Business Rescue has been lauded by various commentators for its potential to preserve employment opportunities. Unlike liquidation, where a company ceases operations and employees automatically lose their jobs, a company under business rescue continues to operate, allowing employees to maintain their positions. This article explores the effects of business rescue on employees.
Section 136 of the Companies Act protects and regulates employees’ interests during business rescue. Under this provision, the employment relationship continues to be governed by the Labour Relations Act, ensuring that employees retain their positions on the same terms and conditions as before the commencement of business rescue.
Unlike other contracts, a business rescue practitioner cannot suspend or cancel an employment contract unless there is an ordinary course of attrition or a mutual agreement between the employees and the company, in accordance with applicable labour laws, to modify the terms and conditions.
However, despite these protections, business rescue can create uncertainty and disruption in the workplace. Employees may begin seeking employment elsewhere, exhibit absenteeism, or experience reduced productivity. It is therefore essential for employers to communicate transparently with employees about the reasons for the business rescue, the procedures involved, and the company’s objectives in undergoing this process.
As stakeholders, employees are granted specific rights under Section 144 of the Companies Act. These rights include the ability to form an employees’ committee, to be consulted by the practitioner during the development of the business rescue plan, and to participate in the vote on the proposed plan.
Additionally, the Companies Act provides further protection to employees by prioritizing any unpaid amounts, such as remuneration or reimbursements, that became due before the commencement of business rescue. Employees will be treated as preferred unsecured creditors in these instances.
Disclaimer: The content and information provided above are general in nature and should not be considered legal advice.