Job losses and business rescue – a lost opportunity?

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.

Business Day of 11 February 2014 reports that “retrenchments are at a 10 year high as the economy continues to shed jobs”. According to the latest Adcorp Employment Index, 36 290 jobs have been lost in companies in South Africa in the month of January 2014. Clearly these companies continue to struggle in the current economic downturn, with many of them reaching a point of “financial distress” or being forced to close due to an inability to continue to trade successfully.

As of December 2013, liquidations in South Africa had decreased by 26,3% year on year, and when compared with the same period in 2012. If this is so, then one must question why South Africa 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) and 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 as were in place prior to the commencement of business rescue proceedings. It provides a company with a 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 the company’s work force. 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 court to liquidate the company on account of such company being unable to pay its debts.

Further, trade unions can apply to court for the imposition of a business rescue of a company where such trade 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 has not, to date, been used by trade unions and which would allow them to, through a properly qualified practitioner, consider the retention of jobs within a business rescue framework and where liquidation is averted. The Act provides that while the company is subject to a business rescue proceeding, employees that continue to provide services to the company are paid as super-priority creditors throughout the period of business rescue.

One has to wonder as to how many of the thousands of jobs that were lost in January 2014, could have been saved by a properly considered and timely imposition of a business rescue process in those companies that were forced to shed employees or to close down.

Sourced from Creamer Media’s Polity.org.za