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Mutual Banks Act, 1993 [No. 124 of 1993] - G 14990
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Mutual Banks Act, 1993 [No. 124 of 1993] - G 14990
Mutual Banks Act 124 of 1993STATE PRESIDENT'S OFFICE No. 1291. 23 July 1993 ACT To provide for the regulation and supervision of the activities of juristic persons doing business as mutual banks; and to provide for matters connected therewith. (Afrikaans text signed by the State President.)
BE IT ENACTED by the State President and the Parliament of the Republic of South Africa, as follows:- ARRANGEMENT OF SECTIONS CHAPTER I Interpretation of Act Section
CHAPTER II Administration of Act
CHAPTER III Authorization to Establish, and Registration and Cancellation of Registration of, Mutual Banks
CHAPTER IV Administration of Mutual Banks
CHAPTER V Prudential Requirements
CHAPTER VI Provisions relating to Aspects of the Conduct of the Business of a Mutual Bank
CHAPTER VII Conversion of Mutual Banks
CHAPTER VIII Amalgamation, Winding-up and Dissolution
CHAPTER IX General Provisions
Schedule CHAPTER I Interpretation of Act Definitions 1. (1) In this Act, unless the context otherwise indicates-
CHAPTER II Administration of Act Functions of Registrar 2. Subject to the provisions of section 7, the Registrar shall perform, under the control of the Reserve Bank and in accordance with the directions issued by the said Bank from time to time, the functions assigned to the Registrar by or under this Act. Delegation of powers and assignment of duties by Registrar 3. (1) The Registrar may with the approval of the Reserve Bank-
(2) Any delegation under subsection (1)(a) shall not prevent the exercise of the relevant power by the Registrar himself. Powers of inspection of, and guidelines by, Registrar 4. (1) In addition to the powers and duties conferred or imposed upon him by this Act, the Registrar shall, for the purposes of the performance of his functions under this Act, have powers and duties in all respects corresponding to the powers and duties conferred or imposed by the Inspection of Financial Institutions Act, 1984 (Act No. 38 of 1984), upon a registrar contemplated in the last-mentioned Act. (2) Any reference in this Act to an inspection or investigation made under this section shall be construed as a reference to an inspection made in accordance with the provisions of the Inspection of Financial Institutions Act, 1984. (3) Neither the provisions of this section nor any other provision of this Act shall be construed as prohibiting the Registrar from holding discussions, from time to time, with the chief executive officer of any mutual bank, or with any employee of that mutual bank designated by such chief executive officer, with a view to achieving effective supervision of such mutual bank by the Registrar. (4) The Registrar may from time to time by means of a circular furnish mutual banks with guidelines regarding the application and interpretation of the provisions of this Act. Furnishing of information by mutual banks 5. (1) The Registrar may by notice in writing-
(2) The public accountant or other person appointed by a mutual bank or the holder of any interest in a mutual bank to make a report required under subsection (1)(b), shall be a person designated or approved by the Registrar, and the Registrar may require the relevant report to be in such form as may be specified in the notice referred to in subsection (1). Power of Registrar to extend certain periods 6. (1) Any person who is required to submit to the Registrar or to furnish the Registrar with any return, statement, report or other document or information within a period determined by or under this Act, may before or after the expiry of that period apply to the Registrar in writing for an extension of that period. (2) The Registrar may, after consideration of an application referred to in subsection (1)-
Appeal against decisions of Registrar 7. Any person aggrieved by a decision taken by the Registrar under a provision of this Act may within the prescribed period and in the prescribed manner and upon payment of the prescribed fee appeal against such decision to the board of appeal. Annual report by Registrar 8. (1) The Registrar shall annually submit to the Minister a report on his activities in terms of this Act during the year under review. (2) The Minister shall lay a copy of the report referred to in subsection (1) upon the Table in Parliament within 14 days after receipt of such report, if Parliament is then in ordinary session, or, if Parliament is not then in ordinary session, within 14 days after the commencement of its next ensuing ordinary session.
CHAPTER III Authorization to Establish, and Registration and Cancellation of Registration of, Mutual Banks Registration a prerequisite 9. (1) No person shall hold himself out to be a mutual bank unless such person is provisionally or finally registered as a mutual bank in terms of this Act. (2) Any person who contravenes the provisions of subsection (1) shall be guilty of an offence. Authorization to establish mutual bank 10. (1) A mutual bank may only be established if the Registrar has, in pursuance of an application for authorization to establish such a mutual bank, made to him in accordance with the provisions of subsection (2), granted such authorization. (2) An application contemplated in subsection (1)- (a) shall be made by an applicant on behalf of at least seven persons (hereinafter referred to as the founders) who have subscribed their names to proposed articles of association agreed to by them for the government of the mutual bank; (b) shall be made in the prescribed manner and on the prescribed form- and (c) shall be accompanied by a statement containing the prescribed information. (3) The Registrar may require an applicant contemplated in subsection (2) to furnish him with- (a) such information or documents, in addition to information and documents furnished by the applicant in terms of subsection (2); or (b) a report by a public accountant as defined in section 1 of the Public Accountants' and Auditors' Act, 1991 (Act No. 80 of 1991), or by any other knowledgeable person approved by the Registrar, on such aspects relating to the application in question, as the Registrar may deem necessary. Granting or refusal of application for authorization 11. (1) Subject to the provisions of subsection (2), the Registrar may, after considering all information, documents and reports furnished to him for the purposes of an application under section 10, grant or refuse the relevant application or grant the application subject to such conditions as he may determine, including conditions requiring the applicant to obtain an undertaking from a bank (hereinafter in this Act referred to as a guardian bank) to assist the applicant, with effect from its registration as a mutual bank under this Act and subject to such conditions as may be agreed upon by the applicant and such guardian bank, in respect of technological infrastructure, management advice and such other matters as may be prescribed. (2) The Registrar shall not grant an application made under section 10 unless he is satisfied- (a) that the establishment of the proposed mutual bank will not be detrimental to the public interest; (b) that the founders will be able to successfully establish the proposed mutual bank; (c) that sufficient financial means are or will be available to enable the proposed mutual bank to comply, in its capacity as a mutual bank, with the requirements of this Act; (d) that the business of the proposed mutual bank will be conducted in a prudent manner; (e) that every person who is to be a director or an executive officer of the proposed mutual bank is, as far as can reasonably be ascertained, a fit and proper person to hold the office of such director or executive officer; (f) that every person who is to be an executive officer of the proposed mutual bank has sufficient experience of the management of the kind of business it is intended to conduct; and (g) that the composition of the board of the proposed mutual bank will be appropriate having regard to the nature and scale of the business it is intended to conduct. (3) When the Registrar grants or refuses an application made under section 10, he shall give written notice of that fact to the applicant concerned. Revocation of authorization 12. (1) The Registrar may at any time prior to the provisional registration, in terms of section 14, of a mutual bank revoke the authorization granted for the establishment of such mutual bank if the Registrar is satisfied that (a) false or misleading information was furnished in the application for such authorization; or (b) success has not been achieved, within a period of six months as from the date of the granting of the said authorization, with the formation, in accordance with the proposals contained in the application for the said authorization, of the proposed mutual bank. (2) When the Registrar revokes an authorization in terms of subsection (1), he shall give written notice of that fact to the person to whom the authorization was granted. Application for provisional registration as mutual bank 13. (1) An applicant to whom the Registrar has under section 11 granted authorization for the establishment of a mutual bank (hereinafter in this Chapter referred to as the institution) may at any time during the period of 12 months commencing on the date of the granting of the said authorization apply to the Registrar for the provisional registration of the institution as a mutual bank, provided such authorization has not been revoked in terms of section 