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Supreme Court of Appeal backs Registrar of Medical Schemes

22 May 2007 Gareth Stokes

On 30 January 2007, the Registrar of Medical Schemes obtained a High Court ruling to have R33 million held in personal medical savings accounts (PMSA) returned to Omnihealth scheme members.

In his ruling, Judge J du Plessis found that the Omnihealth medical scheme rules were very clear with regard the status of balances on the private medical savings accounts of members. Any credit balance on these accounts remained the property of the member at all times. Judge Du Plessis stated "that the credit balances in the Omnihealth personal medical savings accounts constitute trust money per provisions of the Protection of Funds Act (Financial Institutions Act, Act 28 of 2001)".

The court determined that any outstanding monies (plus interest) on PMSAs either be repaid to members, or transferred to each individual members new medical savings account.

Liquidators have other ideas

Omnihealth was placed under liquidation in November 2005. At the time, the Registrar requested that the liquidators return credit balances on medical savings accounts to the scheme members. The liquidators refused this request, claiming that the funds formed part of the insolvent estate.

After the High Court decision, the liquidators chose to further delay the repayment. They achieved this by lodging for leave to appeal with the Transvaal Provincial High Court, and when this proved unsuccessful, petitioning the Bloemfontein Supreme Court of Appeal. Each of these appeals was dismissed with costs.

The net result is that individual savers have been denied access to their funds for an additional three months. Members have now been waiting for almost 18 months since Omnihealths demise.

A case which should never have reached court

FAnews Online believes this case should never have reached court in the first place. The facts available to the liquidators prior to court action were clear enough. They were in charge of a company that had run into financial trouble. The company in question held R33 million on behalf of private depositors. As such, regardless of how these funds were 'held' they remained property of the individual depositors.

The liquidators of the Omnihealth medical scheme have simply exacerbated the situation by throwing money at three rounds of court action. Their actions have worsened the position of the creditors of the insolvent company, and have caused unnecessary delays in returning money to individual Omnihealth medical scheme members. Perhaps it is time that individuals in such position accept more responsibility for their decisions. In the interim, the liquidators and legal council have generated huge fees.

As an aside, this situation clearly illustrates why the FAIS Ombud is so determined to prevent financial service companies from challenging each of his rulings. Right or wrong, at least situations similar to the Omnihealth saga can be avoided.

Registrar's final say

The Council for Medical Schemes issued a press release on 22 May 2007. They summarise the result, saying that "the Supreme Court of Appeal has ruled in favour of the Registrar of Medical Schemes and refused an application for leave to appeal by liquidators of the defunct Omnihealth medical scheme."

Patrick Masobe, Registrar of Medical Schemes was damning of the liquidators, claiming "the legal challenge of the liquidators was incongruous with their responsibility towards the former members of Omnihealth." We believe the liquidators have also failed in their responsibility to creditors, incurring unnecessary legal expense and further delaying the payment of their claims against the company too.

Masobe also bemoaned the fact that former members of the Omnihealth medical scheme had been forced to wait a number of additional months before being refunded. "This Supreme Court decision is now the end of the line; they now have to do the right thing and pay out these monies without any further delays," said Masobe.

Editor's thoughts:
Shortly after the first ruling, one of our regular readers informed us that the outstanding balances on Omnihealth medical savings accounts had not yet been paid over. The legal delay to paying compensation to the scheme members is exactly the type of delay that the FAIS Ombud is trying to avoid. Is it time to challenge the 'appeal regardless of the likely outcome' mentality that prevails in South Africa today? Send your comments to
gareth@fanews.co.za.

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