Statutory management is a regulatory intervention mechanism used by the Non-Bank Financial Institutions Regulatory Authority (the Regulator) in the financial services sector. This regime is particularly relevant for non-bank financial institutions (NBFIs) that are in distress or facing significant financial instability.
Under this regime, a Statutory Manager is appointed to take control of an NBFI to protect the interests of depositors, shareholders, creditors, and the broader financial system.
The financial services legal framework that governs the statutory management regime is the Non-Bank Financial Institutions Regulatory Act, 2023, as well as other sector-specific legislation, such as the Securities Act (which regulates the conducting of securities business in Botswana, i.e., asset managers), the Insurance Industry Act (which regulates the conducting of insurance business in Botswana, i.e., insurers and reinsurers), and the Retirement Funds Act.
What is an NBFI?
The Non-Bank Financial Institutions Regulatory Act, 2023, defines a “nonbank financial institution” as, amongst others, the following persons operating an institution of:
an asset manager;
a retirement fund;
an administrator of a retirement fund;
a collective investment undertaking;
an insurance agent;
an insurance broker;
an insurer;
an investment adviser;
a securities broker or dealer;
a securities exchange;
a medical aid fund;
a microlender;
a pawnshop; and
a virtual asset service provider.
Appointment of a Statutory Manager
A Statutory Manager may be appointed in two ways. Firstly, by the Regulator appointing the Statutory Manager directly. However, upon the direct appointment of a Statutory Manager by the Regulator, the Regulator must then apply to the High Court within five days for an order confirming the appointment of the Statutory Manager.
Secondly, by way of an application to the High Court. This can be done by either the Regulator or an interested party (i.e. a creditor), provided that they obtain the written consent of the Regulator before they apply for statutory management at the High Court.
The basis for appointing a Statutory Manager of an NBFI in terms of the financial services legal framework is if the NBFI is likely:
to not be complying with any financial services law; or
to be in an unsound financial position; or
to be involved in a financial crime.
In the event that the Regulator elects to appoint a Statutory Manager directly, it may also do so on the basis that it is necessary to protect the:
interests of a client of the NBFI;
stability, fairness, efficiency, and orderliness of the financial system; or
safety and soundness of the NBFI.
Powers and Duties of a Statutory Manager
The Statutory Manager’s primary duty is to manage the affairs of the NBFI to the exclusion of its directors and act in the best interests of the institution’s stakeholders and the public.
The Statutory Manager has broad powers in managing the affairs of an NBFI, which include, amongst other things, taking control of assets, managing operations, restructuring the institution, and making decisions to stabilize and restore its financial health.
The Statutory Manager also has the power to repudiate contracts deemed detrimental to the interests of any client of the NBFI. This means that the Statutory Manager can refuse to fulfill contractual obligations that the NBFI has, thereby rejecting or renouncing the contract.
It must be noted that the powers of a Statutory Manager are not unfettered, as they cannot make unilateral decisions on the business of the NBFI that would require shareholders’ approval. Furthermore, the Statutory Manager is also subject to complying with the Regulator’s directions during the statutory management of the NBFI.
The Statutory Manager shall, as soon as practicable after appointment and investigating the affairs of the NBFI, advise and report to the Regulator on procedures to ensure the NBFI is compliant with financial services laws, financially sound, and free from financial crimes.
If it is not practicable to use the prescribed procedures to ensure compliance, the Statutory Manager may:
Direct that the business of the NBFI be transferred to another person, specifying the terms of such transfer; or
Recommend to the Regulator that the NBFI be wound up or placed under liquidation.
Remuneration of a Statutory Manager/Who pays the Statutory Manager?
The Statutory Manager is entitled to receive remuneration from the business of the NBFI as ordered by the Court during the period of statutory management.
Termination of Statutory Management
The office of the Statutory Manager terminates when:
the Regulator is satisfied that the purpose for the appointment no longer exists; or
the Regulator applies to the High Court for the NBFI to be wound up on the basis of insolvency and the unlikelihood of returning to solvency within a reasonable time.
Is Statutory Management the same as Judicial Management?
Although statutory management and judicial management are similar in that a manager is appointed to manage the affairs of the entity, they are not the same. This is because judicial management:
generally refers to situations where a company is unable to pay its debts due to mismanagement or some other cause, in which a Judicial Manager is appointed with the objective of rescuing the company and returning it to profitability, and thereafter returning the company to its directors;
is a process where the Judicial Manager is appointed in terms of Part XXVI of the Companies Act and therefore falls within the jurisdiction of the Master of the High Court, unlike the Statutory Manager, who is appointed in terms of the abovementioned financial services laws and is answerable to the Regulator;
applies to all companies whilst the statutory management applies only to NBFIs; and
is made by way of a petition to the High Court by the company itself, a creditor, or a member to the High Court.