12(1). (2) An application under subsection (1) shall- (a) be made in the prescribed manner and on the prescribed form; and (b) be accompanied by- (i) two copies of the institution's articles; (ii) a written statement in which is set out- (aa) the full and the abbreviated name of the institution as well as the literal translations thereof; (bb) the address of the institution's head office as well as its postal address; (cc) full particulars of the business the proposed mutual bank will conduct and of the manner in which such business will be conducted; and (dd) the full names and the addresses of the chairman, the other directors and the executive officers of the institution; and (iii) a list of proposed shareholders in the institution, setting out the full name, occupation and residential or business address of the subscriber, the number and type of shares he takes and the nominal value of such shares. (3) The Registrar may require an applicant contemplated in subsection (1) to furnish him with such information or documents, in addition to information and documents furnished by the applicant in terms of subsection (2), as the Registrar may deem necessary. (4) The application and every document lodged in terms of subsection (2) or (3) shall be signed by the chairman or the chief executive officer of the institution. Granting or refusal of application for provisional registration 14. (1) Subject to the provisions of subsection (2), the Registrar shall, after considering all information and documents furnished to him in terms of section 13 for the purposes of an application under that section, grant such application if he is satisfied (a) that, according to its articles, the institution will be a mutual bank; (b) that the methods of conducting the business of the proposed mutual bank, as laid down in its articles, are not undesirable; and (c) that the articles of the institution are consistent with this Act and not undesirable for any reason. (2) Notwithstanding the provisions of subsection (1), the Registrar may refuse an application for the provisional registration of an institution as a mutual bank if he is of the opinion (a) that any of the requirements specified in section 11(2) is no longer being complied with by or in respect of the institution concerned; (b) that the institution concerned, when provisionally or finally registered as a mutual bank, will probably not be able to comply with a provision of this Act, or is likely to pursue a practice contrary to a provision of this Act; (c) that an interest which any person has in the institution concerned is inconsistent with a provision of this Act; (d) that the interests of potential depositors with or borrowers from the institution concerned will be detrimentally affected by the manner in which the institution proposes to conduct its business, or for any other reason; (e) that the name of the institution concerned- (i) is identical with a name under which an existing mutual bank, terminating mutual building society or bank has already been provisionally or finally registered; (ii) so closely resembles the name of an existing mutual bank, terminating mutual building society or bank that the one is likely to be mistaken for the other; (iii) is identical with, or closely resembles, the name under which any mutual bank, bank or terminating mutual building society or any institution that was registered under any law repealed by this Act was previously registered and that there is reasonable ground for objection against the use of that name by the institution concerned; or (iv) is likely to mislead the public; or (f) that the application does not comply with a requirement of this Act. (3) When the Registrar in terms of this section grants or refuses an application for provisional registration, he shall give written notice of that fact to the applicant concerned. (4) If the Registrar in terms of this section grants an application for provisional registration he shall, subject to the provisions of section 15, and on payment by the applicant of the prescribed registration fee, provisionally register the institution concerned as a mutual bank and issue to the institution, on the prescribed form a certificate of provisional registration as a mutual bank. (5) An institution that is for the first time provisionally registered as a mutual bank shall not commence doing business in that capacity until it has furnished proof to the Registrar that it complies with the provisions of section 48. (6) An institution that contravenes the provisions of subsection (5) shall be guilty of an offence. Conditions, duration and renewal of provisional registration 15. (1) The provisional registration under section 14 of an institution as a mutual bank shall be for a period of 12 months and shall be subject to such conditions as the Registrar may determine. (2) The Registrar may in his discretion and subject to the same or any other or further conditions, from time to time before its expiration renew such provisional registration for periods not exceeding 12 months at a time: Provided that- (a) no mutual bank shall remain provisionally registered as such for an aggregate period exceeding five years; and (b) without derogating from the Registrar's discretion in terms of this subsection to grant or refuse the renewal of such provisional registration, the Registrar may accept the fact that the institution concerned has not, during the period of six months expiring on the last day of the period of 12 months referred to in subsection (1), conducted any business as a mutual bank, as a conclusive ground for the refusal of such a renewal. (3) In addition to any other condition which the Registrar may impose under subsection (1) or (2), he may impose a condition requiring the institution concerned to take within a specified period such steps as may be necessary to alter its articles in accordance with the requirements of the Registrar. (4) (a) An appeal in terms of section 7 by a mutual bank against the Registrar's refusal to renew or further renew its provisional registration shall, notwithstanding the provisions of section 7, be lodged before such provisional registration or renewed provisional registration expires. (b) If the provisional registration or renewed provisional registration expires while an appeal referred to in paragraph (a) is being considered, such provisional registration or renewed provisional registration, as the case may be, shall be deemed to have been renewed or further renewed until the appellant is notified of the board of appeal's decision on the appeal. Application for final registration as mutual bank 16. (1) An institution that is provisionally registered as a mutual bank may at any time while it is provisionally registered apply to the Registrar in the prescribed manner and on the prescribed form for final registration as a mutual bank. (2) An institution applying in terms of subsection (1) for final registration as a mutual bank shall furnish such additional information in connection with its application as the Registrar may require. Granting or refusal of application for final registration 17. (1) The Registrar may in his discretion grant or refuse an application under section 16 for final registration, or may grant such application subject to such conditions as he may determine, but the Registrar shall not grant an application unless he is satisfied that (a) the institution concerned has satisfied all the conditions subject to which it was provisionally registered; (b) the institution concerned has complied and will be able to continue to comply with all the other requirements of this Act that are applicable to it in its capacity as a provisionally or finally registered mutual bank; (c) the board of directors and the executive management of the institution concerned have during the period preceding the application for final registration demonstrated their integrity and their ability to conduct the business of a mutual bank successfully; and (d) the business conducted by the mutual bank concerned is conducted in a prudent manner and without resort to undesirable practices. (2) When the Registrar in terms of this section grants or refuses an application for final registration, he shall give written notice of that fact to the applicant concerned. (3) If the Registrar in terms of this section grants an application for final registration he shall, on payment by the applicant of the prescribed registration fee, finally register the institution concerned as a mutual bank and issue to the institution, on the prescribed form, a certificate of final registration as a mutual bank. (4) Refusal in terms of this section of an application for final registration- (a) shall, subject to the provisions of section 15(2)(a), not affect the provisional registration of the institution concerned as a mutual bank; and (b) shall not prevent the institution concerned, while its provisional registration is in force, from reapplying under section 16 for final registration as a mutual bank. Untrue information in connection with applications 18. Any person who in or in connection with- (a) an application for authorization to establish a mutual bank; (b) an application for provisional or final registration as a mutual bank; or (c) an application for the renewal of such a provisional registration, furnishes the Registrar with any information that to the knowledge of such person is untrue or misleading in any material respect, shall be guilty of an offence. Juristic personality of mutual bank 19. (1) A mutual bank shall be a juristic person. (2) Whenever a juristic person registered under the Companies Act is for the first time provisionally registered as a mutual bank in terms of this Act, the Registrar shall in writing notify the Registrar of Companies of such registration, and upon receipt by the Registrar of Companies of such notice he shall remove the name of such juristic person from the register of companies. 