NATIONAL ECONOMIC DEVELOPMENT AND LABOUR · PDF fileDepartment of Trade and Industry was engaged in a "Corporate Law Reform Project" ... In order to curb dispensing with notice...

NATIONAL ECONOMIC DEVELOPMENT AND LABOUR COUNCIL P.O.BOX 1775. SAXONWOLD, 2132 -14A JELLICOE AVENUE, ROSEBANK 2196

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NEDLAC INTERIM REPORT ON THE INSOLVENCY AND BUSINESS RECOVERY BILL

1. BACKGROUND

Government tabled the Insolvency and Business Recovery Bill at NEDLAC in 2003 and the

Department of Justice and Constitutional Development gave presentations on the Bill to the

Labour Market Chamber on 28 July 2003 and 23 November 2006.

2. NEDLAC PROCESS

2,1, A task team, comprising Government, Business and Labour representatives was established by the Labour Market Chamber to consider the Bill.

2.2. Business and Labour submitted comprehensive comments on the Bill, but consideration of the Bill was delayed because of uncertainty about the responsible Department to develop modern business rescue provisions. During July 2004 the Minister for Justice and Constitutional Development appointed a Ministerial Committee of Enquiry into the Liquidations Industry. The report by the Committee was dated 17 February 2005. On 22 June 2005 Cabinet approved the establishment of an Inter-Departmental Task Team to look into aspects raised by the Ministerial Committee. It was concluded by the Task Team that the Department of Trade and Industry should take responsibility for the reform process in the area of business rescue given the fact that they have already started research on business rescue to replace the current judicial management process,

2.3. Once it was decided that the Department of Trade and Industry would take responsibility for business rescue Government finalised provisional views on the comments on the Bill by representatives of Labour and Business. During November 2006, a document with the provisional views of Government on the comments by Labour and Business was submitted to the task team representatives.

2.4. The task team was reconstituted to comprise the following representatives:

Business:

Labour:

V, van Vuuren; V. Harbhajan; J. Meyer; Kevin Cowley and S.

Maruatona.

P. Govender; F. Abrahams; E. Mutileni; A. Benjamin and N Craven.

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Government: T Mkalipi, M Cranje and S Rathai.

2.5. Task team meetings to discuss the comments on the Bill were held as follows:

o 19 July 2007;

o 13 August 2007;

o 28 August 2007;

o 14 September 2007;

o 4 October 2007 and

o 28 November 2007.

2.6 The task team established a one-a-side Drafting Committee to draft a Nedlac report on

the process and the meetings were held as follows:

• 15 January 2008;

• 08 April 2008;

• 10 March 2009;

• 05 June 2009;

• 31 August 2009;

• 30 November 2009; and

• 11 June 2010.

2.7 The Draft Bill has not been tabled in Parliament or published for comment. In view of

the changes since Cabinet considered the Bill in March 2003, the Bill will be

resubmitted to Cabinet and if approved by Cabinet tabled at NEDLAC for consideration

after publication in the Government Gazette.

3. BACKGROUND TO THE BILL

3.1. Following reports by the South African Law Reform Commission (referred to below as

"Commission") in February 2000 and the Standing Advisory Committee on Company

Law in October 2000, a Bill based on recommendations in the reports was submitted to

Cabinet. During March 2003 Cabinet approved the submission of the Insolvency and

Business Recovery Bill, 2003 to Parliament for consideration during the 2003 session of

Parliament. Consideration of the Bill was delayed pending a decision on modern

provisions for business rescue.

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3.2. The review by the Commission dealt with the Insolvency Act 24 of 1936 which applies

to natural persons, partnerships and trusts. The aim of the review was as follows:

3.2.1. Balance and satisfy the needs of the different stakeholders

3.2.2. Major stakeholders are the commercial community in general and creditors in

particular (including workers); insolvent debtors; insolvency practitioners and

Government. It is difficult to balance the conflicting interests.

3.2.3. Effective, speedy and fair procedures are important needs of stakeholders and

formed the basis for the Commission's review.

3.3. The report by the Standing Advisory Committee on Company law recommended

provisions which apply to all entities, including companies and close corporations. The

essence of existing specialised provisions like the provisions for banks, insurance

companies, and medical aids schemes, were retained but combined in one section. The

Department of Trade and Industry was engaged in a "Corporate Law Reform Project"

which could re-examine the issue of judicial management and the need for more

effective business rescue provisions. It was decided not to delay the enactment of

uniform legislation until these investigations have been finalised. The Bill retains the

essence of the present provisions regarding business rescue by means of

compromises and judicial management. The provisions of the Bill on personal liability

for trading represent a combination of the existing section 424 of the Companies Act

(reckless and fraudulent trading), with slight amendments, and additional new

provisions dealing with insolvent trading.

