Unpacking employee rights in the fog of business rescue

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[ADVISOR VIEW] In SA, the concept of “business rescue,” enshrined in the Companies Act of 2008, is an instrumental provision aimed at shielding employees during strenuous financial epochs a business may traverse: Tiaan Herbst - SAAC. Moneyweb

In South Africa, the concept of “business rescue,” enshrined in the Companies Act of 2008, is an instrumental provision aimed at shielding employees during strenuous financial epochs a business may traverse. To unpack this term, one can consider business rescue as an economic safeguard or flotation device, lending buoyancy to companies wading through turbulent financial waters.

The business rescue provisions within the Act, therefore, serve as a mechanism to shield these employees from the harshest consequences of the company’s financial distress: liquidation. At first glance, the idea of an individual employee sparking off such a process might seem implausible, if not far-fetched. However, the landscape shifts considerably when we consider the collective action of a trade union representing a majority of the workforce.

What does this mean in practice? Essentially, any remuneration, reimbursement for expenses, or other amounts related to employment that become due during the business rescue proceedings, if left unpaid, are classified as “post-commencement financing”. As a consequence of this classification, these amounts are prioritised for distribution.

Additionally, the court’s decision also dealt with the rights of employees as preferent unsecured creditors. In essence, any outstanding remuneration or expenses incurred by employees during the proceedings were to be paid in priority over unsecured claims, post the practitioner’s remuneration and costs. This ruling signifies critical protection extended to employees, ensuring they aren’t left financially stranded due to the company’s distress.

Thus, the suspension doesn’t dilute the potency of the LRA’s provisions but tactfully moderates it. In essence, while the business navigates the stormy waters of financial distress, employee rights to raise issues are preserved, yet the business is provided a temporary reprieve from further legal entanglements, striking a nuanced balance in these turbulent times.

 

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