The Silver Bank Collapse

Qs & As

Who Pays, Who is Liable, and How Funds Can Be Recovered

By Lex

With billions of rupees at stake and individual compensation capped under the Mauritius Deposit Insurance Scheme, the fallout from the Silver Bank collapse reaches far beyond its balance sheet. Depositors and taxpayers alike are left asking: who is legally accountable, and how can lost funds be recovered?

IThis Q&A dissects the multi-layered legal avenues available to the 62 affected depositors. Lex evaluates the grounds for holding the Bank of Mauritius liable for regulatory negligence, the personal accountability of former bank executives, the reach of international freezing injunctions, and the regulatory reforms needed to prevent public funds from repeatedly rescuing systemic failures.

* Can victims of the Silver Bank scandal sue the Bank of Mauritius for regulatory failure if inadequate supervision allowed billions of rupees to be lost and depositors’ interests were not adequately protected? What legal grounds would they need to establish, and what evidence would be required to demonstrate negligence or a breach of statutory duty?

To establish liability against the Bank of Mauritius (BOM), a litigant must prove abuse of authority, gross negligence (faute lourde), or bad faith. To claim a breach of statutory duty, plaintiffs would need to demonstrate that specific mandatory obligations imposed on the BOM under the Banking Act 2004 or the Bank of Mauritius Act 2004 were consciously neglected, resulting in direct and foreseeable harm. Crucially, the litigant must prove causation: that had the Bank of Mauritius acted promptly, the loss of millions could have been prevented.

* Since the MDIS caps compensation at Rs 300,000 per depositor, what legal avenues are available to recover losses exceeding that amount? Can the State be held liable or required to compensate depositors as a guarantor of last resort, particularly where public institutions also lost substantial sums by placing public funds in the bank?

To recover losses exceeding the Rs 300,000 protection cap under the Mauritius Deposit Insurance Scheme (MDIS), depositors must lodge claims against the failed institution’s estate or seek legal recourse grounded in regulatory accountability.

If a bank enters liquidation under the Insolvency Act 2009, depositors become unsecured creditors for their remaining balances. Recovery then depends strictly on the liquidator realizing the bank’s assets, collecting outstanding debts, and distributing the proceeds.

However, where a bank’s failure stems from mismanagement, fraud, or gross negligence (faute lourde), depositors can initiate civil proceedings under the Code Civil Mauricien. This action targets directors, executives, or parent entities to hold them personally or corporately liable.

* The Silver Bank collapse echoes previous banking failures involving British American Investment, fraud at MCB, toxic loans at SBM and the former Cooperative Bank. In some of these cases, public resources may ultimately be required to compensate depositors, sometimes only partially. What systemic regulatory weaknesses do these cases reveal, and what reforms are needed to ensure that taxpayers do not repeatedly bear the cost of banking failures?

The British American Investment (BAI) and Bramer Bank saga, high-profile fraud incidents at the Mauritius Commercial Bank (MCB), toxic loan write-offs at the State Bank of Mauritius (SBM), and the earlier collapse of the Cooperative Bank collectively highlight deep-seated structural flaws in regulatory oversight, corporate governance, and enforcement.

Regulators have repeatedly failed to enforce strict lending caps on related parties, major shareholders, and politically exposed persons (PEPs). This is compounded by persistent supervisory lag, where central bank interventions occur long after capital adequacy ratios are critically eroded. Furthermore, weak vetting of board appointments under “fit and proper” criteria and compromised internal audit independence allow governance deficits to breed. Ultimately, this creates severe moral hazard, as recurring reliance on public bailouts and central bank liquidity injections routinely shifts private banking risks onto taxpayers.

* How can suspects who have fled Mauritius be brought back to face justice? What specific legal steps must the Director of Public Prosecutions and the Financial Crimes Commission take, within their respective powers, to seek Interpol Red Notices, initiate extradition proceedings and secure the return of key foreign executives?

Returning suspects who have fled Mauritius requires a seamless workflow across domestic courts, international law enforcement, and diplomatic channels.

First, the Financial Crimes Commission or police must secure a judicial warrant of arrest from the Supreme or District Court and flag the suspect with local border control. Next, local authorities work through Interpol’s National Central Bureau in Port Louis to issue a global Red Notice, enabling foreign law enforcement to locate and provisionally arrest the fugitive.