20. (1) Subject to the provisions of subsection (2), an institution that is provisionally or finally registered as a mutual bank shall not use, or refer to itself by, a name other than the name under which it is so registered, or any literal translation or abbreviation thereof that has been approved by the Registrar. (2) An institution referred to in subsection (1) may, with the consent of the Registrar, in conjunction with its registered name use, or refer to itself by, the name of another mutual bank with which it has amalgamated or all the assets and liabilities of which have, as contemplated in section 71, been transferred to it or in the case of a change of name, the name by which it was previously known. (3) An institution that contravenes the provisions of subsection (1) shall be guilty of an offence. (4) Any person who, in connection with any business conducted by him uses, or refers to himself by, any name, description or symbol indicating, or calculated to lead persons to infer, that he is a mutual bank provisionally or finally registered as such under this Act, while he is not so registered as a mutual bank, shall be guilty of an offence. (5) No person shall use in respect of any business a name or description that includes the words "building society", or any derivative thereof, unless the business concerned is a mutual bank, a bank or a terminating mutual building society. (6) Any person who contravenes the provisions of subsection (5) shall be guilty of an offence. (7) Every mutual bank shall display in easily legible letters on every statement, notice, advertisement or letter published or issued to any member of the public by or on behalf of the mutual bank, the name of the mutual bank and a statement of the fact that it is registered as a mutual bank under this Act. Cancellation or suspension of registration by Registrar 21. (1) The Registrar may, subject to the provisions of section 22, in the case of a mutual bank that is provisionally registered as such, with the consent of the Minister and by notice in writing to the institution concerned cancel, or suspend on such conditions as the Registrar may deem fit, such provisional registration if the institution has not conducted any business as a mutual bank during the period of six months commencing on the date on which the institution was for the first time provisionally registered as a mutual bank. (2) The Registrar may, subject to the provisions of section 22, in the case of a mutual bank that is provisionally or finally registered as such, with the consent of the Minister and by notice in writing to the institution concerned cancel, or suspend on such conditions as the Registrar may deem fit, such provisional or final registration if it has, in the opinion of the Registrar, been obtained on the strength of untrue or misleading information furnished by any person and such person has, on account of having so furnished such information, been convicted of an offence in terms of section 18. (3) The Registrar may, subject to the provisions of section 22, in the case of a mutual bank that is finally registered as such, with the consent of the Minister and by notice in writing to the institution concerned cancel such registratiOn if the institution has ceased to conduct business as a mutual bank or is no longer in operation. Notice by Registrar of intention to cancel or suspend regiStratiOn 22. (1) The Registrar shall, before cancelling or suspending under section 21 the provisional or final registration of a mutual bank, in a written notice addressed to the chairman or chief executive officer of the institution concerned- (a) inform the institution of his intention to cancel or suspend, as the case may be, such registration; (b) furnish the institution with the reasons for the intended cancellation or suspension; and (c) call upon the institution to show cause within a period specified in the notice, which shall not be less than 30 days as from the date of the notice, why its provisional or final registration, as the case may be, should not be so cancelled or suspended. (2) After considering any representations received within the specified period from the institution concerned by virtue of the provisions of subsection (1)(c), the Registrar may in his discretion- (a) proceed with the cancellation or suspension, in terms of section 21, of the relevant registration; or (b) refrain from taking any further steps in terms of section 21, and the Registrar shall in writing inform the chairman or chief executive officer of the institution concerned of his decision in terms of this subsection. Cancellation or suspension of registration by court 23. (1) The Registrar may by way of application on notice of motion apply to a competent court for an order cancelling or suspending the provisional or final registration of a mutual bank if in the opinion of the Registrar there are grounds, other than the grounds referred to in section 21, justifying such cancellation or suspension. (2) A competent court for the purposes of subsection (1) shall be any provincial or local division of the Supreme Court of South Africa within the area of jurisdiction of which the head office, referred to in section 40, of the mutual bank concerned is situated. (3) The court entertaining an application made under subsection (1) shall enquire into and consider the matter and shall grant or refuse the application, and may make such order as to costs as it may deem fit. (4) In addition to any other grounds that the court may consider sufficient to justify the granting of an order under subsection (1) cancelling or suspending the provisional or final registration of a mutual bank, such an order may be granted if the institution concerned- (a) or any of its directors or executive officers has been convicted of any offence in terms of this Act; (b) does not satisfactorily carry on business as a mutual bank; (c) has failed to comply with a requirement of this Act that is applicable to it in its capacity as a provisionally or finally registered mutual bank; (d) continues to employ an undesirable practice; or (e) has in a material respect misrepresented the facilities which it offers to the general public or if, on any other ground advanced by the Registrar in the relevant application, the court is of the opinion that it is not in the public interest to allow the institution concerned to continue its activities as a mutual bank. Restriction by Registrar of activities of mutual bank 24. (1) The Registrar may, in lieu of an application under section 23(1), by written notice to a provisionally or finally registered mutual bank in respect of which, in the opinion of the Registrar, any of the circumstances mentioned in section 23(4) is present, restrict the activities of the institution concerned as a mutual bank in such respects and on such conditions as the Registrar may specify in the notice. (2) The provisions of section 22 shall mutatis mutandis apply in respect of the restriction of the activities of a mutual bank by the Registrar under subsection (1) Cancellation of registration at request of mutual bank 25. The Registrar shall cancel the provisional or final registration, as the case may be, of a mutual bank upon submission to him by the institution concerned of a special resolution by its members authorizing such cancellation. Withdrawal of suspension or restriction 26. (1) The Registrar may on the written application of a mutual bank of which- (a) the provisional or final registration was suspended under section 21; or (b) the activities were restricted under section 24, by written notice to the institution concerned withdraw such suspension or restriction, as the case may be, provided the Registrar is satisfied that the institution has complied with all requirements for such withdrawal imposed by the Registrar in the conditions of suspension or restriction. (2) Application for an order discharging an order under section 23 whereby the provisional or final registration of a mutual bank has been suspended, may be made to the competent court referred to in section 23(2). Publication of information relating to mutual banks 27. The Registrar shall publish a notice in the Gazette of every- (a) provisional or final registration of an institution as a mutual bank; (b) cancellation or suspension of such a registration; (c) expiration of such a provisional registration; (d) restriction of the activities of a mutual bank; (e) withdrawal of such suspension or restriction; or (f) change of the name of a mutual bank, that is effected or that takes place in terms of this Act. Date on which registration lapses 28. An institution registered as a mutual bank shall cease to be registered as such (a) in the case of a provisional registration of which the period or, if such registration was renewed under section 15(2), the period of such renewed registration, has expired and such registration has not been renewed or further renewed under that section, upon the expiry of that period; (b) in the case of a registration cancelled by the Registrar under section 21, upon expiry of 30 days after the date of the notice referred to in subsection (1), (2) or (3) of that section or, if an appeal against such cancellation was lodged with the board of appeal in terms of section 7 before the expiry of the said 30 days and the