South Africa: The Effect Of Section 131(6) On The Locus Standi Of A Trade Union

Last Updated: 10 October 2018
Article by Alex Eliott and Mokhutwane Phooko

It has become a common phenomenon that applications are brought to put into business rescue, companies which are already in liquidation – sometimes long after the liquidation commenced.

This raises some interesting questions about whether employees and trade unions remain affected persons for the purposes of such a business rescue application, given that in terms of section 38 of the Insolvency Act (24 of 1936), all employment contracts are deemed to be cancelled within 45 days after the appointment of a final liquidator. 

Section 131(6) 

In terms of section 131(6) of the Companies Act (71 of 2008) an application to place a company under business rescue in terms of section 131(1) of the Act suspends liquidation proceedings and further, the suspension will endure until the court has adjudicated the business rescue application or, if granted, the business rescue proceedings later end. 

In the case of Richter v Absa Bank Limited 2015 (5) SA 57 (SCA), the SCA held that an application to place a company under business rescue can be brought at any time, even after the company has been placed in final liquidation. 

Trade unions and business rescue

In terms of section 128(1)(ii) of the Act, a trade union representing employees of the company is regarded as an affected person. Further, in terms of section 144(3)(a) and (b) of the Act, employees represented by a trade union, and unrepresented employees, are entitled to notice of the business rescue proceedings and to participate in any court proceedings that arise during the business rescue. From this it is clear that employees, and trade unions representing employees, are affected persons with a right to participate in business rescue proceedings. 

The question is whether these rights are preserved where a business rescue application follows a final order of winding up a company, and insolvency provisions have come into play. 

Prior to discussing this, it is essential that we set out the relevant insolvency provisions dealing with employment. In this regard we refer to section 38(1) of the Insolvency Act, which states that contracts of employment are suspended on date of granting of a sequestration order. Further, in terms of section 38(9) of the Insolvency Act the contracts terminate automatically 45 days after the appointment of a final liquidator or trustee, unless otherwise agreed to. 

In the case of Reginald Ngwato and others vs Petzetakis Africa Pty Ltd (in liquidation) and others case number 2014/28470, the court held that, in the case of a company, the commencement date of the suspension of employment is the date of the winding up order is granted and not the deemed date of commencement of the liquidation proceedings. 

Interpretation of the Act 

In order to interpret the provisions of section 128(a)(ii) of the Act, and the effects of section 38 of the Insolvency Act properly, one must turn to the rules of statutory interpretation. As a starting point we will deal with the ordinary meaning rule, which essentially means that the statute must be interpreted according to its plain, literal and grammatical meaning. 

If one applies the ordinary meaning rule to section 128(a)(ii) of the Act, it is grammatically clear that the reference to employee as an affected person means a person employed by the company during the business rescue. It would follow that a trade union is only an affected person to the extent that it represents employees employed by a company during business rescue, or where the trade union or the employees are creditors in their own right. 

On application of the ordinary meaning rule, an employee whose employment has previously been terminated by virtue of the section 38 of the Insolvency Act is not an employee for purposes of section 128(a)(ii). By implication, the trade union representing those employees would also not be an affected person, unless both are creditors in their own right.

We are of the view that a purposive interpretation is desirable in this instance, one that considers the purpose of the legislature. One of the purposes of the Act in terms of section 7(k) is to provide for the rescue of financially distressed companies in a way that balances the rights and interests of all relevant stakeholders. An anomalous situation would arise if, after final liquidation of a company, an affected person could bring a business rescue application, the purpose of which is to revive the company, but the employees whose jobs were lost in the liquidation have no say in the proceedings which might reinstate their employment. 

An ordinary meaning interpretation of the Act, in light of the provisions of the Insolvency Act, will defeat the purpose of the Act by depriving employees of the right to participate in business rescue proceedings due to no conduct of their own. 

On a purposive interpretation of the Act, and taking into consideration the provisions of the Insolvency Act, where a business rescue application is brought after employment contracts have been terminated by virtue of the Insolvency Act, the Act should be read to mean that former employees are deemed to be employees for purposes of the business rescue proceedings but not liquidation proceedings. This will be in line with the purpose of the legislature to balance the interest of all stakeholders, including employees. 

It may be that the legislature did not consider the unintended effect that section 131(6) of the Act may have on the rights of employees and trade unions as affected persons. 

When adopting a purposive interpretation of the Act, it may be prudent to distinguish former employees who resigned, were retrenched and/or were dismissed prior to the deeming effect of section 38(9) of the Insolvency Act coming into effect. The determining factor in this instance is that in order for an employee to be regarded as an employee for subsequent business rescue applications and/or proceedings, their employment must have been terminated by operation of section 38(9) of the Insolvency Act. 

In our view, employees who willingly resigned and/or were properly retrenched and/or dismissed for misconduct (during business rescue or prior to the effects of section 38(9) taking effect) should not be regarded as employees for any purpose, as their employment was terminated by due process or own conduct. However, to the extent that such former employees remain creditors (for example, if their retrenchment packages were not paid), they would still have a right to participate in the subsequent business rescue application and/or proceedings – and so too it would follow that trade unions are entitled to represent them. 

To interpret section 128(a)(ii) narrowly would create a situation where employees and trade unions may experience prejudice by virtue of not being involved in subsequent business rescue proceedings and, more importantly, defeat the purpose of the Act. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions