Business rescues underutilised in job saving efforts

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The continuation and extent of job losses is of huge concern to all South Africans and high unemployment rates will continue to have an effect on the economy, the rand and, most importantly, the continued viability of companies in every sector of the economy.

For 36 290 jobs to have been lost in local companies last month, those companies must be struggling in the current economic downturn. Clearly such companies are reaching a point of “financial distress” or have been forced to close due to an inability to continue to trade successfully.

As of December, liquidations had decreased by 26.3 percent year on year, when compared with the same period in 2012. If this is so, then one must question why the country is seeing such high numbers of job losses, noticeably in the manufacturing and construction sectors.

One of the troubling factors is that South Africa has a developed business rescue process, which has been in place for almost three years now (since May 2011), where there is every opportunity to save or rescue companies that are financially distressed and which prevents company closures and consequent job losses.

Business rescue provides opportunities for companies to place the business of the company into the hands of a practitioner for a short period of time, allowing the company’s debt to be restructured, its management to be improved and, most importantly, to assess the possibility of saving the jobs of employees.

Unlike in a liquidation, business rescue allows the majority of employees to retain their jobs on the same terms and conditions that were in place prior to the business rescue proceedings.

It provides a company with breathing space, an opportunity to consider the reasonable prospect of the company continuing to trade into the future and with the least possible disruption to its workforce.

Of course, a practitioner might have to consider retrenchments and the termination of jobs in the ordinary course of attrition and as a consequence of the company’s dire financial position.

However, the assessment of job retention or possible retrenchments is done in a controlled manner and without the threat of creditors applying to a court to liquidate the company on account of it being unable to pay its debts.

Further, trade unions can apply to a court for the imposition of a business rescue of a company where such unions are concerned about the ability of the company continuing to trade, and where the possible loss of jobs appears to be imminent.

The Companies Act allows trade unions, through the Companies and Intellectual Property Commission (CIPC) to be given access to a company’s financial statements for the purposes of initiating business rescue proceedings. This opportunity, which would allow them – through a properly qualified practitioner – to consider the retention of jobs within a business rescue framework and avert liquidation, has not, to date, been used by unions.

The act provides that while the company is subject to a business rescue, employees that continue to provide services to the company are paid as super-priority creditors throughout the process.

One has to wonder how many of the thousands of jobs that were lost last month could have been saved by the properly considered and timely imposition of a business rescue process.

Eric Levenstein is the director of business rescue and insolvency practice at Werksmans Attorneys.


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