board of appeal has confirmed such cancellation, upon the date on which the institution concerned is notified of such confirmation; (c) in the case of a registration in respect of which the court has granted an order under section 23 cancelling the registration, upon the date on which that order comes into force; or (d) in the case of a registration cancelled by the Registrar in terms of section 25, upon such date as may be determined by the Registrar. Repayment of deposits upon lapse of registration 29. (1) Whenever an institution that is provisionally or finally registered as a mutual bank ceases to be registered as such, the Registrar may in writing order that institution (a) to repay, in accordance with such directions and within such period as may be specified in the order, all money due by it to members of the bank, including any interest or any other amounts owing by it in respect of such money; and (b) to change its name and its articles within the period and in the manner required by the Registrar. (2) Different directions and periods may under subsection (1) be determined in respect of different kinds of deposits: Provided that in determining such directions and periods no preference shall be given to any such member of the public that he does not in law enjoy. (3) An institution which by virtue of the provisions of subsection (1) repays a deposit before the due date agreed for the repayment thereof, shall not be bound to pay any interest or any other amounts which would have been payable in respect of such deposit for the period from the date of such repayment up to such due date. (4) Any institution which fails to comply with an order under subsection (1) shall- (a) be guilty of an offence; and (b) for the purposes of sections 344 and 345 of the Companies Act, as applied by section 75 of this Act, be deemed not to be able to pay its debts. Reregistration in terms of this Act 30. (1) Every institution that on the date of commencement of this Act is under the provisions of any law repealed by this Act provisionally or finally registered as a permanent mutual building society shall, in accordance with and subject to subsections (2) and (3), as soon as is practicable after such date of commencement be either provisionally or finally registered (according to whether the institution is provisionally or finally registered under the said repealed law) by the Registrar as a mutual bank in terms of this Act. (2) The Registrar shall when complying with subsection (1) issue to the institution concerned a certificate of provisional or final registration as a mutual bank, as the case may be. (3) The reregistration of an institution in terms of this section shall in the case of a provisional registration be for the unexpired portion of the period of the institution's provisional registration under the repealed law referred to in subsection (1). (4) Upon the reregistration of an institution in terms of this section its previous registration under the said repealed law shall be deemed to have lapsed and any certificate of registration issued in respect thereof shall be deemed to have been cancelled. (5) No fee shall be payable in respect of a reregistration in terms of this section. Annual licence 31. A mutual bank shall obtain from the receiver of revenue of the district in which its head office is situated a mutual bank licence in respect of each year ending on the thirty-first day of December against payment of the prescribed licence fee.
CHAPTER IV Administration of Mutual Banks Matters to be set forth in articles 32. (1) The articles of a mutual bank shall set forth- (a) the name of the mutual bank and the situation of its head office; (b) the principal objects of the mutual bank; (c) the manner in which the funds of the mutual bank are to be raised, the purposes to which they are to be applied and the manner in which surplus funds are to be invested; (d) the manner in which membership is to be acquired and to cease; (e) the types of shares to be issued, the conditions of redemption or repayment thereof and the preferential and other special rights attaching thereto; (f) the manner in which advances upon the security of the mortgage of immovable property or against other security are to be made and repaid; (g) whether the mutual bank intends to accept deposits and to borrow money other than by way of deposit, and, if deposits are to be accepted, the conditions of acceptance and repayment; (h) measures for the establishment of bodies to represent the interests of persons who have provided funds to the mutual bank in excess of specified amounts, and the relationship between such bodies and the board of directors and the management of the mutual bank; (i) the fees, fines and charges that may be demanded from or imposed upon shareholders, depositors and borrowers; (j) the manner of making an annual or more frequent audit of the accounts, and the inspection by the auditors of the mortgage bonds and other securities belonging to the mutual bank; (k) the manner in which profits or losses are to be ascertained and dealt with or provided for; (l) the manner of altering and rescinding the articles of the mutual bank and of adopting additional articles; (m) the manner of electing, appointing, removing and fixing the remuneration of directors, and their qualifications, powers and duties, and the manner of appointing, removing and fixing the remuneration of members of local boards or committees and officers of the mutual bank; (n) the manner of calling the annual general meeting and special general meetings of members, measures for the representation of members at such meetings through the medium of members' delegates, the quorum necessary for the transaction of business at such meetings, and the manner of voting thereat; (o) whether disputes between the mutual bank and any of its members, or between the mutual bank and any persons claiming under the articles or whose claims are derived from members, shall be settled by the court or by arbitration; (p) how contracts or other documents binding the mutual bank shall be executed; (q) how custody shall be kept of the mortgage bonds, title deeds and other securities belonging to or held by the mutual bank; (r) subject to the provisions of this Act, the manner in which the mutual bank shall be wound up; (s) subject to the provisions of sections 71 and 72, the manner in which any amalgamation with or transfer of assets and liabilities to or from another mutual bank shall be effected; (t) the forms of record to be issued to every person to whom a share is allotted by or who is allowed to make deposits with the mutual bank, and the conditions subject to which certified copies of such forms of record will be issued by the mutual bank in the event of the loss or destruction of the originals; and (u) such other matters as the Registrar may approve. (2) The objects of a mutual bank set forth in its articles under subsection (1)(b) shall confer upon it only the capacity- (a) to carry on business as a mutual bank in accordance with this Act; and (b) in addition to the business referred to in paragraph (a), to carry on such other business as in the opinion of the Registrar is not inconsistent with a provision of this Act. Alteration of articles 33. (1) A mutual bank may in the manner directed by its Alteration of articles 33. (1) A mutual bank may in the manner directed by its articles alter or rescind any article or adopt any additional article, but no such alteration, rescission or addition shall be valid- (a) if it purports to affect any right of a creditor of the mutual bank who is not a member thereof; or (b) If it is directed against any particular individual; or (c) If it purports to alter the rights of members in a winding-up. (2) Within 14 days from the date of passing a resolution for the alteration or rescission of any article or the making of any additional article, two copies of such resolution shall be transmitted by the secretary of the mutual bank to the Registrar together with a certificate signed by the chairman of the board and the secretary of the mutual bank that the provisions of the articles of the mutual bank governing the alteration or rescission of or addition to any article have been complied with (3) If the Registrar finds that such alteration, rescission or addition is in conformity with this Act, and is satisfied that it is financially sound and that the methods of transacting the business of the mutual bank as laid down therein are not undesirable, he shall register the resolution and return one of the copies to the secretary of the mutual bank with the date of registration endorsed thereon, and any such alteration, rescission or addition shall take effect as from the date of the registration. Alteration of articles in accordance with direction of Registrar 34. (1) Notwithstanding anything contained in this Act but subject to the limitations laid down in section 33(1), the Registrar may at any time in writing direct any mutual bank to effect such alteration to its articles not in conflict with the provisions of this Act as the Registrar may deem desirable in order to remove anomalies or undesirable divergencies in the articles of different mutual banks, and the board of such mutual bank shall thereupon submit the proposed amendments to its members at or before the next annual general meeting of the mutual bank and notify the Registrar of the decision thereon not more than 14 days thereafter. (2) If adoption of the required alteration is decided upon, the provisions of section 33(2) shall mutatis mutandis apply. (3) If a mutual bank refuses or fails to alter its articles in