Resumen

Contracts in general and employment contracts specifically play a significant role in any company’s business. When one thinks of a company, supply contracts, letting and hiring, purchase and sale, manufacturing contracts and employment contracts come to mind. For as long as a company is in business, contracts need to be honoured. This is also true when a company finds itself in financial distress. The employees can do the job, they can manufacture the products and they can run the office. It is difficult to imagine a struggling company with no employees. It is easy to start the thought of restructuring and rescue with retrenchment in mind.

The only reason one would do that is to free up capital. Such capital will provide the “breathing space” associated with the granting of the moratorium. Retrenchment is not an easy option and considering the know-how and skills that will flow out of the already-struggling company, adds tension to the already-stressful situation of financial distress.

It must be highlighted that this section deals differently with employment contracts than with contracts in general. Section 136(1)(a) deals with the power of the business rescue practitioner when employment contracts are being decided upon and section 136(1)(b) deals with all other

315 Cassim Contemporary Company Law 884.

types of contracts. The focus is on the position of employment contracts.

The general rule regarding employment contracts is that employees who were employed by the company before the commencement of business rescue proceedings will remain employed, with no change to their position before rescue proceedings commenced.³¹⁶ The only two exceptions to this general rule is when changes are made to the conditions of employment in the ordinary course of attrition³¹⁷ where employees resign, retire or pass away and where both employer and employee agreed on changes to their employment relationship.³¹⁸ In Solidarity v Vanchem Vanadium Products (Pty) Ltd and Others,³¹⁹ the Labour Court confirmed that the business rescue practitioner is allowed to suspend employment contracts provided that such dismissals were made in accordance with the Labour Relations Act 1995.

It comes as no surprise that the Labour Relations Act 1995 plays a visible role during business rescue proceedings. One would think that the Companies Act 2008 deals with company law and should thus be followed. Section 5 of the Companies Act deals with the general interpretation of the Act and provides that when there is an inconsistency between a provision of the Companies Act 2008 and a provision of the Labour Relations Act 1995, the provision of the Labour Relations Act 1995 will prevail.³²⁰

Labour law does not only affect section 136(1) of the Companies Act. Another section that is influenced by labour law is section 133 that provides for a general moratorium on legal proceedings against the company. The interplay between the section 133 moratorium and labour-related matters became the subject of various court cases and created uncertainty and confusion as to the effect that the moratorium will have on employment contracts and claims by employees. Section 133 provides that no legal proceedings against the company or in relation to property of the company may start or continue unless, amongst other conditions, the business rescue practitioner gives his written consent³²¹ or it is ordered with the leave of the court.³²² In

316 S 136(1)(a).

317 S 136(1)(a)(i).

318 S 136(1)(a)(ii).

319 Unreported case no J385/2016 and J393/2016 LC [36].

320 S 5(4)(b)(i)(bb) of the 2008 Act.

321 S 133(1)(a) of the 2008 Act.

322 S 133(1)(b) of the 2008 Act.

2013, the case of Fabrizio Burda v Integcomm (Pty) Ltd,³²³ started the confusion when it was held that the section 133 moratorium is applicable to employment-related disputes referred to the Labour Court and the Commission for Conciliation, Mediation and Arbitration. This meant that all legal proceedings must be stayed – unfair dismissal proceedings included.

In 2014 the court in NUMSA v Motheo Steel Engineering,³²⁴ held that the section 133 moratorium is in conflict with the provisions of the Labour Relations Act of 1995 and that the latter Act prevails in case of a conflict between the Companies Act and the Labour Relations Act.³²⁵

