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Chapter 6 of the Companies Act 71 of 2008 (the Act), provides a tool for financially distressed companies in the form of ‘business rescue’. Business rescue proceedings (rescue proceedings) are aimed at facilitating the rehabilitation of a financially distressed company ‘by providing for the temporary supervision of the company, and the management of its affairs, business and property by a business rescue practitioner’ (www.insolvencycare.co.za, accessed 4-3-2022). Furthermore, rescue proceedings provide for a ‘temporary moratorium on the rights of claimants against the company or in respect of property in its possession’ (C Klokow ‘Webinar: Introduction to business rescue proceedings’ (www.cipc.co.za, accessed 4-3-2022)).
In Panamo Properties (Pty) Ltd and Another v Nel NO and Others [2015] 3 All SA 274 (SCA), the court held that rescue proceedings under the Act are intended to provide for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders.
Since the enactment of the Act, there has been a significant interplay between the provisions relating to rescue proceedings and employment disputes. Section 136(1) of the Act provides that during rescue proceedings, persons employed by the company, immediately before the beginning of those proceedings, continue to be employed on the same terms and conditions, except to the extent that changes occur in the ordinary course of attrition of the employees and the company or in accordance with applicable labour laws or if there is an agreement to different terms and conditions. This same section further provides that any retrenchment of any such employees contemplated in the company’s rescue plan is subject to ss 189 and 189A of the Labour Relations Act 66 of 1995 (LRA), and other applicable employment related legislation.
It follows that the business rescue practitioners of a company under business rescue may provide for a retrenchment provision in their business rescue plan but that such retrenchment process must be dealt with under ss 189 and 189A of the LRA.
General moratorium on legal proceedings under the Act
Section 133 of the Act provides that ‘no legal proceeding … against the company, or in relation to any property belonging to the company, or lawfully in its possession, may be commenced or proceeded with in any forum, except –
(a) with the written consent of the practitioner; [or]
(b) with the leave of the court and in accordance with any terms the court considers suitable’.
In Cloete Murray and Another NNO v Firstrand Bank Ltd t/a Wesbank 2015 (3) SA 438 (SCA), the court held that it is generally accepted that a moratorium on legal proceedings against a company under rescue proceedings is of fundamental ‘importance since it provides the crucial breathing space … to enable the company to restructure its affairs’. Furthermore, the court held that the general ‘moratorium is a cornerstone of all business rescue procedures’ (Romeo Tsusi ‘Interpretation of s 133(1) of the Companies Act 71 of 2008 – the principle of moratorium redefined under business rescue’ 2015 (July) DR 51).
The word ‘legal proceedings’ is not defined in the Act. As a result, conflicting views and findings have risen regarding the interpretation of ‘legal proceedings’ in the context of rescue proceedings and labour dispute resolution. At some point, there was uncertainty as to whether ‘legal proceedings’ extends to proceedings over which the Labour Court (LC), Labour Appeal Court, and Commission for Conciliation, Mediation and Arbitration (CCMA) have exclusive jurisdiction.
A conflict of interpretation arose between s 133 of the Act and s 210 of the LRA. The challenge mainly arose from the provisions of s 210 of the LRA. This section provides that ‘if any conflict, relating to the matters dealt with in [the LRA], arises between [the LRA] and the provisions of any other law save the Constitution or any Act expressly amending [the LRA], the provisions of [the LRA] will prevail’.
The argument was that s 133 of the Act conflicted with the dispute resolution provisions contained in the LRA to the extent that it seeks to prevent employees from instituting labour disputes against their employers during rescue proceedings. It was argued that s 210 of the LRA should prevail over s 133 of the Act.
In the case of National Union of Metal Workers of South Africa obo Members v Motheo Steel Engineering CC [2014] JOL 32257 (LC), the court held that ‘in terms of section 210 of the [LRA] a matter dealt with in that Act prevails over the provisions of any other law save the Constitution or any Act expressly amending it’. Section 133(1) of the Companies Act does not expressly amend the provisions of the [LRA], … as it might otherwise prevent legal proceedings without the leave of a court or the relevant business rescue [practitioner], it did not prevent the applicant [from] bringing this application’.
In the case of Chetty t/a Nationwide Electrical v Hart and Another NNO 2015 (6) SA 424 (SCA), the court held that the general moratorium applies not only to legal proceedings in court but also to arbitration proceedings.
In Fabrizio Burda v Integcomm (Pty) Ltd (unreported case no JS539/12, 29-11-2013) (Maenetje AJ), the court held that the general moratorium is applicable to labour related disputes. In this regard, the court held that it did not appear that there was any conflict between s 133(1)(a) of the Companies Act and the dispute resolution provisions set out in the LRA. ‘In so far as there has been conflicting jurisprudence on the application of s 133 of the Companies Act to dispute[s] arising out of the LRA, it appears to have been settled by the recent decision of the Supreme Court of Appeal in Chetty t/a Nationwide Electrical v Hart and Another NNO [2015 (6) SA 424 (SCA) paras 26-29]. In that case, the SCA interpreted s 133 to place a moratorium, not only on legal proceedings in court, but even [on] arbitration proceedings’.