3.4. Constituencies agreed that review of the Bill would be dealt with in view of the

comments on the Bill by Business and Labour and the provisional view of Government

on these comments.

4. AREAS OF AGREEMENT

4.1. AGREEMENT ON MA TTERS DEAL T WITH IN THE BILL

4.1.1 Definition of "associate" in clause 1

It is agreed that unjustified interruption or hindrance of business should be avoided, but the circumstances for attachment of property disposed of to an "assosiate" in clause 25 are justified in view of the carefully circumscribed conditions for attachment.

4.1.2 Definition of "employee"

(a) Section 200A of the Labour Relations Act 12 of 1995, which seeks to

provide protection against the abuse of independent contracting, was

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enacted after the initial drafting of the Bill. The Bill does not contain a

definition of "employee".

(b) It is agreed that "employee" should be defined in clause 1 of the Bill as

"an employee defined in section 213 of the Labour Relations Act 65 of

1995, read with section 200A of that Act".

4.1.3 Definition of "management of a debtor" in clause 1

(a) The definition of "management of a debtor" should refer to "at any time

during" the period and not "for" (compare clause 39(1 )(b )(ii».

(b) For the sake of uniformity the following references to "management of

the debtor" should be changed to "management of a debtor" so that the

definition will apply to it:

• May be compelled to give evidence (clause 29(3)); and

• Liquidator notes explanation given by management with regard to

the books, documents, etc (clause 38(7)(c)).

(c) In order to keep management responsible for an appropriate time it is

agreed that the period of twelve months in the definition should be

changed to three years.

4.1.4 Definition of "movable property"

(a) The law of insolvency should not interfere with succession. The decision

in Wessels NO v De Jager 200(4) SA 924 (SCA) should not be overturned

and no amendments should be made to enable a liquidator to claim an

inheritance if the debtor has declined to accept the inheritance.

(b) It is agreed not to deal with proposals for amendments to section 63 of

the Long Term Insurance Act 52 of 1998. If reform is required to deal with

the decision in Pieterse v Shrosbree 2005(1)(SA 309 (SCA) it should be

dealt with by the Financial Service Board which promoted the enactment of

that legislation. No proposal is made to amend the position regarding

insurance benefits.

(c) By virtue of general law money deducted from wages or due to employees

belongs to the debtor's estate and no changes are proposed in this regard.

The protection of workers, including the possibility of criminal offences, is

discussed with clause 84.

4.1.5 Definition of "personal notice" (changed to "liquidator's notice)

(a) In order to curb dispensing with notice in undeserving cases, the Page 4 of 32

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(b)

following must be added to the definition of personal notice: "where the

Master is satisfied that there are exceptional circumstances justifying

if'.

Provisions dealing with notice

(i) Chapter 26 of the Bill (clauses 137 to 169) is based on the

UNCITRAL Model Law on Cross-Border Insolvency. Because of

the origin and international character of these provisions changes

to "notice" or similar terms are not recommended merely to agree

with usage elsewhere in the Bill.

(ii) In cases where time is of the essence the notice must be in a

form which is immediate. The following definitions are agreed to:

o "direct notice" means notice by fax, e-mail, or personal

delivery;

o "e-mail" an electronic mail sent to an e-mail address

indicated for use by the intended recipient and provided that

no report is received that the electronic mail could not be

delivered;

o "fax" means a facsimile transmission which according to a

transmission report has been transmitted successfully.

o Business sought ciarity on the question whether details of

the head office of a registered union can be obtained from

the Department of Labour efficiently, but the Department of

Labour database contains information like fax numbers and

e-mail addresses and it is agreed that "direct notice" to the

head office of a union is appropriate in order that the matter

can be dealt with in a coordinated and timely manner. In the

case of a bondholder notice should for the same reasons

be given to the head office.

o The definition of "personal notice" refers to notice by the

liquidator". In order to make the definition more user friendly

the definition should be replaced by the following:

"liquidator's notice" means notice or delivery by the liquidator by registered mail, fax, e-mail, or personal delivery supported by an affidavit by the liquidator with a list of the persons given notice or delivered to and the method used by the liquidator to send or deliver the notice: Provided that the liquidator may substitute another fomn of notice approved by the Master where the Master is satisfied that there are exceptional circumstances justifying another form of notice;

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o Notices in the Government Gazette should be described

as "notice by publication in the Gazette".

o The phrase "standard notice" should be used for other

notices. The following definition is recommended (read

with the definitions of fax and e-mail recommended

above):

"standard notice" means notice by registered mail, fax, e-mail or personal delivery;

(iii) The proposals for technical changes to "notice" and similar

phrases in the Bill as contained in Column 6 of an Excel file "List

of notices in Bill" are agreed to.

