Características de los telescopios de la red GLORIA

It is of vital importance that employees should be kept informed during the liquidation process.

The positions in South Africa, Australia and England reveal that all of these countries incorporated some form of notification procedure to keep their employees informed regarding the liquidation process.

South Africa takes the lead and provides employees with direct rights to receive information, not only when a company considers liquidation¹⁰ but also after the process is initiated¹¹ and consistently during the process. This right of employees to receive information and be informed regarding winding-up proceedings is not only entrenched in legislation, but the judiciary supports the importance of protecting the interests of employees by providing them with actual information throughout the process.

10 Chapter 2, par 2.2.

11 Chapter 2, par 2.2.

Employees in Australia do not enjoy the right to receive notification of liquidation proceedings in their capacity as employees of the company.¹² The Corporations Act of 2001 confers rights to be informed on the creditors of the company and extends this right to another category of people with an interest in being kept informed. Employees clearly fall in this category of people with an interest to know what happens in the company. It is regrettable that there is only one direct reference to a right of employees to receive notice in a company’s liquidation in that capacity and that is when a court grants a liquidation order because the publication of such order serves as a dismissal notification to employees.

England undoubtedly comes in last as far as notification rights of employees are concerned.¹³ No mention is made of employees having to receive notice when liquidation proceedings are started. The only reference of notification rights is found where the petitioner must serve a copy of the petition to initiate liquidation on the company. No specific reference is made to creditors of the company either. Employees therefore may not even derive a right to be informed from their possible capacity as creditors of the company.

In Australia¹⁴ and in England¹⁵ employees have the right to receive notifications and be informed of the rescue proceedings only in their capacities as creditors of the company. No direct right is afforded to them in their capacity as employees.

In South Africa, on the other hand, since employees are per se classified as affected persons they have the right to receive notification and be informed during the business rescue process.¹⁶ Employees must be informed about the commencement of voluntary business rescue after the resolution taken by the board has been filed with the Companies and Intellectual Property Commission and also about the appointment of the business rescue practitioner. If the board of directors decides not to start business rescue proceedings although the company is in financial distress, employees must be informed likewise.¹⁷ They also receive notice when an application is made to court to place the company in compulsory business rescue as well as when the court

12 Chapter 3, par 2.2.

13 Chapter 4, par 2.2.

14 Chapter 3, par 3.2.2.

15 Chapter 4, par 3.2.

16 Chapter 2, par 3.2.

17 Chapter 2, par 3.2.1.

grants the order.¹⁸

Adding to the already extensive rights to be informed of the business rescue process, is their right to receive monthly updated reports if the business rescue is not completed after three months; to be informed if the business rescue practitioner is of the opinion that there is no reasonable prospect to rescue the company; and to be present at meetings with employee representatives ten business days after the practitioner’s appointment where the practitioner has to report to the meeting whether he is of the opinion that a reasonable prospect to rescue the company exists or not.¹⁹

Undoubtedly South Africa goes to the other extreme by affording employees such wide-spread rights in this regard. As stated earlier²⁰ although it is plausible to include employees in every step of the business rescue, the burden on the company to comply with the numerous information rights may take up valuable time and resources that can be used more wisely.

Recommendations on possible ways to ease the burden on the company are made below.²¹

2.4 Effect on employment contracts

South Africa provides the best protection of employee rights when the effect of liquidation on employment contracts is compared to the other two jurisdictions.²² However, there is definitely room for improvement.

In South Africa the consequences of liquidation on employment contracts are dominated by legislative provisions. The Insolvency Act of 1936 and the Companies Act of 1973 deal with the effect of liquidation on employment contracts. Labour legislation also plays a part in regulating dismissal based on operational requirements. In contrast to the position in Australia²³ and England²⁴ where the granting of the liquidation order basically serves as notice of immediate dismissal to the employees, the granting of the provisional order in South Africa suspends the employment contract for 45 days from the date of appointment of the final liquidator. During this

18 Chapter 2, par 3.2.2.

19 Chapter 2, par 3.2.3.

20 Chapter 2, par 3.2.3.

21 Chapter 5, par 3.1.2.

22 Chapter 2, par 2.3.

23 Chapter 3, par 2.3.

period the liquidator must decide how the contracts will be treated while employees do not have to tender their services and are not paid but do have the benefit of claiming unemployment benefits. In South Africa, Australia and England the liquidator has a choice whether to continue with employment contracts. A significant consideration is that should the liquidator decide to continue with the employment contracts, salaries will be regarded as costs of the liquidation and will have preferent payment status.

Although South Africa treats employment contracts with the necessary care and respect they deserve, it must be borne in mind that the liquidation of a company mostly leads to job losses unless the business is sold as a going concern.²⁵ In most cases employment contracts automatically terminate 45 days after the appointment of the final liquidator.

The situation regarding employment contracts during business rescue is a sensitive matter.

All three jurisdictions are quite unique in the manner in which employment contracts are treated.

This is due to the developments and reform on the socio-economic front in the individual countries. One common factor is that the position is regulated extensively by legislation.

Australia has the most basic arrangement regarding employment contracts.²⁶ Employees stay employed until the administrator is appointed in the voluntary administration and he then decides whether to retain them, in which case he will be liable for their costs, or to terminate their employment with the company and follow the provisions of the Fair Work Act of 2009 to ensure a legal redundancy.

The biggest reform took place in England with the Insolvency Act (No 2) of 1994 that had to address the problematic position that existed in administration proceedings largely created by case law and the uncertainty about the interpretation of the Insolvency Act of 1986.²⁷ The current position in England is that employment contracts are not terminated automatically once administration commences. The administrator must decide whether or not to continue with existing employment contracts. If he maintains the employment of the employees after a period of 14 days the employment contracts will be regarded as adopted by the administrator.

24 Chapter 4, par 2.3.

25 Chapter 2, par 2.3.

26 Chapter 3, par 3.6.2.

27 Chapter 4, par 3.5.

The position in South Africa correlates the most with the position in Australia, but employment contracts in South Africa²⁸ are entrenched even more than their Australian counterparts. The Companies Act of 2008 provides that employees stay employed by the company after business rescue proceedings have started on the same terms and conditions on which they were employed by the company. Neither the business rescue practitioner nor the court has any power to cancel an employment contract due to the fact that the company entered business rescue.

Should the business rescue practitioner wish to terminate any employment contract the provisions of the Labour Relations Act of 1995 must be complied with. That means that the Companies Act 2008 does not have any authority regarding the termination of employment contracts during business rescue. The Labour Relations Act of 1995 prevails over the Companies Act and therefore needs to be followed to ensure that the dismissal is done legitimately. However, taking the short time span of business rescue into consideration it is clear that something needs to be done in order to deal with employment contracts faster during business rescue. Not only is following the Labour Relations Act of 1995 time consuming, it also creates the opportunity for employees to disagree during consultation processes which may result in strike action. Recommendations are made on a possible way to deal with the challenges South Africa faces.²⁹

In conclusion, despite the fact that it might seem as if the South African position regarding employment contracts during business rescue is more favourable than liquidation due to the employees keeping their employment, they do not have access to any unemployment insurance because they are still employed even if the company is unable to pay them. As a result, employees in South Africa could be in a more favourable position in liquidation during their 45-day suspension period when unemployment benefits can be claimed than during business rescue where their claims are unlimited but are not paid until the business rescue practitioner is able to source post-commencement financing.