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(Section 136 of the Companies Act, as amended)

The main effect of this section is to regulate the position of employees and their contracts in the context of the business rescue proceeding, and to regulate the position of the company in respect of its obligations in terms of any existing contracts that may apply at the time the business rescue proceedings commence.

We see that during a Company’s business rescue proceedings, employees of the Company immediately before the beginning of those proceedings continue to be so employed on the same terms and conditions, except to the extent that —

  1. changes occur in the ordinary course of attrition; or
  2. the employees and the company, in accordance with applicable labour laws, agree different terms and conditions; and

Any retrenchment of any such employees contemplated in the company’s business rescue plan is subject to section 189 and 189A of the Labour Relations Act, 1995 (Act No. 66 of 1995), and other applicable employment related legislation.

Subject to subsection (2A), and despite any provision of an agreement to the contrary, during business rescue proceedings, the practitioner may —

(a) entirely, partially or conditionally suspend, for the duration of the business rescue proceedings, any obligation of the company that—

  1. arises under an agreement to which the company was a party at the commencement of the business rescue proceedings; and
  2. would otherwise become due during those proceedings; or

(b) apply urgently to a court to entirely, partially or conditionally cancel, on any terms that are just and reasonable in the circumstances, any obligation of the company contemplated in paragraph (a).

However subsection (2A) states when acting in terms of subsection (2) —

(a) a business rescue practitioner must not suspend any provision of —

  1. an employment contract; or
  2. an agreement to which section 35A or 35B of the Insolvency Act, 1936 (Act No. 24 of 1936), would have applied had the company been liquidated;

(b) a court may not cancel any provision of —

  1. an employment contract, except as contemplated in subsection (1);
  2. an agreement to which section 35A or 35B of the Insolvency Act, (Act No. 24 of 1936), would have applied had the company been liquidated; and

(c) if a business practitioner suspends a provision of an agreement relating to security granted by the company, that provision nevertheless continues to apply for the purpose of section 134, with respect to any proposed disposal of property by the company.

In subsection (3) we further note that any party to an agreement that has been suspended or cancelled, or any provision which has been suspended or cancelled, in terms of subsection (2), may assert a claim against the company only for damages.

If liquidation proceedings have been converted into business rescue proceedings, the liquidator is a creditor of the company to the extent of any outstanding claim by the liquidator for any remuneration due for work performed, or compensation for expenses incurred, before the business rescue proceedings began.

The contents of this article is intended to provide a general overview to the subject matter and is not exhaustive. Specialist advice must be sought about your specific circumstances.

Compiled with the assistance of the Companies Act No.: 71 of 2008, as amended – 07 March 2019.


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