Finally, the DPP and the Attorney General’s Office prepare a formal extradition dossier under the Extradition Act 1970 or bilateral treaties. Transmitted through the Ministry of Foreign Affairs, this request must establish dual criminality and present sufficient prima facie evidence to satisfy the host nation’s courts.

* Can funds allegedly misappropriated and transferred abroad be traced and frozen? Can depositors or the Receiver apply to the Supreme Court of Mauritius for assistance under applicable international legal cooperation mechanisms to secure assets overseas and recover the money?

Yes, funds allegedly misappropriated and transferred abroad can be traced and frozen using equitable remedies, statutory frameworks, and international cooperation mechanisms.

To trace the movement of siphoned funds, victims or appointed receivers do not need to wait for full trial proceedings. Under the landmark Judicial Committee of the Privy Council (JCPC) ruling in Stanford Asset Holdings Ltd v AfrAsia Bank Ltd [2023] UKPC 11, the Supreme Court of Mauritius possesses the equitable jurisdiction to issue Norwich Pharmacal and Bankers Trust disclosure orders against third-party banks and intermediaries.

* What legal duties do appointed conservators and receivers, including professional firms such as KPMG or Grant Thornton where applicable, owe in managing the bank’s assets, ensuring transparency and pursuing asset recovery? What safeguards govern their remuneration and administrative expenses, and can their fees, decisions or conduct be challenged or reviewed by the Supreme Court of Mauritius?

Under the Banking Act 2004 of Mauritius, appointed conservators and receivers (including professional advisory firms such as KPMG, Grant Thornton, or BDO when specifically designated) are bound by strict statutory mandates, fiduciary responsibilities, and central bank oversight.

Conservators take total custody and control of the bank, including its property, books, and records. They assume all powers of the directors, officers, and shareholders to manage daily operations and stabilise the institution.

Both conservators and receivers are legally required to preserve, protect, and recover all assets belonging to the bank. This includes collecting outstanding debts, initiating or defending lawsuits, and asserting legal claims on behalf of the bank. Section 89 of the Banking Act explicitly empowers them to file civil lawsuits against former directors, CEOs, or officers to claw back assets lost to mismanagement or fraud.

* Given that Mauritius does not have a general class-action mechanism comparable to that of the United States, what is the most effective legal approach for the 62 affected depositors to pursue claims collectively? Could representative proceedings or another appropriate procedure help them coordinate litigation and share legal costs while preserving their individual rights?

Under Mauritian civil procedure, every plaintiff must establish a direct and material personal interest (locus standi) to maintain an action before the courts, as Mauritian law does not provide a general, United States-style class action mechanism for mass consumer or depositor claims.

* Since the establishment of a Commission of Inquiry is generally a matter for the Government under the applicable legal framework, can a refusal to establish one following a major banking collapse be challenged before the courts? If so, under what exceptional circumstances might judicial review be available?

While challenging the government’s refusal to set up a Commission of Inquiry via judicial review is legally permissible under Mauritian administrative law, succeeding requires meeting an exceptionally high legal threshold. Because establishing an inquiry under the Commissions of Inquiry Act is a discretionary executive power, courts afford substantial deference to the Cabinet or Prime Minister.

To successfully challenge a refusal, a claimant must prove that the executive’s decision crosses the line from a policy choice into unlawful administrative action. This requires demonstrating Wednesbury unreasonableness by showing the decision was so irrational that no sensible authority could have reached it, such as ignoring systemic financial risk. Furthermore, the claimant must establish that the executive failed to consider vital factors like public loss while relying on irrelevant political considerations, acted in bad faith (mala fides) to shield officials from scrutiny, or breached a legitimate expectation by reneging on clear official promises of an inquiry without justification.

* If the authorities or the Government fail to investigate alleged wrongdoing or take legal action, can depositors ask the courts to compel them to act? What are the limits of the courts’ powers, particularly regarding decisions reserved

While depositors can seek judicial review to challenge an authority’s failure to act, courts face strict constitutional limits separating judicial oversight from executive discretion. Under Mauritian administrative law, remedies such as a writ of mandamus allow courts to compel a public body or statutory regulator to perform a mandatory statutory duty.

However, courts will not interfere where an authority is exercising legally reserved discretion — such as initiating specific criminal prosecutions or regulatory enforcement actions — unless the failure to act constitutes a clear breach of statutory obligation, an abuse of power, or bad faith.

Mauritius Times ePaper Friday 30 October 2026