Employees are the lifeline of any company, so it is vital that all internal and external stakeholders of a distressed company to understand the impact of business rescue on the workforce.
The main purpose of business rescue is to revitalise a company and sustain its operations so that liquidation can be avoided, and jobs protected.
Jobs play a pivotal role in the country’s social and economic welfare, so striking a delicate balance between a company’s interests and those of its employees is central to the role of a Business Rescue Practitioner.
The profound impact of business rescue on employees means that their interests take centre stage in the proceedings. The importance of considering the interests of employees is highlighted in Section 7(k) of the Companies Act which promotes the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all stakeholders, including employees
In addition, employees are considered active participants in business recue proceedings – in line with Section 128(1)(a)(iii) and Section 131 (3) of the Companies Act which states that employees have a right to participate in the proceedings. This was highlighted in the case of Lidino Trading 580 cc vs Cross Point Trading (Pty)Ltd in Re: Mabe v Cross Point Trading 215 (Pty) Ltd where the court ruled that the interests of employees are an important element of business rescue proceedings.
Sections 144 (3) (a) – (g) and 152 (1) (c) of the Companies Act elevate the voice of employees and allows them to be consulted during the business rescue process – meaning employees must be afforded the opportunity to review the business rescue plan. Employees or their registered union are thus kept informed on all aspects of the proceedings, such as notices, court proceedings, decisions, meetings or other relevant events concerning the business rescue process.
Section 136 of the Companies Act deals with the impact of business rescue on employees and contracts. In terms of this section, employees of the company will continue to be employed on the same terms and agreements of their current contract, except if there is an agreement to different terms and conditions in accordance with Labour Relations Act 66 of 1995
The Business Rescue Practitioner effectively steps into the shoes of the directors of the company and is entitled to make changes in the employment terms and conditions as an alternative to retrenchment. However, there is a mandatory consultative process that needs to take place for such changes to come into effect.
Sections 189 and 189A of the Labour Relations Act regulate the process of retrenchments and specify the steps that must be followed by the Business Rescue Practitioner if they decide to proceed with retrenchments. The process must promote joint consensus, mandatory consultation, provide for alternatives to retrenchment and must be in line with the operational requirements of the company.
In a landmark Constitutional Court case National Union of Metal Workers of South Africa and Others v Aveng Trident Steel (a division of Aveng Africa (Pty) Ltd) and Another 2020 ZACC 23 the court said that, “…where a [Business Rescue Practitioner] has dismissed employees as a result of their refusal to accept proposed changes to their terms and conditions of employment, as an alternative to retrenchment and as part of a business restructuring to meet its operational needs, such dismissal will be for a fair reason; and not constitute a contravention of section 187 (1)(c) of the LRA.”
The Bill of Rights in the Constitution, together with supporting legislation such as the Companies Act and Labour Relations Act, place a mandatory obligation on Business Rescue Practitioner to find a balance between commercial sustainability and fundamental human and labour rights.
Eloise Cilliers | Senior Associate and Yonwabisa Matshoba | Candidate Attorney
