COMPANIES ACT Risky rescue plan
A clause in the Companies Act of 2008 gives trade unions a little more muscle than before. But it would be tricky to apply and no trade union has yet tried to use it.
In terms of the act, trade unions, along with creditors, shareholders and employees, can apply for a company to be placed in business rescue. This came into effect in May last year.
“The fact that trade unions are mentioned so specifically means the legislature intended them to have a role to play in the process,” says Werksmans Attorneys director Eric Levenstein.
A union would have to give adequate reasons to support its application for business rescue. These include showing the court that the business is financially distressed, unable to pay its debts or insolvent.
A union could also argue it is just and equitable for financial reasons to place a company under business rescue.
“This gives the judge wide discretion to decide on employment-related matters. And the trade unions could use this to bring an application to place a company into business rescue if wages were not being paid to employees,” says Levenstein.
It is generally difficult for unions to gain access to a company’s financial statements. But Levenstein says a union can use the business rescue provisions to apply through the Companies & Intellectual Properties Commission (CIPC) for access to the latest set of financial results and management accounts.
“And if it told a story of an inability to pay, the court should place it into business rescue. The overriding element is the judge must believe there is a reasonable chance of rescuing a company. If the judge doesn’t believe this, then he will order the company to go into liquidation.”
Congress of SA Trade Unions (Cosatu) parliamentary co-ordinator Prakashnee Govender says it is a good idea in principle to give unions this tool, but it would be difficult in practice.
“You cannot just make an application to the court saying a company is in trouble. You have to show it can be saved, and for this you would need access to the relevant financial information.”
Govender says in the past it has been difficult to access financial statements. And she is not convinced that the court would take a union seriously if it did make a business case for placing an employer in business rescue.
“You have to deal with the mind-set of the court. Would it be open to the idea that a trade union knows what it is talking about if union leadership says a business can be saved?”
And there is always the risk that applying for business rescue could trigger a liquidation, Govender warns.
“It’s highly complex and wouldn’t be something a union would approach lightly,” she adds.
But it can protect employees to some extent, which should interest trade unions.
Employees of a company in business rescue are elevated to a preferred position. Wages earned during this time are considered priority payments to be preferred above all other creditors should the company go into liquidation.
Since the act came into effect, there have been 737 filings for business rescue, according to the CIPC.