THE ROLE OF TRADE UNIONS, EMPLOYEES AND THEIR ADVISORS IN

BUSINESS RESCUEPROF ANNELI LOUBSER

Prevention or limitation of job losses

• Universally accepted as one of the advantages of a successful corporate rescue

• Informal survey of CIPC: May 2011 – March 2012: 970 jobs saved, 40 retrenchments in 117 (63 successful) cases (+4000 in Blyvooruitzicht mines)

• Part 10 of Memorandum on the Objects of the Companies Bill, 2008 dealing with business rescue proceedings– Chapter 6 “recognises the interests of shareholders,

creditors and employees”– rest only deals with special rights of employees

• LRA prevails in event of conflict (s 5(4))

Definition of business rescue (s 128(1)(b)

• Proceedings to facilitate the rehabilitation of a company that is financially distressed by – temporary supervision of the company and of

the management of its affairs;– temporary moratorium on the rights of

claimants against the company; and– development and implementation of a plan to

maximise likelihood of its continued existence on a solvent basis, or, if not possible, resulting in better return for creditors or shareholders than immediate liquidation

Commencement of business rescue proceedings

• Resolution of the board to begin business rescue proceedings filed with CIPC

or• Order of court • Basic requirements for both

– company is financially distressed and– reasonable prospect of rescuing the company

(i.e. achieving the goals set out in the definition of business rescue)

Three types of employee rights

• As an affected person – a shareholder or creditor– any registered trade union representing

employees of the company– each employee not represented by registered

t/u, or his or her representativein first instance registered trade union

exercises these rights of employees• Special rights as an employee • Rights as a creditor

Trade union or employee as affected person

• Business rescue proceedings commenced by board resolution (s 129)– notification of filing of resolution within 5 days

and of appointment of business rescue practitioner within 5 days of filing appointment resolution lapses:1Time Airline

– section 129(7) notice– bring application to court to set aside

resolution or appointment of business rescue practitioner, or to demand security

Affected persons (continued)

• Business rescue commenced by order of court– May apply for order as affected person

– Trade union must be given access to company financial statements through Commission for purposes of initiating business rescue (s 31(3))

– Two alternatives to financial distress failure by the company to pay over any

employment-related amount i.t.o. public regulation or contract

just and equitable for financial reasons

Affected persons (continued)

• Each affected person must be notified and has the right to participate in hearing

• No need to apply for court’s permission to intervene, it is a right : AG Petzetakis International Holdings Limited v Petzetakis Africa (Pty) Ltd NUMSA intervened, asking for postponement of business rescue application to file papers supporting business rescue application

Approach of the courts

• Employees of Solar Spectrum Trading 83 (Pty) Ltd v Afgri Operations Limited – proving prospect of rescue

• Although saving jobs is not one of the stated objects of the Act, courts take into consideration whether there are employees who could benefit– Oakdene Square Properties (Pty) Ltd v Farm

Bothasfontein (Kyalami) (Pty) Ltd 2012 (3) SA 273 (GSJ) – no employees or actual business

– Lidino Trading 580 CC v Cross Point Trading (Pty) Ltd - purpose of business rescue is to grant a breathing space while rescue plan is being implemented; no need for breathing space – nothing is happening and there are no employees

Affected persons (continued)

• May apply to court for removal of business rescue practitioner on grounds of incompetence; failure to act with proper degree of care; illegal acts or conduct; does not meet requirements of s 138(1); conflict of interest; or incapacity.– may not appoint new practitioner

• If business rescue has not ended within 3 months or longer period allowed by court, practitioner must deliver monthly updated report on progress

Special rights as an employee: employment

• Section 136(1): employees immediately before beginning of BR, continue to be so employed on the same terms and conditions except – changes in ordinary course of attrition, or– if otherwise agreed between company and

employees in accordance with applicable labour laws

• Any retrenchment contemplated in the business rescue plan is subject to sections 189 and 189A of the LRA (Neckermann case)

Special rights as an employee: employment

• Employment contracts are specifically excluded from business rescue practitioner’s power to suspend any contractual obligation of the company arising during business rescue (s 136(2A))

• Also excluded from power of the court to cancel any such obligation of the company – court may not cancel any provision of an employment contract, except in accordance with labour laws

Special rights as an employee: employment

However -• Business rescue practitioner may remove from

office any person who forms part of pre-existing management (s 140(1)(c))

• Practitioner may apply to court for an order removing a director from office for failing to comply with a requirement of Chapter 6 or impeding the practitioner in fulfilling his functions

Special rights as an employee: payment

• Any remuneration, reimbursement for expenses or other employment-related amount becoming due and payable to an employee during BR, is regarded as post-commencement finance

• Enjoys preference over any claims by lenders who provide post-commencement finance, irrespective of whether these loans are secured or not

• Both have preference over all unsecured claims against the company

• Preferences remain in force in subsequent liquidation

Special rights as an employee: general

• Rights may be exercised collectively through registered trade union and in accordance with labour law, or

• If not represented by registered trade union, may elect to exercise rights directly, or by proxy through an employee organisation or representative

Special rights as an employee: general

• Registered trade union representing employees and any employee not so represented entitled to – notice of each court proceeding, decision,

meeting or other relevant event– participate in any court proceedings arising

during business rescue– form committee of employees’ representatives

• Business rescue practitioner must convene meeting of employees’ representatives within 10 days after appointment to report on prospect of rescue

Special rights as an employee: rescue plan

Trade union or unrepresented employees • must be consulted by practitioner during

development of rescue plan and allowed enough time to prepare submission for creditors meeting

• entitled to attend meeting of creditors and make submission before creditors vote on approval

• if plan is rejected, entitled to propose development of alternative plan or make an offer to acquire voting interests of affected persons who voted against plan

Plan must disclose effect on number of employees, terms and conditions of employment – 27, 34, 39%

Rights as creditors

• Section 144(2): every employee is a preferred unsecured creditor for any remuneration, reimbursement for expenses or other amount relating to employment due and payable before beginning of business rescue proceedings but not paid– only for purposes of Chapter 6

• Independent creditor is a creditor who is not related to the company, a director or the practitioner – creditor i.t.o. s 144(2) specifically included, even if trade union holds shares

Rights as creditors (continued)

• May form creditors committee entitled to be consulted by practitioner

• Attend first meeting of creditors– at any meeting of creditors, except to approve

plan, only need support of majority in value of independent creditors

• Right to vote on proposed business rescue plan – more than 75% in value of all votes voted, at least 50% of independent creditors’ votes needed for approval

If plan is rejected

• Propose amendment of plan• Apply to court to set aside votes on grounds that

it was inappropriate• Offer to acquire interests of any or all creditors

who voted against the plan