The above issue seems to be resolved now as the courts have, in the recent matters, accepted that the general moratorium extends to labour disputes. However, the above interpretation by the courts has caused another legal challenge for the employees of a company that is subject to rescue proceedings.
It is commonly understood that a business rescue practitioner of a company under business rescue is allowed to retrench the employees of a company as part of the business rescue plan to save the company from its financial distress.
In National Union of Metalworkers of South Africa obo Members and Another v South African Airways (SOC) Ltd (In Business Rescue) and Others (1) [2020] 6 BLLR 588 (LC), the court held that in the business rescue plan, the business rescue practitioner may contemplate retrenchment of employees. The court held that ‘section 136(1)(b) of the Companies Act, obligates the business rescue plan to subject itself to the provisions of section 189 and 189A of the LRA. In other words, if retrenchment is contemplated in the plan published by the [business rescue practitioner], such retrenchment would be subjected to the provisions of the LRA’.
Section 189A of the LRA deals with dismissals based on operational requirements by employers. Section 189A(13) provides that ‘if an employer does not comply with a fair procedure, a consulting party may approach the Labour Court by way of an application for an order –
(a) compelling the employer to comply with a fair procedure;
(b) interdicting or restraining the employer from dismissing an employee prior to complying with a fair procedure; [and]
(c) directing the employer to reinstate an employee until it has complied with a fair procedure’.
Section 189A(17) of the LRA states that the application contemplated in subs 13 ‘must be brought not later than 30 days after the employer has given notice to terminate the employee’s services or, if notice is not given, the date on which the employees are dismissed’. In the context of rescue proceedings, this means that the 30 day period will fall during the proceedings. The question that follows then is whether the employees who have been given a notice during business rescue proceedings can make an application to the LC in terms of s 189A(13) if there has been non-compliance with fair procedure.
The LC in National Union of Metalworkers of South Africa obo Members was asked to consider whether there is a potential conflict between s 133(1) of the Act and s 189A (13) of the LRA. However, the court decided not to entertain this issue on the basis that the factual question of whether retrenchment was contemplated by South African Airways in the proceedings was dispositive of the matter alone. Therefore, there was no need to consider the potential conflict between the two sections.
In Sondamase and Another v Ellerine Holdings Ltd and Another (LC) (unreported case no C669/2014, 22-4-2016) (Steenkamp J), the court held that by suspending the legal proceedings and giving the respondents ‘breathing space’, the ‘employees are not deprived of their right to continue with their claim against the company at a later stage. The claim is only suspended during the period of business rescue proceedings. That does not appear … to be in conflict with the provisions of the LRA’.
There have been arguments that in as much as the general moratorium is applicable to labour related disputes, it should not extend to procedural challenges under s 189A(13) of the LRA. This should be the case because applications under s 189A(13) cannot be brought at a later stage.
The aim of s 189A(13) applications is to bring the consulting parties into a negotiation phase and ensure compliance with a fair procedure during the consultation process. It may be argued that an order given after rescue proceedings have ended might not bring the parties into fair negotiation terms, and the consultation process would have ended by that time.
Furthermore, once the rescue proceedings have ended, especially in cases where the rescue proceedings were unsuccessful, the relief under s 189A(13) will not be available to employees.
As it stands, should the issue of procedural challenge under s 189A (13) of the LRA arise, the employee will have to seek consent from the business rescue practitioner to proceed to the LC. Should the practitioner not give consent, the other available option to the employee will be to approach the High Court on an urgent basis to apply for an order to lift the general moratorium. In this case, s 133 of the Act then prevents the employees from making s 189A applications directly to the LC without the consent of the business rescue practitioner or without the leave of the court.
I submit that the general moratorium afforded to a company in business rescue should not be extended to procedural challenges under s 189A(13) of the LRA. This limitation will allow the employees to exercise their rights in terms of s 189A(13) expeditiously and without incurring extra legal costs of having to obtain an order from the High Court lifting the general moratorium.
While it is accepted that these rights of the employees are not denied but simply suspended, it is submitted that the suspension has a greater negative effect than those of limiting the application of a general moratorium to procedural challenges under s 189A(13) of the LRA.
Njabulo Kubheka BA LLB LLM (UKZN) is a Legal Counsel with Absa Group Legal, formerly an associate at Gottschalk Attorneys in Johannesburg.
This article was first published in De Rebus in 2022 (April) DR 9.
