What is business rescue and what happens to employees during such proceedings?
Business Rescue in very basic terms, is a process that a company voluntarily enters when experiencing financial difficulty with the eye on saving the business from demise.
The Companies Act of 2008, defines business rescue as:
‘‘proceedings to 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”
The entity driving the Business Rescue proceedings, is the Business Rescue Practitioner. This person is responsible for overseeing the company during business rescue proceedings and in broad terms takes over the functions of the board of directors during the proceedings.
A company may enter proceedings voluntarily, thus by special resolution to do so, due to its struggle to maintain financial viability of the company, but the belief that the company will again become financially viable by placing same in Business Rescue. In some instances, the company’s financial position may have deteriorated to such extent that there is no prospects of such rescue, which would result in a liquidation of the company being requested.
When Business Rescue proceedings ensue, the employees of the company immediately before such proceedings remain employed by the company on the same terms and conditions that were agreed to. During Business Rescue proceedings, the entire working of the company is however evaluated by the Practitioner and this may in some instances result in the finding that some employees are no longer required, or that, in order to make the company profitable, that a retrenchment of a number of employees are necessary. In these circumstances, the Companies Act advises that the retrenchment of any such employees contemplated in the company’s business rescue plan is subject to section 189 and 189A of the Labour Relations Act, 66 of 1995. The parties are of course also free to negotiate new terms and conditions of employment if the company wishes to retain all employees.
How does section 189 and 189A retrenchment work in these circumstances?
When it becomes clear that an employer will have to retrench some of its employees due to operational requirements. Section 189 of the LRA clearly sets out what an employer should do in order to ensure that the process followed by the employer during the retrenchment process was fair.
In broad terms an employer should:
- consult with any person in terms of a collective agreement, workplace forum, trade union or the employee directly;
- after consulting with the parties, the employer must engage in a meaningful joint consensus-seeking process and attempt to reach consensus on the appropriate measures;
- explain the method for selecting employees for proposed dismissals;
- calculate the severance pay and convey it to the employee;
- issue a written notice inviting the other party to consult with it and disclose in writing all relevant information;
- allow the employee to make representations during the consultation;
- respond in writing, should the employee make representations in writing;
Once the employer has adhered to the above and there is no other alternative than retrenching the employees, the employee must issue a formal notice that to the employees that will be retrenched. The employer must ensure that it pays the employee its severance package, any statutory payments and the remaining leave, together with a months’ notice pay, if the employee will not work the month notice.
The employee will then be deemed to be dismissed, due to the no fault of the employee.
If the employer fails to adhere to the above, the employer has failed to comply with the provisions in terms of the LRA, and this means that the retrenchment can be deemed as unfair.
If an employee should refer the matter to the CCMA, the CCMA will have to launch an inquiry into whether the correct procedure was followed and whether a substantive reason existed for the employer to retrench the employee.
If the CCMA finds that the procedure and/or reason for the dismissal was unfair, the employer opens itself up to the CCMA ordering either re-instatement, re-employment or compensation equal to a maximum of twelve months.
In closing, an employer should be mindful of the procedures set out in the LRA when deciding whether retrenchment proceedings should be instituted.