment of all the money Zulu acquired in contravention of the Banks Act.
Kruger tried to obtain judicial authorisation to recover and take possession of all his assets, but the Pietermaritzburg high court found against him on three preliminary points. Kruger challenged that outcome and the appeal court has now delivered its decision.
By the time the appeal was argued, however, Zulu’s estate had already been sequestrated and was being dealt with by trustees. Should the court hear the appeal at all, since it was no longer appropriate to order that Kruger be authorised to take possession of Zulu’s assets? Had the question of Kruger’s rights as a "repayment administrator" become moot?
The appeal judges took the view that while the issue of whether Kruger should be given control of Zulu’s assets was no longer "live", it was important for the court to clarify the powers and obligations of a repayment administrator and to set out the correct approach.
The judges said legitimate banks were subject to the "stringent supervision of the registrar", but unregistered institutions evaded supervision, "always with catastrophic results". This explained the wide powers of the registrar to investigate suspected breaches of banking laws. Where investigations showed the law was contravened, "swift intervention is necessary to limit the damage". The registrar could instruct someone who got money by running an unregistered bank to repay everything acquired. The registrar also had to appoint a repayment administrator to manage and control this repayment. Once this process was started, the assets of the person under investigation were effectively frozen.
A repayment administrator’s task was rather like the work involved in obtaining preservation orders under the Prevention of Organised Crime Act and was "intrinsically urgent". But it was also comparable to the situation of trustees and liquidators of insolvent estates whose powers arose directly from the law rather than from a court order. In the same way as a trustee took control and possession of assets immediately following sequestration, so a repayment administrator took control and possession of assets.
All such a person’s assets, including those innocently acquired, would be controlled by the administrator, ruled the court, and Kruger had been "entitled", even without a court order, to have taken possession of Zulu’s assets.
The decision could be crucial in helping to deal with the fallout of unregistered banks: now that their powers have been clarified, repayment administrators may more easily obtain assets from which to repay those who innocently "invested" in unlawful schemes.