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Employee Rights in Business Rescue

February 12, 2016

One of the main intentions of the legislature in the promulgation of the “new” Companies Act was the preservation of employment opportunities. In the absence of business rescue, financially distressed companies often ended up in liquidation resulting in the loss of numerous employment opportunities.

Often the liquidation of companies results from the board of directors not obtaining assistance with the financial distress of the company timeously and more often than not employees are unaware of the financial distress of their employer.

The “new” Companies Act provides that a company may be placed in business rescue by the directors or by a court application brought by affected persons. Affected persons are shareholder, creditors, registered trade unions and unrepresented employees.

Employees should thus be aware of their rights in terms of the Act to apply to court to place their employer under business rescue if they believe their employer to be financially distressed. An employee may become aware of the financial distress of the employer through the late or non-payment by the employer of salaries or other employee benefits or the attachment of company property by creditors.

Furthermore, the Act specifically grants employees rights in section 144. These include the right to be consulted by the business rescue practitioner in the development of the business rescue plan.

The rights of employees are further protected by the recognition as preferred unsecured debt of the company, any employee benefits accruing before the commencement of business rescue proceeding and the hierarchy granted whereby employee remuneration and benefits rank second only to the fees of the business rescue practitioner and the costs of the business rescue during the business rescue proceedings of the company.

Taking heed of these rights and privileges employees will be in a position to assist with the preservation of employment opportunities in South Africa through the rescue and turnaround of financially distressed companies.


Disclaimer: The contents and information provided above are generalised and must not be acted upon as legal advice.