The recent case of JP Markets v Financial Sector Conduct Authority (FSCA) 2022 (4) SA 94 (SCA) presents nothing new in the way of two learned judgements coming to two different, but equally reasonable decisions. JP Markets SA (Pty) Ltd (JP Markets) conducted the business of an OTC derivatives provider (ODP) as defined in the Financial Markets Act 2012 Regulations without the license required by regulation 2 to conduct such business. All unlicensed ODPs were given until the 14th of July 2019 to submit their applications for the regulation 2 license to the FSCA as the Regulating Authority for the Financial Markets Act 19 of 2012 (FMA). According to the SCA decision, JP Markets only submitted its license application on 21st August 2020 due to confusion around the necessity of the license for its activities. This ultimately resulted in FSCA’s application in terms of s 96(a)(i) of the FMA to the Johannesburg High Court for the liquidation JP Markets. Section 96(a)(i) empowers the FSCA to apply for a winding-up order of an offending person if, after a supervisory visit or investigation, such winding up would allow the FSCA to meet the objectives of the FMA. Interestingly, the High Court relied on three of the five FMA objectives to find that the liquidation of JP Markets was a necessary consequence on the facts, whereas the SCA relied on the other two objectives to find that the facts did not justify the winding up of the OTC provider. This is unsurprising, as s 96(a)(i) allows for an application of winding up in terms of s 81 of the Companies Act. The adjudicating court is empowered to wind up a solvent company if “it is otherwise just and equitable” to do so in the words of s 81(1)(c)(ii). Determining whether something is just and equitable is always the result of a value judgement by the adjudicating court, which is why the High Court found it just and equitable to order the wind-up JP Markets on the value of the three FMA objectives, and why the other two FMA objectives could underpin differing values that understandably led the SCA to a finding that the wind up was not just and equitable under the circumstances.
This ability for a decision to go either way when based on a value judgement does raise the question why the FSCA proceeded to apply for the s 96(a)(i) wind-up instead of the various, less stringent and more viable avenues of compliance penalties available to it. When granting leave to appeal, the High Court aptly remarked that the judgement against JP Markets existed in a highly regulated environment. This means that there were unquestionable actions that the FSCA could have taken to halt the business of JP Markets in wait of the pending OPD license approval. The administrative penalties available in terms of s 167 (1)(a) of the FRSA is one such action, or a potential directive to JP Markets to cease offering and providing CFDs as an issuer in terms of s 144(5)(a). The triumph of the FSCA in the High Court could even be said to have been serendipitous since the s 96 wind-up is based on justice and equity under s 81 of the Companies Act 71 of 2008 (Companies Act). Although both the High Court and the SCA looked to the FMA objectives alone to reach their conclusions around justice and equity, the objectives of the Companies Act could easily have been a deciding factor for the High Court. The Companies Act objectives to name a few, are to “encourage entrepreneurship and enterprise efficiency, to reaffirm the concept of the company as a means of achieving economic and social benefit; and to continue to provide for the creation and use of companies . . .” These objectives demonstrate the drafters’ intention to maintain the lifespan companies where possible. Thus, the liquidation and wind-up of a company for purposes of the Companies Act would be just and equitable only in extenuating circumstances.
Another interesting point to note is that the FSCA had not taken any legal action against many of the operating unlicensed ODPs at the time of the JP Markets liquidation application. This highlights the relative extremity of the decision to apply for the winding-up of JP Markets. Although the FSCA claimed that the complaints of 100 JP Markets clients factored into the consideration of the winding-up application, the decision not to pursue the more viable punitive avenues remains a curious one.