Sondamase and another v Ellerine Holdings Limited (in business rescue) and another³²⁶ was decided in 2016. In this case two employees of Ellerines Furnishers (Pty) Ltd were the applicants. They were dismissed based on operational requirements. Prior to their dismissal they lodged a grievance against the company claiming discrimination and other unfair labour practices.³²⁷ They referred a dispute to the Commission for Conciliation, Mediation and Arbitration which was unresolved, then turned to the Labour Court and delivered a statement of their claim. Ellerines raised amongst other things that section 133 provides for a general moratorium and that therefore all legal proceedings against the company were stayed. The court considered the purpose of the moratorium and held that there is no conflict between section 133 of the Companies Act 2008 and the Labour Relations Act 1995 and that the moratorium is also applicable to employment-related matters.³²⁸ Therefore, the employees’ claims are suspended during business rescue. The court in Sondamase referred to the Supreme Court of Appeal in Chetty t/a Nationwide Electrical v Hart and another NNO,³²⁹ where the court interpreted section 133 to place a moratorium on all legal proceedings – be it in court or during arbitration.³³⁰

323 Unreported case no JS539/2012 LC 29 November 2013 [12]–[13].

324 Unreported case no J271/2014 LC 7 February 2014.

325 S 210 of the Labour Relations Act 1995 prevails over other Act, except for the Constitution. S 5(4)(b)(i)(bb) of the Companies Act 2008 also provides that the provisions of the Labour Relations Act 1995 prevails when there is conflicting provisions in the Companies Act 2008 and the Labour Relations Act 1995.

326 Unreported case no C669/2014 LC 22 April 2016.

327 Sondamase and another v Ellerine Holdings Limited (in business rescue) and another (unreported case no C669/2014 LC 22 April 2016) [1].

328 Sondamase and another v Ellerine Holdings Limited (in business rescue) and another (unreported case no C669/2014 LC 22 April 2016) [12].

329 [2015] 6 SA 424 (SCA) [26–29].

330 Sondamase and another v Ellerine Holdings Limited (in business rescue) and another (unreported case n C669/2014 LC 22 April 2016) [16].

Thereafter in Ellerine Furnishers (Pty) Ltd (in business rescue) and others v FGWU obo Cleopatra Somtsewu,³³¹ the court relied on Sondamase³³² and reviewed and set aside an award by the Commission for Conciliation, Mediation and Arbitration. The court followed the decision in Motheo Steel Engineering.³³³

It is submitted that both the Labour Relations Act 1995 in section 210 and the Companies Act 2008 in section 5 are very clear and unambiguous in that the Labour Relations Act 1995 will prevail in case of conflicting provisions. It is believed that there is a conflict between section 133 and labour-related matters and that the Labour Relations Act 1995 should prevail, resulting in the moratorium not being applied in labour-related matters. The only answer will be for the High Court to resolve the issue of the section 133 moratorium and labour-related matters in order to settle the confusion.

Employment contracts are further entrenched. The business rescue practitioner is precluded from entirely, partially or conditionally suspending any contractual obligation of the company arising during business rescue from an employment agreement that existed when business rescue commenced.³³⁴ Even a court does not have the power to cancel an employment contract.³³⁵

In no other jurisdiction, such as Australia³³⁶ or England,³³⁷ are employment contracts protected during the rescue process like in South Africa. It is submitted that despite the importance of ensuring employees of their employment, it is necessary to be able to treat employment contracts in a manner that makes business sense during rescue as well. I am of the opinion that it must be made easier for the business rescue practitioner to terminate employment contracts during rescue to free up capital to try and save the business. Payroll is one of the highest costs a company must deal with in its day-to-day running.

331 Unreported case no JR1836/2015 LC 26 April 2016.

332 Sondamase and another v Ellerine Holdings Limited (in business rescue) and another (unreported case no C669/2014 LC 22 April 2016).

333 NUMSA v Motheo Steel Engineering (unreported case no J271/2014 LC 7 February 2014).

334 S 136(2A).

335 S 136(2A)(b). See also section 140(1)(c) and 140(2) that deals with the power of the business rescue practitioner to remove any person from office who formed part of the management of the company. It is submitted that the removal from office does not mean that the person is also removed as employee of the company; Loubser and Joubert 2015 ILJ 34.

336 Chapter 3, par 3.2.6.

337 Chapter 4, par 3.5.