accordance with a direction of the Registrar under subsection (1), the Registrar may deal with the alteration contained in the direction as if it were contained in a resolution adopted by the mutual bank in accordance with its articles and submitted to him in terms of section 33(2). Change of name of mutual bank 35. (1) A mutual bank may, with the approval of the Registrar, by special resolution change its name. (2) Any application for the Registrar's approval in terms of subsection (1) shall be lodged with the Registrar before the proposed special resolution authorizing such change is laid before a general meeting of members of the mutual bank, and any such application shall be accompanied by- (a) two copies of such proposed special resolution; and (b) an explanation of the reasons for the resolution. (3) The Registrar shall not grant any application referred to in subsection (2) if he is of the opinion that the proposed new name is unacceptable on any of the grounds mentioned in section 14(2)(e). (4) When the name of a mutual bank is changed in terms of subsection (1) the Registrar shall enter the new name in his records in place of the former name and shall issue a new certificate of registration of the mutual bank under its new name, provided the certificate previously issued by him is delivered to him for cancellation. (5) The change of name shall not affect any right or obligation of the mutual bank or any member thereof or any other person concerned or render defective any legal proceedings by or against the mutual bank, and any legal proceedings that may or could have been continued or commenced by or against it under its former name may be continued or commenced under its new name. (6) The officer in charge of a deeds registry or other office in which is registered any mortgage bond or any immovable property belonging to the mutual bank shall, upon production to him by the mutual bank of such bond or of the title deed of such immovable property and a certificate by the Registrar of the registration of the mutual bank under its new name, and upon payment of the fee that may be payable in terms of any law relating to deeds registries, make such endorsements upon such bond or title deed and such entries in his registers as may be necessary by reason of the change of name. (7) If the Registrar has certified in writing that in his opinion the new name of the mutual bank is so similar to its former name that both names obviously refer to the same mutual bank, any mortgage bond or title deed registered in the former name of the mutual bank shall, unless and until it is sought to endorse such bond or title deed regarding any transaction other than a cancellation, be deemed to have been registered in the name of the mutual bank as changed. Binding force of articles 36. (1) The articles of a mutual bank shall when registered be binding upon the mutual bank and the members and officers thereof, and upon all persons claiming under the articles or whose claims are derived from a member. (2) A mutual bank shall make a copy of its articles available for inspection by members of the public during the normal business hours of the mutual bank. (3) Any member shall be entitled upon request to obtain from the mutual bank free of charge a copy of the articles of the mutual bank, and every depositor shall similarly be entitled to extracts from such of the articles as relate to deposits. Directors of mutual bank 37. (1) The business of a mutual bank shall be managed by a board of directors that may, subject to such conditions as the board may determine, delegate any of its powers to any person. (2) Each director of a mutual bank shall stand in a fiduciary relationship to the mutual bank of which he is a director. (3) Without derogating from the generality of the expression "fiduciary relationship" in subsection (2), the provisions of that subsection imply that a director (a) shall, in relation to the mutual bank of which he is a director, act honestly and in good faith and, in particular, shall exercise such powers as he may have to manage or represent the mutual bank, exclusively in the best interests and for the benefit of the mutual bank, its members and its depositors; and (b) shall, in the performance of his functions as a director of such a mutual bank, observe such guidelines and comply with such requirements as may be prescribed under section 91(1)(b). (4) A director shall be elected for a period not exceeding three years but shall be eligible for re-election upon the termination of any period for which he has been elected. (5) Whenever a casual vacancy occurs on the board of a mutual bank, the remaining directors may appoint a person to fill the vacancy until the next annual general meeting, and the person elected at that meeting shall fill the vacancy for the unexpired period of office of the vacating director. (6) Save as provided in subsection (5), vacancies on the board of a mutual bank shall be filled at the annual general meeting by election by a majority of the members voting in accordance with the articles. (7) A mutual bank shall within 14 days of the appointment under subsection (5) or the election under subsection (6) of a director, send to the Registrar a notice of the appointment or election signed by the director appointed or elected and by the secretary of the mutual bank. (8) A mutual bank shall with the notice referred to in subsection (7) directors and the date upon which the period of office of such director is normally due to expire. (9) If the remaining directors fail to fill a casual vacancy in accordance with subsection (5) or the members of the mutual bank assembled in annual general meeting fail to fill any vacancy in accordance with subsection (6), the Registrar may in his discretion, and upon the submission to him of a sworn statement in writing made by any seven members and the secretary of the mutual bank or by two directors and the secretary of the mutual bank, setting forth the fact that such a failure has occurred, appoint a duly qualified member of the mutual bank to fill the vacancy until the next annual general meeting. (10) The board of directors shall cause minutes of all its meetings to be kept, and such minutes shall be confirmed and signed by the chairman at the next ensuing ordinary meeting of the board. (11) For the purposes of election to the board of a mutual bank, a person appointed by the remaining directors in terms of subsection (S) shall not be regarded as a retiring director. (12) Notwithstanding anything to the contrary in any law or the common law or in any agreement contained, not more than 49 per cent, rounded off to the next lower integral number, of the directors of a mutual bank shall be employees of that mutual bank: Provided that in respect of any matter put to the vote at a meeting of the board of directors of a mutual bank such directors who are employees of that mutual bank shall together not have a vote in excess of 49 per cent of the total vote cast by all the directors present and voting at that meeting. (13) Notwithstanding the provisions of subsections (4) and (5), a director of a mutual bank who is an executive officer of that mutual bank shall vacate his office as such a director when he ceases to be such an officer. Disqualifications of directors 38. Any of the following persons shall be disqualified from being appointed or holding the office of a director of a mutual bank namely- (a) a minor or any other person under legal disability; (b) save under the authority of the court- (i) an unrehabilitated insolvent; (ii) any individual who has at any time been convicted, whether in the Republic or elsewhere, of theft, fraud, forgery or uttering a forged document or perjury, and has been sentenced in respect thereof to a period of imprisonment without the option of a fine or to a fine exceeding one hundred rand; (iii) any person who has been removed from an office of trust on account of misconduct; (c) any auditor of the mutual bank or any person in his employment. Disclosure by directors of interest in contracts with mutual bank 39. (1) A director of a mutual bank who is in any way, whether directly or indirectly, interested in any contract or proposed contract with the mutual bank or participates in the profits of any contract with the mutual bank, or is a director, office-bearer or officer of any company or a member of any firm entering into any contract with the mutual bank, shall declare the nature and extent of his interest as provided in subsection (2). (2) The declaration required by subsection (1) shall be made at the meeting of the directors of the mutual bank at which the question of entering into the contract is first taken into consideration, if the director concerned is present at such meeting, or otherwise at the next meeting of the directors following his receipt of notification in writing of such contract, or, if the director was not at the date of the meeting interested in the proposed contract, at the first meeting after he became so interested, and, where a director becomes interested in a contract after it is made, at the first meeting of the directors held after the director became so interested. (3) A director having an interest as set out in subsection (1), shall not take part in the discussion of any such contract or any matter arising from it, nor shall he vote in respect thereof. Head office of mutual bank 40. (1) Every mutual bank shall have its head office in the Republic. (2) If a mutual bank moves its head office to another place it shall within 14 days of such moving of its head office submit in writing to the Registrar particulars