South African Reserve Bank and Another v Johnine Winsome Elisie Maddocks N O and Another

The South African Reserve Bank (Reserve Bank) issued blocking orders on 10 September 2015 in terms of Regulation 22A and/or 22C of the Exchange Control Regulations under the Currency and Exchanges Act 9 of 1933 against monies held in bank accounts of two companies: Sun Candle Products (Pty) Limited and Xinming Mountain Textile (Pty) Limited. The blocking orders were based on reasonable suspicion that the companies had contravened Exchange Control Regulations by exporting large sums of money without permission and making advance payments for imports without proof of importation. The companies were subsequently placed in liquidation on 17 February 2017 (provisionally) and 10 March 2017 (finally), with the concursus creditorum established on 13 February 2017. After the liquidation, the Reserve Bank issued three forfeiture orders in terms of Regulation 22B (dated 19 June 2017, 16 August 2018, and 31 August 2018) declaring the blocked monies forfeited to the State and directing payment into the National Revenue Fund. The liquidators demanded the forfeited monies be paid to them for distribution in the insolvent estates, arguing that the liquidation rendered the forfeiture orders null and void.

• Whether forfeiture orders issued under Regulation 22B of the Exchange Control Regulations after the winding-up of a company are legally competent and valid
• Whether the liquidation of a company nullifies a prior blocking order issued in terms of Regulation 22A and/or 22C
• Whether the issuance of blocking orders and forfeiture orders renders the South African Reserve Bank a creditor of the insolvent company required to participate in the concursus creditorum
• Whether the High Court had jurisdiction to hear the matter
• Whether Exchange Control Regulations prevail over insolvency law in circumstances where blocking orders pre-date liquidation

The appeal succeeded. The order of the high court was set aside and replaced with an order dismissing the liquidators' application with costs.

The binding legal principle is that the liquidation of a company does not nullify a prior blocking order issued in terms of Regulation 22A and/or 22C of the Exchange Control Regulations. Where a valid blocking order exists at the time of liquidation, it remains competent for the South African Reserve Bank to subsequently issue forfeiture orders under Regulation 22B declaring the blocked funds forfeited to the State, notwithstanding the intervening liquidation. The issuance of blocking orders and forfeiture orders does not create a debtor-creditor relationship or render the Reserve Bank a creditor required to participate in the concursus creditorum. The Exchange Control Regulations, which serve the constitutional mandate of protecting the currency and economy, must be interpreted purposively such that assets which legitimately ought to be forfeited to the State in terms of the Regulations are not prevented from forfeiture merely by the subsequent liquidation of the company. A sequestration or winding-up order must yield to a pre-existing blocking order, and forfeiture orders issued pursuant to such blocking orders are valid and enforceable despite the liquidation.

The Court made several non-binding observations. It noted that if forfeiture orders could be terminated by winding-up, companies could manipulate the system by commencing winding-up proceedings specifically to defeat forfeiture of funds subject to blocking orders - an absurdity the legislature could not have contemplated. The Court also observed that the high court had jurisdiction under section 1 of PAJA because the bank accounts subject to the forfeiture orders were held with banks located in Durban, within the court's jurisdiction, even though the application was not expressly framed as a review under PAJA or the principle of legality. The Court commented on the Constitutional context, noting that section 224 of the Constitution establishes that the primary object of the Reserve Bank is to protect the value of the currency "in the interest of balanced and sustainable economic growth in the Republic," and that the Exchange Control Regulations constitute mechanisms to assist the Reserve Bank in executing its constitutional mandate. The Court also distinguished the Van der Merwe case, observing that unlike the Customs and Excise Act which serves to collect duties (making SARS a creditor), the Exchange Control Regulations serve regulatory purposes to protect currency and the economy.

This judgment is significant in South African law as it clarifies the relationship between Exchange Control Regulations and insolvency law. It establishes that: (1) blocking orders issued under Exchange Control Regulations prior to liquidation remain valid and enforceable after liquidation; (2) forfeiture orders can competently be issued after liquidation in respect of funds subject to pre-existing blocking orders; (3) the Reserve Bank does not become a creditor of an insolvent company by virtue of issuing blocking or forfeiture orders; (4) Exchange Control Regulations, which serve the constitutional mandate of the Reserve Bank to protect the currency in the interest of balanced and sustainable economic growth (s 224 of the Constitution), prevail over ordinary insolvency law principles in these circumstances; and (5) the remedy of forfeiture, being a sanction of public law imposed to protect currency and the economy, is not lost by operation of insolvency law. The judgment reinforces the constitutional mandate of the Reserve Bank and the public interest objectives underlying Exchange Control Regulations. It builds on the principles established in South African Reserve Bank v Leathern N O and provides important guidance on the interaction between regulatory seizure powers and creditors' rights in insolvency.