South African SCA overturns High Court decision to place JP Markets into Liquidation

On 20 October 2021, the Supreme Court of Appeal (“the SCA”) handed down a judgement in the matter of JP Markets v FSCA (Case no 460/2021) [2021] ZASCA 148 (20 October 2021) in terms of which the SCA set aside the decision of the High Court to place JP Markets (Pty) Ltd (“JP Markets”) into liquidation, finding that it was not just and equitable.

The appeal follows an order by the High Court placing JP Markets into final liquidation on 7 September 2020, pursuant to an application launched by the FSCA on an urgent basis for the liquidation of JP Markets in terms of section 38B of the Financial Advisory and Intermediary Services Act 37 of 2002 (“FAIS Act”) and section 96(a)(i) of the Financial Markets Act 19 of 2012 (“FMA”).

JP Markets is an over-the-counter (“OTC”) derivative provider (“ODP”), and the FSCA contended that it required a licence in terms of the Financial Markets Act Regulations published in terms of the FMA in order to conduct its business.

The SCA held that the liquidation application did not concern itself with the conduct of JP Markets as an financial services provider (or about the protection of the interests of clients or the public in respect of financial advisory or intermediary services), but rather the failure of JP Markets to have timeously applied for an ODP licence when it was conducting the business of an OTC derivative provider and its persistence in conducting that business without applying for a licence when it was required to do so.

Accordingly, the SCA held that section 38B of the FAIS Act could not find application in the liquidation as the impugned conduct of JP Markets was not related to JP Markets acting as a financial services provider. However, the SCA held that section 96(a)(i) of the FMA did find application, and that the FSCA was empowered to apply for the liquidation of JP Markets in terms such provision.  

Section 96(a)(i) of the FMA essentially provides that after a supervisory on-site inspection or an investigation has been conducted, the FSCA may, in order to achieve the objects of the FMA referred to in section 2, apply to court under section 81 of the Companies Act, 2008 (“Companies Act”) for the winding-up of a respondent as if the FSCA were a creditor of the respondent.

The SCA held that such application could be brought by the FSCA prior to the conclusion of an investigation referred to in section 96 of the FMA, contrary to what was contended by JP Markets.  

In applying a textual approach balanced with a purposive approach, the SCA held that the text and the context does not indicate any element of finality is required in respect of such investigation or inspection, and such a contention will achieve an unbusinesslike result stating “[i]t makes little or no sense to require that an investigation be concluded before the taking of any steps in terms of subsecs (a) to (e) would be permissible, even though an ongoing investigation revealed evidence that would justify or require such action.”

Whilst the SCA held that section 96 of the FMA will find application in the instance where there is an ongoing investigation, the SCA noted that for purposes of section 96(a)(i) of the FMA to apply, and thus for the FSCA to apply for the winding-up of JP Markets as if it were a creditor of JP Markets, the FSCA must show that it is ‘just and equitable’ for JP Markets to be wound up in accordance with section 81(1)(c)(ii) of the Companies Act. The SCA held that the determination of whether it would be ‘just and equitable’ to order a winding-up under section 96 of the FMA, is inextricably linked to the achievement of the objects of the FMA as set out in section 2 of the FMA.

The SCA held that the only relevant factor in assessing whether it would be ‘just and equitable’ to liquidate JP Markets was the factor that JP Markets had been doing business as an ODP without a licence.

Of import, JP Markets had in fact applied for an ODP license, but at the time of hearing the urgent application in the High Court, and the appeal in the SCA, the application for an ODP license was still pending before the FSCA.

The SCA held that the liquidation of JP Markets prior to the determination by the FSCA of its ODP licence application would not achieve the objects of the FMA, and that the winding-up of JP Markets in the circumstance was neither just nor equitable.

Accordingly, the appeal was upheld and the High Court order replaced with a dismissal of the FSCA's application for liquidation.

A more detailed analysis of the judgments will be circulated shortly. A copy of the judgement can be accessed here.