of the place to which its head office was moved. Branch offices and agencies 41. (1) The board of any mutual bank may in its discretion establish one or more branch offices or agencies of the mutual bank at such place or places as it may determine. (2) The board may place any such branch office or agency under the management of a local board and may determine the powers and duties of any such local board. (3) Every local board and every officer appointed to any such branch office or agency shall be under the control of the board of the mutual bank. Accounting records 42. Every mutual bank shall keep in one of the official languages of the Republic such accounting records as are necessary- (a) to fairly present the state of affairs and business of the mutual bank; (b) to explain the transactions and financial position of the business of the mutual bank; and (c) to enable the Registrar to determine whether the mutual bank has complied with the provisions of this Act, and shall presence every such record in a safe place for a period of at least 15 years as from the date of the last entry therein. Annual financial statements 43. (1) The financial year of a mutual bank shall be its annual accounting period, the commencing date of which and the date on which it ends in the next succeeding calendar year shall be determined upon the incorporation of the mutual bank and recorded in its articles: Provided that the first financial year of a mutual bank shall, where the commencing date so determined- (a) is a date more than three months after such incorporation, be the period commencing on such incorporation and ending on the date immediately preceding the commencing date so determined- or (b) is a date not more than three months after such incorporation, be the period commencing on such incorporation and ending on the date so determined as the end of the financial year in the next calendar year. (2) For the purposes of the proviso to subsection (1), the date on which a mutual bank is in terms of section 14(4) provisionally registered as a mutual bank shall be deemed to be the date of its incorporation. (3) If a mutual bank wishes to change the date of the end of its financial year, such change shall be effected by way of an alteration of its articles in accordance with the provisions of section 33. (4) The board of a mutual bank shall after the end of each financial year prepare in respect of that financial year the prescribed annual financial statements in the prescribed form. (5) Each financial statement prepared in terms of subsection (4) shall be certified as correct by two directors and the chief accounting officer of the mutual bank. (6) The auditor of a mutual bank shall make a report to the members of the mutual bank on the annual financial statements referred to in subsection (4) or on such particular one of such statements as may be prescribed. (7) A copy of each annual financial statement referred to in subsection (4) and a copy of the auditor's report referred to in subsection (6) shall be sent by the mutual bank to the Registrar within 14 days after the annual general meeting at which they are presented or within four months after the expiration of the financial year to which they relate, whichever period expires first. General meetings 44. (1) A general meeting of the members of every mutual bank shall be held within four months after the close of every financial year of the mutual bank in order that its financial position, the financial statements and auditor's report referred to in section 43 and the report of the board may be considered and dealt with, directors may be elected and general business may be transacted. (2) The meeting in question shall be designated the annual general meeting and shall be held at the head office of the mutual bank or at such other convenient place and at such time as may be prescribed by its articles. (3) A special general meeting may be convened by three or more directors and shall be convened by the board upon receipt of a requisition signed by one hundred members or, if the membership is less than one thousand, by not less than one-tenth of the whole body of members or such smaller number or proportion of members as the articles of the mutual bank may prescribe. (4) If within 14 days after the receipt of such a requisition a special general meeting of the mutual bank is not convened by the board, it may be convened by the requisitionists or a majority of them. (5) Notice of annual and special general meetings of a mutual bank shall be given to all members, and to the Registrar and the auditors of the mutual bank in the form and manner prescribed by the articles, and shall specify the day, hour and place and the objects of the meeting, and shall if any alteration or rescission of or addition to the articles is intended to be proposed, contain a copy of every such alteration, rescission or addition: Provided that in the case of the intended adoption of a new set of articles it shall be sufficient compliance with the foregoing provisions of this subsection and with any provision in the articles of a mutual bank if the notice of the meeting contains a statement to the effect that copies of the proposed new articles are available for inspection at every branch office and agency of the mutual bank and available to members on request. (6) The period of notice of any annual or special general meeting shall be not less than 21 days. (7) Every mutual bank shall cause minutes of all proceedings of annual or special general meetings to be entered in one of the official languages of the Republic in one or more books kept for that purpose. (8) The secretary of the mutual bank shall transmit to the Registrar a copy of the minutes of the proceedings of any annual or special general meeting, certified by himself and two directors, within 14 days after the meeting, regardless of whether the minutes have or have not been confirmed, and if at any time any alteration of any such minutes is approved, shall transmit to the Registrar a copy of the minutes so altered, certified as aforesaid, within 14 days after the date on which the alteration was approved. Appointment of auditor 45. (1) (a) Every mutual bank shall have one or more auditors. (b) Any such auditor shall be an accountant and auditor registered as such in terms of the Public Accountants' and Auditors' Act, 1991 (Act No. 80 of 1991) who is engaged in public practice, and no officer of a mutual bank and no firm of which such an officer is a member or employee, shall be appointed as an audita of that mutual bank. (2) The board shall within 30 days from the date of registration of the mutual bank appoint one or more auditors, who shall retire at the conclusion of the mutual bank's first annual general meeting following his or their appointment unless previously removed from office by a resolution of the members of the mutual bank at a general meeting or unless he is or they are reappointed. (3) The board or the main auditors acting with the consent of the board may appoint a branch auditor to any branch of the mutual bank, who shall retire at the conclusion of the mutual bank's first annual general meeting following his appointment unless previously removed from office by a resolution of the members of the mutual bank at a general meeting or unless he is reappointed. (4) Every auditor, however appointed, shall, if not previously removed from office by a resolution of the members of the mutual bank at a general meeting, be deemed to be reappointed until the conclusion of the next annual general meeting without any resolution being passed to that end, unless- (a) he is not qualified for reappointment; or (b) a resolution is passed at the first-mentioned meeting appointing somebody else in his place or providing expressly that he is not being reappointed; or (c) he has given the mutual bank notice in writing of his unwillingness to be reappointed: (5) The members of a mutual bank may at any general meeting remove from office any auditor appointed or reappointed under this section and appoint another auditor in his place, and the auditor so appointed shall, subject to subsection (4), retire at the conclusion of the mutual bank's first annual general meeting following his appointment. (6) A resolution at any general meeting- (a) appointing as auditor a person other than a retiring auditor; (b) providing expressly that a retiring auditor shall not be reappointed; or (c) removing an auditor from office in terms of subsection (5), shall not be effective unless notice of intention to move such a resolution has been given to the mutual bank not less than 14 days before the meeting at which it is moved. (7) A mutual bank shall give notice to its members of such intended resolution at the same time and in the same manner as it gives notice of the meeting, or if that is not practicable, shall give them notice at least seven days before the date of the general meeting either by advertisement in one or more newspapers circulating in the place where the head office of the mutual bank is situated and in such other centres as the board may deem desirable, or in any other appropriate manner. (8) On receipt of the notice of an intended resolution referred to in subsection (6) the board shall forthwith send a copy thereof to the retiring auditor or the auditor whom it is intended to remove from office, as the case may be. (9) Whenever for any reason other than that referred to in subsection (5) an auditor vacates his office prior to the expiration of the period for which he has been appointed, the board shall within 30 days appoint or cause to be appointed in his place