Why isn’t business rescue legislation preventing job losses?
The continuing magnitude of job losses is a huge concern to all South Africans as high unemployment rates will continue to have a negative effect on the economy. A total of 36 290 jobs were lost in January 2014 but as of December 2013, liquidations in South Africa had decreased by 26.3% year-on-year when compared with the same period in 2012. If this is so, then one must question why we're seeing such high numbers of job losses when there are tools provided by business rescue legislation to assist.
Business rescue legislation has been in place for almost three years now and this gives business owners every opportunity to save or rescue their companies if these are financially distressed. Ultimately, business rescue processes prevent company closures and consequent job losses.
What is 'business rescue'?
Business rescue allows company owners to hand over their company's operations to a practitioner for a short period of time. This allows the:
- Company's debt to be restructured,
- Company's management to be improved, and
- Opportunity to see how many job losses can be prevented.
Unlike in a liquidation, business rescue legislation allows the majority of employees to keep their jobs according to the same terms and conditions as were in place before business rescue proceedings began. It provides a company with a breathing space, an opportunity to consider the reasonable prospect of the company continuing to trade into the future and with the least possible disruption to the company's workforce.
Of course, a practitioner might have to consider retrenchments and terminating jobs in the ordinary course of 'wear and tear' and because of the company's dire financial position. However, assessing how many jobs can be kept or possible retrenchments are done in a controlled manner without the threat of legal action by creditors.
Trade unions can request business rescue for a company
Trade unions can apply to court for business rescue to be imposed on a company if:
- They are concerned about the company's continuing ability to trade, and
- Job losses are imminent.
The Companies Act allows trade unions - through the Companies and Intellectual Property Commission (CIPC) - to be given access to a company's financial statements to invoke business rescue legislation and initiate business rescue proceedings.
To date, trade unions haven't done this but theoretically they'd be allowed - through a properly qualified practitioner – to consider how best to keep as many jobs as possible (within the framework of business rescue legislation) and prevent liquidation.
One has to wonder about how many of the thousands of jobs that were lost in January 2014 could've been saved by a properly considered and timely executed business rescue process in those companies that were forced to shed employees or to close down.
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Eric Levenstein is the director: business rescue and insolvency practice at Werksmans Attorneys. He has a BCom from the University of KwaZulu-Natal, an LLB from the University of the Witwatersrand, a higher diploma in company law from the University of the Witwatersrand, a higher diploma in tax from the University of the Witwatersrand and a diploma in insolvency law from Rand Afrikaans University (now the University of Johannesburg). He is a member of various professional bodies, among others the South African Restructuring and Insolvency Practitioners Association (SARIPA). |