Historical Use of Statutory Management
The Courts have recently confirmed the appointment of Statutory Managers of NBFIs by the Regulator in cases such as those set out below.
A notable case involved Capital Management Botswana (Proprietary) Limited (“CMB”), a licensed asset manager at the time, being placed under statutory management by the Regulator on the basis that it discovered that CMB was in breach of the provisions of the Securities Act, in particular, the failure to submit audited financials.
Another notable case involved a company called Bluthorn Fund Managers (Proprietary) Limited (“Bluthorn”), which was licensed as a collective investment undertaking. It was also placed under statutory management by the Regulator on the basis that there were various breaches of the provisions of the Collective Investment Undertakings Act.
Conclusion
It is therefore important for directors and managers of NBFIs to be aware of the possible steps that the Regulator may take to ensure compliance with financial services laws, in particular, statutory management. Understanding this mechanism helps in better governance and adherence to financial services laws, which ultimately safeguards the interests of clients, maintains the stability of the financial system, and upholds the integrity of the NBFI itself.
Directors should proactively ensure that their institutions operate within the legal framework to avoid the need for such interventions. By prioritizing financial soundness, transparency, and regulatory compliance, NBFIs can contribute positively to the broader financial ecosystem and prevent the adverse consequences of statutory management.
In the age of information technology, where the lifeline of a business is storing information in servers and the cloud, hackers are now increasingly accessing millions of data belonging to businesses and demanding ransom payments. This is now a growing trend in Botswana, with a few businesses having been on the receiving end of extortion by hackers.
We hope that will soon be combated as the Botswana business landscape braces for a new dawn once the Data Protection Act of Botswana (“DPA”), which was passed into law on 15 October 2021, becomes fully in force after 14 October 2024.
The DPA’s main objective is to ensure that personal data is processed in a lawful manner. In this regard, personal data is defined as information relating to an identified or identifiable individual, which can be identified directly or indirectly, in particular by reference to an identification number or to one or more factors specific to the individual’s physical, physiological, mental, economic, cultural, or social identity.
The DPA also seeks to protect individuals against unlawful processing of their sensitive personal data. This includes personal data that reveals, among other things, an individual’s racial or ethnic origin, physical or mental health, membership of a trade union, personal financial information, political opinions, genetic data, biometric data, and personal data of minors, among others.
With this in mind, businesses, especially those which deal with a great deal of people’s information, have a few months to ensure that they will be compliant with the DPA.
The big question, however, is how can a business accomplish this. First of all, you need an experienced team of lawyers with commanding experience in dealing with data protection law solutions and also to elect an internal resource which will lead the implementation project for your business.
At a very high level, the process essentially comprises:
The starting point is a risk assessment exercise which will be conducted on the business, particularly the business activities that pertain to the processing of personal data. This includes assessing information provided from completed data protection information gathering surveys and related documentation. This is typically called the gap analysis stage;
The purpose is to determine existing compliance levels and risks in regard to non-compliance in the business operations. The results of the process are captured in a report that breaks down the business’s level of compliance as it relates to the 8 principles of the data lifecycle;
Preparation of all relevant data processing policies (internal and external privacy policies, records retention and destruction policies, cookie policy, information security policies), procedures (privacy impact assessment procedures, data breach response procedure), agreements (data processing agreements, cross-border data transfer agreements), privacy forms and templates, and other compliance documentation required to embed DPA compliance in the business, and assistance with the setup of relevant governance forums and procedures/terms of reference for various governance structures to manage ongoing data protection compliance;
Addressing and managing all key compliance and legal risks to the business with the implementation and operationalization of the DPA; and
Setting up an information repository along with preparation of an overall compliance manual and compliance documentation and procedures to manage ongoing DPA compliance within the business, including conducting ongoing data privacy impact assessments.
To this end, we urge your business (especially if you handle large amounts of personal data) to do the needful to become exemplary in data protection compliance.
For more information on the above, please contact Mr. Simon Bathusi at simon@armstrongs.bw or call +267 395 3481.
On the 11th of July 2023, the Court of Appeal presided over an appeal brought by Debswana Diamond Company Limited (“Debswana”) against Infotrac (Pty) Ltd (“Infotrac”). The decision sought to be appealed was in respect of a High Court decision, in which the High Court had granted judgment in favour of Infotrac in the sum of One Hundred and Ten Million Pula (BWP110,000,000.00) against Debswana.