another auditor, who shall, subject to subsection (4), retire at the conclusion of the mutual bank's first annual general meeting following his appointment. (10) Where the auditor of a mutual bank is a partnership, the appointment of such auditor shall not lapse by reason of a change in the composition of the partnership, provided not less than half of the partners of the reconstituted partnership are persons who were, as at the date when the appointment of the partnership was last approved by the Registrar, partners therein. (11) If a mutual bank or its board fails to appoint any auditor required to be appointed in terms of this section, the Registrar shall make such appointment, and the auditor so appointed shall, subject to subsection (4), retire at the conclusion of the mutual bank's first annual general meeting following his appointment. (12) In the event of an appointment in terms of subsection (11) the Registrar shall, after consultation with the auditor, determine the remuneration to be paid to the auditor by the mutual bank for his services, and if the mutual bank fails to pay the remuneration the Registrar shall pay such remuneration and recover from the mutual bank an amount equal to that remuneration. (13) Every auditor appointed under this section shall have a right of access to the securities, books, accounts and vouchers of the mutual bank and may require from its officers and agents such information as may be necessary for the performance of his duties as auditor: Provided that in the case of a branch auditor the aforementioned provisions shall apply only in respect of matters pertaining to the branch of which he has been appointed auditor. (14) Every auditor of a mutual bank shall report to the board of that mutual bank any material irregularity or undesirable practice in the conduct of the business of the mutual bank which has come to his notice, and if that irregularity or undesirable practice is not rectified or discontinued within a period of one month from the date upon which it was reported to the board, the auditor shall report it to the Registrar. (15) Every branch auditor shall report to the board on the returns made up annually by the branch in respect of which he has been appointed auditor and shall state in his report whether or not in his opinion the returns contain the necessary information relating to the operations of the branch to enable the main auditors of the mutual bank to report in terms of section 43(6). (16) A copy of every report submitted to the board by a branch auditor, whether dealing with an irregularity or undesirable practice or with any other matter, shall be transmitted forthwith by such auditor to the main auditors of the mutual bank. (17) Any auditor of a mutual bank, however appointed, shall be entitled to attend any meeting of members of such mutual bank and to make thereat any statement that he desires to make in relation to any return or financial statement examined by him or report made by him or to make representations in relation to any matter affecting his appointment, removal or remuneration. (18) A mutual bank shall within 30 days of the appointment of any auditor under this section apply to the Registrar for his approval of the appointment. (19) The Registrar may without being required to furnish any reasons therefor, refuse to approve any such appointment or withdraw any approval previously granted by him and thereupon the auditor concerned shall vacate his office as auditor. (20) When the Registrar has refused to approve or has withdrawn his approval of the appointment of an auditor in terms of subsection (19), the board shall appoint or cause steps to be taken for the appointment of some other person as auditor, but again subject to the approval of the Registrar. (21) For the purpose of the exercise of his powers under subsections (18), (19 and (20) the Registrar may call for such information as he may deem necessary with regard to the experience or qualifications of an auditor, and such information shall be furnished by such auditor in such form as the Registrar may direct. (22) If a mutual bank or its board fails to comply with any requirement of this section it shall be guilty of an offence. Functions of auditor in relation to Registrar 46. (1) Notwithstanding anything to the contrary contained in the Public Accountants' and Auditors' Act, 1991 (Act No. 80 of 1991), but subject to subsections (2) and (3) of this section, the auditor referred to in section 45 shall (a) whenever he furnishes, in terms of section 20(5)(b) of the said Act, the Public Accountants' and Auditors' Board with copies of the report acknowledgement of receipt and reply and with the other particulars referred to in that section, relating to an irregularity or suspected irregularity in the conduct of the affairs of the mutual bank for which he has been appointed as auditor, also furnish the Registrar with such copies and particulars; (b) in writing inform the Registrar of any matter relating to the affairs of a mutual bank- (i) of which such auditor became aware in the performance of his functions as auditor of that mutual bank; and (ii) which, in the opinion of such auditor, may be of concern to depositors of the mutual bank concerned; and (c) if requested by the Registrar to do so, furnish him with written information relating to a matter referred to in paragraph (b), specified by the Registrar. (2) Whenever an auditor by virtue of the provisions of subsection (l )(b) or (c) furnishes the Registrar with written information, he may at the same time furnish the chief executive officer of the mutual bank to which such information relates with a copy of the relevant document. (3) The furnishing in good faith by an auditor of information in terms of subsection (1)(b) or (c) shall in no circumstances be held to constitute a contravention of any provision of the law or a breach of any provision of a code of professional conduct to which such auditor may be subject. (4) Nothing in subsection (1) contained shall be construed as conferring upon any person any right of action against an auditor that, but for the provisions of that subsection, he would not have had. 47. (1) Subject to the provisions of subsection (3), the board of a mutual bank shall appoint at least three of its members to form an audit committee. (2) The functions of the audit committee shall be to- (a) assist the board in its evaluation of the adequacy and efficiency of the internal control systems, accounting practices, information systems and auditing processes applied within that mutual bank in the day-to-day management of its business; (b) facilitate and promote communication, regarding the matters referred to in paragraph (a) or any other related matter, between the board and the executive officers of, the auditor appointed under section 45 for, and the employee charged with the internal auditing of the transactions of, the mutual bank; and (c) introduce such measures as in the committee's opinion may serve to enhance the credibility and objectivity of financial statements and reports prepared with reference to the affairs of the mutual bank. (3) All of the members of the audit committee may be, and the majority of such members shall be, persons who are not employees of the mutual bank. CHAPTER V Prudential requirements Minimum share capital and unimpaired reserve funds 48. (1) For the purposes of this Act- "primary share capital" means such percentage as the Registrar may determine from time to time by notice in the Gazette of capital obtained through the issue of permanent interest-bearing shares or other non-redeemable debt instruments; "primary unimpaired reserve funds" means funds obtained- (a) from actual earnings; (b) by way of recoveries; (c) by way of premiums on the issue of permanent interest-bearing shares or debt instruments issued in accordance with the provisions of the definition of "secondary share capital", provided no interest is payable on such premiums; or (d) by way of a surplus on the realization of capital assets, and which have been set aside as a general or special reserve, are disclosed as such a reserve in the financial statements of the mutual bank concerned and are available for the purpose of meeting liabilities of or losses suffered by the mutual bank, but does not include any fund required to be maintained in terms of any other law; "secondary share capital" means loan capital obtained by way of the issue, with the prior written approval of the Registrar, of debt instruments issued subject to- (i) the condition that the debt instruments are issued for a minimum period of five years; (ii) the condition that the debt instruments may be redeemed before maturity only at the option of the mutual bank concerned and with the prior written approval of the Registrar; (iii) the condition that, notwithstanding the provisions of any other law, in the event of the winding-up of the mutual bank concerned, the capital amount of the debt instruments shall not be repaid until the claims of (iv) such further conditions, if any, as may be prescribed; "secondary unimpaired reserve funds" means funds obtained and set aside as contemplated in the definition of "primary unimpaired reserve funds" in this subsection (except such funds obtained by way of premiums referred to in paragraph (c) of that definition), and which are available for the purpose contemplated in that definition, but which are not disclosed as a general or special reserve in the financial statements of the mutual bank concerned, and includes- (a) 50 per cent of the amount of any surplus resulting from a revaluation of assets and determined