|dc.description.abstract||English: The impact of an employer’s liquidation and/or estate sequestration on the employment relationship with the employee, with a view to business rescue as possible alternative
The liquidation/sequestration of employers, along with the subsequent job losses, has far-reaching consequences. It not only deprives employees and their dependants of their means of support, but also affects the productivity and thus economic prosperity of the region and country. Should a viable and lawful alternative exist, it would therefore make sense to explore it.
Up until the late 1990s, South Africa had been characterised by a liquidation culture. Companies in financial distress used to be either subjected to takeover or settlement, or liquidated in terms of the provisions of the previous Companies Act 61 of 1973. However, most industrialised countries have since started trying to save failing companies instead of liquidating them. This approach, known as business rescue, has now also been included in the new South African Companies Act 71 of 2008.
This article first explores employees’ rights upon the liquidation/sequestration of their employers, as currently contained in the Labour Relations Act 66 of 1995 and the Insolvency Act 24 of 1936. The former stipulates two options, namely either retrenchment in terms of section 189 and 189A, or transferring a business as a going concern in terms of section 197A. Retrenchment entails reducing the number of employees, either when the employer is no longer able to afford his entire staff establishment or when there is no longer enough work for all employees. Recent experience in South Africa has shown that companies seem to be willing to pay ever higher amounts in retrenchment packages, which eventually renders them vulnerable to increased financial pressures. The second option, the transfer of a business as a going concern, is aimed at protecting job opportunities. The new employer to whom the business is transferred is obligated to offer the employees essentially the same conditions of service as those that applied at the previous employer. Where employees’ conditions of service are amended to such an extent that employees end up significantly worse off than before, employees may terminate the employment contract and seek relief on the grounds of constructive dismissal, which, if confirmed, will automatically constitute unfair dismissal. In turn, section 38 of the Insolvency Act currently also provides prescripts with regard to the termination of employment contracts based on the employer’s operational requirements in solvent circumstances.
The presence of the aforementioned provisions in the Insolvency Act represents a break from tradition, which had restricted provisions on fair labour practices to the Labour Relations Act alone, and proves the extent to which the employee’s right to fair labour practices has filtered through to insolvency law as well. This interaction between South African labour and insolvency legislation has made great strides in striking the right balance between the interests of the employees, the employer’s creditors and the employer himself. However, for an efficient and prosperous economy it is essential that mechanisms be implemented rather to rescue and retain potentially viable businesses.
Therefore the article proceeds to suggest that this interaction between labour and insolvency legislation should culminate in the promotion, development and acceptance of an all-inclusive business rescue plan within the South African legal framework. The focus accordingly shifts to business rescue, as provided for by the new South African Companies Act, as an alternative to liquidation, in order to protect employees against job losses and ultimately retain companies within the economy. It would be irresponsible of a developing economy such as South Africa to allow companies which are contributing to the establishment of the country’s industries and commercial enterprise to be immediately liquidated and dissolved following a temporary setback, if there is a reasonable possibility that they will, by means of a moratorium, be able to overcome their problems, settle their debts and again turn into successful businesses. Business rescue, which may be effected through either a board decision or a court order, affords a struggling business just that: an opportunity to meet creditors’ demands, remain economically active, pay taxes and maintain existing employees’ employment contracts (and even create new jobs). Even if the company is eventually liquidated should business rescue fail, its employees are still much better off, as their contracts would have remained intact for the duration of the business rescue process and they will be treated as preferential creditors during the eventual liquidation. As such, the business rescue plan is an important and innovate step for the South African economy. It offers employees and other affected persons the opportunity to have a say in, and contribute to, an efficient system to prevent the liquidation of a company. It also seems that this is starting to register with an increasing number of companies: statistics show a drastic decrease in the number of liquidations (including voluntary liquidations) carried out since the commencement of business rescue, and ascribe the recorded 72% reduction in liquidations in 2011 in part to business rescue procedures.
Following a proper study of the business rescue provisions currently contained in the Companies Act, the research thus concludes that an insolvent business is no longer regarded as an economic outcast, as was the case previously, but instead is viewed as a business unit that, with the required assistance, could again take its place in the market. A business rescue plan offers struggling companies the opportunity to survive as viable units for the benefit of their creditors and employees, instead of being subjected to a liquidation process, which inevitably leads to job and other financial losses.
It is proposed that the economic stability of the country would be better served if a serious attempt were to be made to save more businesses rather than liquidate immediately to satisfy creditors. In addition, the community’s interests are much better protected by the retention of job opportunities, the completion of unfinished business and the realisation of potential growth and development. In terms of the provisions of the Companies Act the business rescue process promotes economic development in South Africa by encouraging the growth of emerging commercial enterprises and generally protecting companies against the detrimental effects of liquidation. Therefore an attitude of business rescue creates the expectation of improvement; it points to entrepreneurial activity, which will lead to financial and economic prosperity, and eventually activates the proverbial “healing powers” of business dynamics.||en_ZA
|dc.description.abstract||Afrikaans: Die likwidasie/sekwestrasie van werkgewers, en die werksverlies wat daaruit spruit, het verreikende gevolge. Nie net ontneem dit werknemers en hul afhanklikes van hul bestaansmiddele nie, maar dit kring ook uit na ’n streek en land se produktiwiteit en dus ekonomiese welvaart. Indien daar ’n haalbare en wettige alternatief bestaan, sou dit derhalwe sinvol wees om te verken.
Tot die laat 1990’s het daar ’n likwidasiekultuur in Suid-Afrika geheers. Maatskappye in finansiële nood is óf aan oorname of skikking onderwerp óf kragtens die bepalings van die vorige Wet op Maatskappye 61 van 1973 gelikwideer. Sedertdien het die meeste nywerheidslande egter begin om mislukte maatskappye te probeer red eerder as te likwideer. Hierdie benadering, genaamd ondernemingsredding, is nou ook in die nuwe Suid-Afrikaanse Wet op Maatskappye 71 van 2008 ingesluit.
Hierdie artikel stel eerstens ondersoek in na werknemers se regte met die likwidasie/sekwestrasie van hul werkgewer soos dit tans in die Wet op Arbeidsverhoudinge 66 van 1995 en die Wet op Insolvensie 24 van 1936 vervat is. Daarna val die soeklig op ondernemingsredding as alternatief vir likwidasie om werknemers teen werksverlies te beskerm en maatskappye uiteindelik vir die ekonomie te behou.
Die navorsing vergelyk historiese ontwikkelinge in die Suid-Afrikaanse arbeids- en handelsreg met die huidige stand van sake om tot die gevolgtrekking te kom dat ’n insolvente onderneming nie meer, soos voorheen, as ’n ekonomiese uitgeworpene beskou word nie, maar eerder as ’n sake-eenheid wat met die nodige bystand weer sy plek in die mark sal kan inneem. ’n Ondernemingsreddingsplan bied ’n sukkelende maatskappy die geleentheid om as lewensvatbare entiteit te oorleef, tot voordeel van sy skuldeisers én werknemers, in plaas daarvan om aan ’n likwidasieproses onderwerp te word wat noodwendig tot werks- en ander finansiële verliese lei.||af