COVID-19 and Business Rescue: A Basic Guideline for Employees

What are my rights as an employee if the business I work for commences business rescue proceedings?

Businesses breathed a sigh of relief when the South African government announced the partial lifting of the lockdown in phases. Even combined with the stimulus package intended to assist the economy back to his knees, this may be insufficient. Is it only a question of when will businesses no longer afford to keep operating? What happens to employees in the event that businesses are forced to commence business rescue proceedings?

Employee Rights During Business Proceedings

Right to exercise rights

Section 144 of the Companies Act (“the Act”) states that employees belonging to the business commencing business rescue proceedings have the right to represented by a registered trade union and may exercise any rights set out in the Act collectively through their trade union and in accordance with applicable labour.

As for those employees who are not represented by a registered trade union, they may elect to exercise [their rights] set out directly, or by proxy through an employee organisation or representative.

The right to employment

Employees, employed before the business commenced business rescue proceedings, continue to be employed on the same terms and conditions except to the extent that changes occur in the ordinary course of attrition; or the employees and the company, in accordance with applicable labour laws, agree on different terms and conditions.

Preferred unsecured creditor

If any remuneration, reimbursement for expenses, or other amounts of money relating to employment is owed to the employee upon the business commencing business rescue proceedings, the employee becomes a preferred unsecured creditor of the business.

A medical scheme or a pension scheme including a provident scheme, for the benefit of the past or present employees of a company is an unsecured creditor of the company to the extent of any amount that was due and payable by the company to the trustees of the scheme at any time before the beginning of the company’s business rescue proceedings, and that had not been paid immediately before the beginning of those proceedings; and in the case of a defined benefit pension scheme, the present value at the commencement of the business rescue proceedings of any unfunded liability under that scheme.

Consultation on the business rescue plan

Registered trade unions representing employees of the company and unrepresented employees are entitled to:

  • Be consulted by the practitioner during the development of the business rescue plan, and afforded sufficient opportunity to review any such plan and prepare a submission

  • Be present and make a submission to the meeting of the holders of voting interests before a vote is taken on any proposed business rescue plan

  • Vote with creditors on a motion to approve a proposed business plan, to the extent that the employee is a creditor

  • If the proposed business rescue plan is rejected, to propose the development of an alternative plan or present an offer to acquire the interests of one or more affected persons

Notice and Participation

During business rescue proceedings, every registered trade union representing any employees of the company and employees that are not represented is entitled to:

  • Notice of each court proceeding, decision, meeting or other relevant event concerning the business rescue proceedings

  • Participate in any court proceedings arising during the business rescue proceedings

  • Form a committee of employees’ representatives

Additional Rights

The rights set out above are in addition to any other rights arising or accruing in terms of any law, contract, collective agreement, shareholding, security, or court order.

Q&A for Employees

What are business rescue proceedings?

Business rescue proceedings are those that facilitate the rehabilitation of a company that is financially distressed by providing for:

  • the temporary supervision of the company, and of the management of its affairs, business, and property;

  • a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; and

  • the development and implementation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities, and equity in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.

Why the need for business rescue proceedings?

Companies in financial distress are provided with the opportunity to ‘rescue’ (i.e. restructure or reorganize) their businesses with the effect that they operate successfully in the future or offer a better return for creditors than companies that end up liquidated would.

What happens if the business is in financial distress but does not commence business rescue proceedings?

Written notice, often referred to as a section 129(7) notice, must be issued to all affected employees should the board of directors decide not to issue a board resolution when the business is in a state of financial distress.

  • The notice must stipulate the meaning of financial distress, how it applies to the company, and reasons as to why the board of directors has chosen not to pass a resolution to commence business rescue proceedings.

Can employees institute a claim against the company at the Commission for Conciliation, Mediation, and Arbitration (“CCMA”) if they have not been paid their salaries?

According to s 133 of the Companies Act, there is a general moratorium on legal proceedings against the company. In other words, with few exceptions, legal proceedings cannot be brought against a company.

Because the Act does not clarify the term ‘legal proceedings,’ this has created some uncertainty. The Labour Court in Sondamase and another v Ellerine Holdings Limited emphasised the rationale was that the company needed time to put its financial affairs in order*.

Trade unions and employees may institute claims against the company at the CCMA, but their claims are suspended until the business rescue proceedings are finalised unless they receive written consent from the business practitioner or leave of a High Court.

Can employees approach the CCMA for relief if they wish to pursue a claim against their company?

According to the case of Izak Bosman Marais and 56 Others v Shiva Uranium (Pty) Ltd (In Business Rescue) and Others, only the High Court has the power (‘jurisdiction’) to uplift the moratorium. Consequently, the Labour Court (and CCMA) do not have jurisdiction to deal with these matters.

How can Mediate Works assist?

Mediate Works has a diverse panel of highly experienced experts from enquiry chairpersons, investigators, facilitators, mediators, counselors, and lawyers to assist.

We have adapted our processes to comply with the law, your disciplinary framework, and the need to comply with the current lockdown regulations. We use secure and efficient online platforms to deliver. Call us now for a chat on 0871505283.

*(C669/2014) [2016] ZALCCT 53