as prescribed in subsection (4); (b) general provisions held against unidentified and unforeseen losses; and (c) funds obtained by way of premiums (on which interest is payable) on the issue of permanent interest-bearing shares or debt instruments issued in accordance with the provisions of the definition of "secondary share capital", whether or not such funds are disclosed as a general or special reserve in the financial statements of the mutual bank concerned, but does not include any fund required to be maintained in terms of any other law. (2) Subject to the provisions of subsections (3), (5)(a) and (7), a mutual bank shall manage its affairs in such a way that the sum of its issued primary and secondary share capital and its primary and secondary unimpaired reserve funds in the Republic does not at any time amount to less than the greater of- (a) R10 000 000 or, in the case of a mutual bank that was registered as a permanent mutual building society prior to the date of commencement' of this Act and was reregistered as a mutual bank in terms of the provisions of section 30 of this Act, R1 000 000; or (b) an amount which represents a prescribed percentage of the sum of amounts calculated by multiplying the average of the amounts (as shown in the returns furnished to the Registrar in terms of section (53) of such different categories of (i) assets; and (ii) other risk exposures in the conduct of its business, as may be prescribed, by the risk weights, expressed as percentages, prescribed in respect of such different categories of assets and other risk exposures. (3) Notwithstanding the provisions of subsection (2)- (a) the amount obtained by way of the issue, after 5 March 1993, of debt instruments and which may in terms of this section rank as secondary share capital shall (except in the case of such debt instruments that a to be converted into permanent interest-bearing shares or other non-redeemable debt instruments) during the fifth year preceding to maturity of such debt instruments be reduced by an amount equal to per cent of the amount so obtained and annually thereafter by an amount which in each successive year is increased by 20 per cent of the amount so obtained; and (b) the sum of a mutual bank's issued secondary share capital and secondary unimpaired reserve funds may, in the calculation of the aggregate amount which the mutual bank is in terms of subsection (2) required to maintain by way of issued primary and secondary share capital and primary and secondary unimpaired reserve funds, be taken into account to an amount not exceeding a percentage, determined from time to time by the Registrar by notice in the Gazette, of the above-mentioned, aggregate amount. (4) The determination of any surplus referred to in paragraph (a) of the definition of "secondary unimpaired reserve funds" in subsection (1) shall be effected- (a) at such times as may be prescribed; and (b) by comparing the book value of assets with their market value as at the time of such determination. (5) (a) The sum of the issued primary and secondary share capital and primary and secondary unimpaired reserve funds of a mutual bank shall for the purposes of subsection (2) be calculated by deducting from the amount thereof- (i) depreciation of assets and bad or doubtful debts; (ii) operating and accumulated losses, including accumulated depreciation and bad debts not yet written off; (iii) establishment costs, costs in respect of organization and extension of business and the purchase of a business or goodwill, and underwriting commission; and (iv) the value of assets lodged or pledged to secure liabilities incurred under any other law where the effect of such lodging or pledging is that such assets are not available for the purpose of meeting the liabilities of the mutual bank in terms of this Act. (b) A mutual bank shall, in conformity with generally accepted accounting practice, make provision in its accounting records referred to in section 42 for the items specified in paragraph (a). (6) An institution that- (a) was registered as a permanent mutual building society prior to the date of commencement of this Act and is reregistered as a mutual bank in terms of the provisions of section 30 of this Act; and (b) does not, on the date of such reregistration, comply with the provisions of subsection (2), shall correct the shortfall within such period and in accordance with such conditions as the Registrar may determine. (7) Notwithstanding the provisions of subsection (2), the Registrar may, on the written application of a mutual bank, in writing exempt such mutual bank from the provisions of that subsection, subject to such conditions, including conditions relating to- (a) the expiration of the exemption; (b) the manner in which and sources from which capital or other funds may be obtained by the mutual bank; and (c) the utilization by the mutual bank of the funds under its control, as the Registrar may determine: Provided that an exemption under this subsection- (i) may be granted only to a mutual bank that has obtained an undertaking, from a guardian bank as contemplated in section 11(1); and (ii) shall not be granted for a period exceeding two years. Minimum reserve balance 49. The provisions of section 10A of the South African Reserve Bank Act, 1989 (Act No. 90 of 1989), relating to the maintenance by a bank of a minimum reserve balance in an account with the South African Reserve Bank, shall mutatis mutandis apply to any mutual bank. Minimum liquid assets 50. (1) A mutual bank shall hold in the Republic liquid assets to a value which does not amount to less than the sum of amounts, calculated as prescribed percentages but which in no instance may exceed 20 per cent, of such different categories of its liabilities as may be specified by regulation with reference to the time when such liabilities fall due or with reference to any other feature pertaining to such liabilities. (2) The amounts of the liquid assets and of the liabilities referred to in subsection (1) shall be calculated in such manner and shall be determined at such times as may be prescribed. (3) A mutual bank shall not pledge or otherwise encumber any portion of the liquid assets held by it in compliance with the provisions of subsection (1): Provided that the Registrar may, if he deems it necessary on account of any special circumstances in which a mutual bank may find itself, exempt such mutual bank from the prohibition contained in this subsection, on such conditions and to such an extent and for such a period as he may determine. (4) For the purposes of this section securities shall be valued at their prices as quoted in a list of quotations of prices- (a) of securities, as defined in section 1 of the Stock Exchanges Control Act 1985 (Act No. 1 of 1985), issued for publication on the authority of a licensed stock exchange, as so defined; or (b) of financial instruments, as defined in section 1 of the Financial Markets Control Act, 1989 (Act No. 55 of 1989), issued for publication on the authority of the executive committee of a financial exchange, as so defined, as the case may be, and which list is in force at the time when the securities are so valued. Large exposures 51. (1) A mutual bank shall not make investments with, or grant loans or advances or other credit to, any person, to an aggregate amount exceeding an amount representing a prescribed percentage of such mutual bank's capital and reserves, without first having obtained the permission of its board, or of a committee appointed for such purpose by its board (at least one of the members of which committee shall be a non-executive director of the mutual bank), to make such investments or to grant such loans, advances or other credit. (2) A mutual bank shall in such manner and on such a form as may be prescribed, report to the Registrar whenever it makes an investment with or grants a loan or advance or other credit to any person, which transaction, either alone or together with any previous transaction or transactions entered into by it with that person, results in the mutual bank being exposed to that person up to an amount exceeding an amount representing a prescribed percentage of its capital and reserves. (3) For the purposes of this section "person" includes- (a) two or more persons, whether natural or juristic persons, the respective exposures to whom constitute a single exposure because of the fact that one of them directly or indirectly exercises control over the other or others; and (b) two or more persons, whether natural or juristic persons, between whom there exists no relationship of control as contemplated in paragraph (a), but the respective exposures to whom are to be regarded as a single exposure because of the fact that they are so interconnected that should one of them experience financial difficulties another one or all of them would be likely to experience a lack of liquidity. Failure or inability to comply with prudential requirements 52. (1) If a mutual bank fails to comply with a provision of section 48 or 50, or is unable to comply with any such provision, it shall forthwith in writing report its failure or inability to the Registrar, stating the reasons for such failure or inability. (2) The Registrar may summarily take action under this Act against a mutual bank referred to in subsection (1) or, if in the circumstances he deems it fit to do so, condone the failure or inability and afford the mutual bank an opportunity subject to such conditions as the Registrar may determine, to comply with the relevant provision within a specified
period.
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