Employment legal services

What is the effect of business rescue on the employees of a company?

Employees of the company remain employed by the company on the same terms and conditions on which they were employed prior to the commencement of business rescue.

Are employees entitled to participate in the business rescue process?

One of the aims of South Africa’s business rescue regime is to ensure that there is a preservation of jobs and that employees of a company that is under business rescue are treated fairly and equitably. Employees are defined to be “affected persons” in terms of the Companies Act and therefore accrue some of the rights that shareholders and creditors do, in respect of business rescue proceedings. Employees are entitled to participate in the business rescue process similarly to a shareholder or creditor. Employees, during the business rescue process, can either participate as individuals, or they can be represented by their trade union.

How are employees’ remuneration, that became owing to them by the company before the company was placed under business rescue, to be treated?

Section 144(2) of the Companies Act provides that to the extent that any remuneration, reimbursement for expenses or other amount of money relating to employment, became due and payable by a company to an employee at any time before the beginning of the company’s business rescue proceedings, and had not been paid to that employee immediately before the beginning of those proceedings, the employee is a preferred unsecured creditor of the company for the purposes of the business rescue proceedings.

What rights do employees have during the business rescue process?

Section 144(3) of the Companies Act outlines the basic entitlements that employees have during their employer’s business rescue process. Some of the most important entitlements that employees have are: to vote with the other creditors on motions to approve proposed business plans (in the event that employees’ remuneration and benefits were not paid in full and the employees are accordingly seen as creditors); 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 in the meeting held to determine the future of the company, and, to participate in any court proceedings arising during the business rescue proceedings.

Can employees keep working for a business while it is under business rescue?

Section 136(1)(a) of the Companies Act provides that employees of the company immediately before the commencement of the business rescue proceedings continue to be so employed on their same terms and conditions. This continuation is, however, subject to changes that occur in the ordinary course of attrition, or, agreement being reached with the employees, in accordance with applicable labour laws, that different terms and conditions will apply. Any retrenchment of employees contemplated in the company’s business rescue is subject to sections 189 and/or 189A of the Labour Relations Act 66 of 1995, and other applicable employment related legislation. Furthermore, in terms of section 136(2A) of the Companies Act, a business rescue practitioner must not suspend any provision of an employment contract.

If employees continue to work for the business while it is under business rescue, how is their remuneration to be treated?

In terms of section 135(1) of the Companies Act, to the extent that any remuneration, reimbursement for expenses or other amount of money relating to employment becomes due and payable by a company to an employee during the company’s business rescue proceedings, but is not paid to the employee, the money is regarded to be post-commencement financing and will be paid after payment of the business rescue practitioner’s remuneration and expenses and other claims arising out of the costs of the business rescue proceedings. Accordingly, the monies that become due and payable to employees after the commencement of the business rescue proceedings will have preference over any other financing obtained by the company from other lenders after the commencement of the business rescue proceedings and all unsecured claims against the company. It is also important to note that all employees will be treated equally in this process.