The Rights of Employees and Trade Unions during a Business Rescue

Business rescue is regulated by the Companies Act, 71 of 2008 (‘Act’). One of the purposes of this regulation is to protect the rights of employees as well as to grant employees’ specific rights during the business rescue process. As such, employees and trade unions are considered as being vitally important stakeholders in the business rescue process.

The definition of ‘affected persons’ in the Act includes registered trade unions and non-unionized individual employees. This inclusion recognizes that employees are directly affected by the business rescue of a company. This grants employees the same rights as creditors and shareholders which would be notified of all developments and would participate in the business rescue proceedings in several ways.

During business rescue proceedings, employees may be represented by a registered trade union. Should the employees not be represented by a trade union, employees may elect to exercise their rights either directly, or by proxy through an employee organization or a representative.

To the extent that an employee has not been paid any monies (namely, remuneration or any reimbursement of expenses or other amount relating to their employment) before the beginning of the company’s business rescue proceedings, such an employee would qualify as a preferred unsecured creditor. In this instance, the employee will be paid before any unsecured creditors are paid.

It is crucially important that employees and trade unions are kept informed during the company’s business rescue process. Furthermore, employees should be given the opportunity to share their opinions and to participate in the process in certain circumstances.

During a company’s business rescue process, every registered trade union representing any employees of the company, and any employee who is not so represented, is entitled to:

(a)   notice of each court proceeding, decision, meeting or other relevant event concerning the business rescue proceedings and such notice must be given to employees at their workplace and served at the head office of the relevant trade union;

(b)   participate in any court proceedings arising during the business rescue proceedings;

(c)   form a committee of employees’ representatives;

(d)   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 which addresses the consideration of the proposed business rescue plan;

(e)   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;

(f)    vote with creditors on a motion to approve a proposed business plan, to the extent that the employee is a creditor and;

(g)   if the proposed business rescue plan is rejected, to:

(i)  propose the development of an alternative plan, in the manner contemplated in section 153 of the Act or;

(ii) present an offer to acquire the interests of one or more affected persons, in the manner contemplated in section 153 of the Act.

The business rescue practitioner must convene the first meeting of employees’ representatives within ten business days after being appointed. At this meeting, the practitioner must inform the employees’ representatives whether the practitioner believes that there is a reasonable prospect of rescuing the company.

The business rescue practitioner must include in the business rescue plan the effect that the business rescue will have on the company’s employees as well as the anticipated effect on the terms and conditions of employment. Any retrenchment process that is contemplated in the business rescue plan would be subject to section 189 and 189A of the Labour Relations Act, 66 of 1995 and other applicable employment related legislation.

The objective of a business rescue is to rescue the company, and this would naturally involve the rescue of jobs. If your business is currently experiencing financial distress, contact us for a free consultation to further discuss the employment considerations during a business rescue.

Boutique Advisory is a firm of licensed business rescue practitioners and business turnaround specialists.

DisclaimerThis article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).