On the 31st July 2023, prior to the judgment being delivered on the substantive appeal, Infotrac filed an application, on urgency, seeking the recusal of the judges who had presided over the appeal citing a number of reasons that, it alleged, led to a ‘reasonable apprehension of bias’.
On the 20th of September 2023, the Court of Appeal delivered its Ruling in respect of the recusal application and, thereafter, delivered judgment on the substantive appeal.
The Application for Recusal
The Court of Appeal has held that the law on the recusal of members of the judiciary in Botswana is now settled. In brief, the court has reiterated the position that actual bias need not be proven, and that a mere apprehension of bias is sufficient. The Court, further, reiterated that the test for apprehended bias is an objective test and that the onus of establishing the apprehended bias rests upon the party alleging it.
In considering whether the application for recusal of the panel of Judges should be granted or not, the Court of Appeal applied the so-called “double reasonableness test” as more fully set out below.
The Court of Appeal cited and relied on the cases of GAOTSALOE v DEBSWANA DIAMOND COMPANY LIMITED [2019] 1 BLR 109, 110, 127 and 133 (CA); MOGALE v MOTOR VEHICLE ACCIDENT FUND {2016] 1 BLR 458 (CA); President of the REPUBLIC OF SOUTH AFRICA v SARFU 1999(4) SA 147 (CC), and held as follows:
“In determining whether the onus of establishing apprehended bias has been discharged, a court starts with a presumption of impartiality, namely that judges will carry out their oath of office. This presumption can be displaced by cogent evidence that passes the ‘double reasonability’ test, or a two-fold objective element: (i) the person considering the alleged bias must be reasonable and (ii) the apprehension of bias itself must be reasonable in the circumstances of the case.”
The Court held that the first requirement on the principles applicable to the recusal of judicial officers is that the alleged perception of reasonable bias must be determined from the objective perspective of a reasonable person, or an informed observer, and not from the subjective perspective of the party asking for recusal. The apprehension of bias must itself also be reasonable.
Infotrac’s initial complaint was that its Attorney had been harshly treated by way of questions posed and comments made during the hearing of the Appeal by one of the members of the Bench. Further complaints were subsequently made by Infotrac. The alleged harsh treatment of Infotrac’s Attorney, it was alleged, gave rise to a reasonable apprehension of bias on the part of the Judge in question.
In dealing with the issue, Judge Froneman stated:
“Any informed observer of the Botswana Court of Appeal would know that vigorous and sometimes robust debate and interaction between the bench and counsel is the very stuff of an appeal hearing, as is the case in many other jurisdictions.”
The Court of Appeal (in considering all relevant facts and applicable principles) came to the conclusion that an informed observer would not have considered the questions posed nor comments made as indicating any potential bias on the part of the Judge(s).
The Court of Appeal also dealt with the other complaints raised by Infotrac’s Managing Director and held that a reasonable person would not have attempted to influence the outcome of a pending appeal, especially by approaching other institutions (as Infotrac’s Managing Director had) other than the Court itself in an effort to thwart the outcome of an appeal.
The application for recusal was accordingly dismissed on the basis that it was without merit and accordingly dismissed, with costs.
Kindly note that on the 15th of September 2023, the Minister for State President extended the compliance period for the Provisions of the Data Protection Act, particularly in relation to the processing of personal data under section 54.
This extension has been officially implemented through the publication of the Data Protection (Amendment) Act (Period of Processing Personal Data) Order, 2023.
Key Update: The compliance deadline for the Data Protection Act has been extended from the 17th of September 2023, to the 17th of September 2024.
The extension for compliance allows all affected stakeholders an additional opportunity to align their processes to the requirements of Data Protection.
If you have any questions or require further details regarding this update, please don’t hesitate to reach out to us. Your compliance and data protection matters to us!
1. In the recent Court of Appeal session, Litigation Partner, Moemedi Tafa, successfully acted for the Botswana Power Corporation (BPC) in opposing an appeal for a claim in the sum of BWP201 460.00.
2. In the said matter, the Appellant, Fish Sekadiete, had alleged that BPC had caused substantial damage to his house through the tightening of the electricity supply cable to his premises.
3. The Appellant had claimed for the reconstruction, afresh, of his house as well as costs associated with the proceedings.
4. The High Court, in agreeing with the opposition raised by BPC, granted absolution from the instance and dismissed the matter with costs without the need for BPC to give any evidence.
5. The Court of Appeal, in dismissing the appeal by Mr Sekadiete, with costs, confirmed the principle of absolution from the instance, that a party should not be called upon to answer a case where the Plaintiff has not adduced sufficient evidence that a reasonable Court could find in their favour. The matter should then be dismissed without the Defendant having to lead any evidence.
6. The appeal was dismissed with costs in favour of BPC.
