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The effect of business rescue on employees of the company

January 7, 2017

By now most people have heard about Business Rescues, but as an employee of a company are you aware of your rights when the company commence with business rescue proceedings?

The focus of this week’s article is the effect of business rescue on employees during business rescue proceedings.

Section 136 of the Companies Act regulates the interests of employees during business rescue. It provides that employees of the company will remain employed by the company on the same terms and conditions on which they were employed prior to the commencement of business rescue proceedings.

As affected persons, employees are involved and may actively participate with the business rescue practitioner in order to make sure their interests are protected during the proceedings. Employees have the same participation rights and rights to information as creditors and therefore will be in a better position to understand where they stand with the company.

During business rescue proceedings, the business rescue practitioner may cancel or suspend any provision of an agreement to which the company is a party at the commencement of the business rescue period, but he cannot do so with agreements of employment.

During business rescue proceedings the only valid changes to an employee’s contract is changes in the ordinary course of attrition, or in the event that the employee and the company, in accordance with applicable labour laws, agree to different terms and conditions.

Not only is an employee’s employment protected during the business rescue process, an employee is a preferred unsecured creditor. Accordingly any remuneration, that becomes due and payable by a company to an employee during business rescue proceedings, will be regarded as “post-commencement financing” and will be paid to the employee after the practitioner’s remuneration have been paid. The “post-commencement financing” takes preference over all other secured and unsecured claims against the company;

In the event that retrenchments are unavoidable, any retrenchment contemplated in the company’s business rescue plan is subject to section 189 and 189A of the Labour Relations Act, 1995, and other applicable employment related legislation.