Since its introduction in 2011 via Section 6 of The Companies Act, Business Rescue has slowly gained momentum as an alternative to liquidation. A principal difference from Business Rescue and liquidation is that while under the supervision of the business rescue practitioner, the company continues to trade, thus preventing the guaranteed loss of employment experienced under liquidation. With the success rate of Business Rescue improving over the last few years, this means more and more jobs are being saved, which is obviously, then, less devastating for all parties concerned, especially employees; but what happens, though, to the rights of employee and employer during the Business Rescue process?
According to Justin Gordon, a Business Rescue practitioner at Hobbs Sinclair, who have successfully rescued several companies through the Business Rescue process, the biggest difficulties experienced under rescue originate from poor administration and poor human resources management. This significantly delays investigation into the affairs of the company as well as the practitioner’s ability to formulate a turnaround strategy, thus delaying the entire process.
”Regarding human resource, there are many misconceptions among staff and employees when a company is under Business Rescue. Going into Business Rescue doesn’t mean that employees’ employment is immediately suspended and they should know that they continue to receive the protection of the Labour Act during Business Rescue and the employer is still required to follow due process,” says Gordon.
Although Business Rescue cannot alter the terms of the contract, it does affect certain rights. Alan Bolt, Human Resources specialist who has dealt with many Business Rescue cases, says that the fact that your company is in Business Rescue does not change the terms of your contract or the Labour Act. “It is important to understand that all factors of the employment relationship remain intact and unchanged, unless an agreement is reached between employee and the Business Rescue Practitioner, to change these conditions.” Bolt adds that during the business rescue process, it is almost inevitable that employees will be subjected to some sort of change. “The practitioner will almost always look to the salary and wage bill to reduce monthly costs. Some changes are more drastic than others, such as a stop to all ’non-statutory’ bonuses, with incentive payments being the first to be contemplated and then implemented. Thereafter, depending on the reason for the Business Rescue process having been instituted, reduced working hours, short time, renegotiated salary packages and conditions of service will follow.” Employees are encouraged to form an “Employee Committee” which has a mandate to deal with management on these issues.
On the other side of the spectrum, employers are urged to consult extensively with employees about what is going on, why it is happening, what the procedures are and what the company plans to achieve through the process of business rescue. Because the process can be very destabilising, case studies show that this is when companies lose their most valuable employees and the ‘fear of the unknown’ and the potential consequences force employees to start looking for alternative employment.
Bolt says that it is surprising how many companies, especially those in the SMME bracket, don’t have their employment contracts in line or up-to-date and that under Business Rescue this can be costly. “There are many businesses in South Africa which simply do not pay enough attention to their Human Resources,” he states. Fundamental requirements like appropriately prepared, industry-specific contracts of employment are essential in forming the foundation of any employment relationship. Appropriate work standards, policies and procedures (including discipline) are the tools that management have at their disposal to ensure a productive, efficient, disciplined workforce. “Effective work relationship practices between employees and management will assist in maintaining positive relationships at work, and in so doing enable the productive management of staff,” he explains.
Whilst the reasons for businesses faltering are numerous, effective staff management will ensure that there is one less reason.
by Justin Gordon ACMA, CGMA
Manager at Hobbs Sinclair Business Solutions