4.1.6 Definition of "secured creditor" in clause 1

Amendment of the definition of "secured creditor" to require proof of security is

not supported as it adds nothing to the legal requirements or the burden of

proof. Measures to investigate secured claims and a proposal that employees

should have secured claims are discussed below.

4.1.1 Definition of "spouse" in clause 1

It is agreed that the wide definition in section 21(13) of the Insolvency Act 24 of

1936 should be retained and adapted as follows to include persons in more than

one relationship and to include all forms of "marriage" which are now recognised

by legislation:

"spouse" means a person's -

(a) partner in a marriage;

(b) partner in a customary union or customary marriage according to customary law;

(c) civil union partner as defined in section 1 of the Civil Union Act, 2006 (Act No. 17 of 2006); or

(d) partner in a relationship in which the parties live together in a manner resembling a partnership contemplated in paragraphs (a), (b), or (c), even if one or both are in such a partnership with another partner;

4.1.8 Clause 3: Application by debtor for liquidation of estate

(a) Clause 3(4)(b) Notice of application

It is agreed that "direct notice" must be given to the head office of bondholders

with special bonds over property registered in the name of the debtor.

(b) Clause 3(5) and 5(5) - court may dispense with requirements

The provision that the court may dispense with requirements if the applicant is

unable to comply, must refer to inability to supply the information in clauses 3(2)

and 5(4)(b) and not to inability to give notice to workers.

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(c) Clause 3(5),4(5) and 5(5) - Court's authority to dispense with notice

(i) These provisions are intended for exceptional cases where it is highly

impractical for notice to be given at all business premises. The court

should order an alternative form of notice which is appropriate under the

circumstances to bring the matter to the notice of workers:

(ii) The following amendments are agreed to in order to make provision for

exceptional cases and the proposals in paragraph (a) and (b) above:

o Substitute the following for clause 3(5):

Where the court is satisfied that there are exceptional circumstances justifying it the court may authorise the applicant to give notice in a manner other than subsection (4)(b)(ii) which the court regards as appropriate under the circumstances to bring the matter to the notice of the workers: Provided that the applicant must give direct notice to the head office of each registered trade union that, to the applicant's knowledge, represents any of the debtor's employees and to the head office of bondholders with special bonds over property registered in the name of the debtor.

o Substitute the following for clause 4(5):

Where the court is satisfied that there are exceptional circumstances justifying it the court may authorise the applicant to give notice in a manner other than subsection (4)(b)(ii) which the court regards as appropriate under the circumstances to bring the matter to the notice of the workers: Provided that the applicant must give direct notice to the head office of each registered trade union that, to the applicant's knowledge, represents any of the debtor's employees and to the head office of bondholders with special bonds over property registered in the name of the debtor.

o Substitute the foilowing for clause 5(5):

(5) If an applicant is unable to comply with any of the requirements of subsection (4)(b) the court may dispense with such requirements and dispose of the application in the manner that it finds just.

(5A) Where the court is satisfied that there are exceptional circumstances justifying it the court may authorise the applicant to give notice in a manner other than subsection (4)(a)(ii)(bb) which the court regards as appropriate under the circumstances to bring the matter to the notice of the workers: Provided that the applicant must give direct notice to the head office of each registered trade union that, to the applicant's knowledge, represents any of the debtor's employees and to the head office of bondholders with special bonds over property registered in the name of the debtor.

(d) Clause 3(4)(b), 4(4)(a) and 5(4)(a) - Notice of the application and not the application itself to be furnished

(i) Clauses 3(4)(b) and 4(4)(a) require that a copy of a notice be

affixed to the notice board, gate or front door. Clause 5(3)(a)(ii)

provides that copies of the application should be furnished to

trade unions and SARS and affixed to the notice board, gate or

front door. This is impractical and could be expensive.

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(ii) The following changes are proposed to clause 5(3)(a):

4(3)(a)(i) An application contemplated in subsection (1) must be made with notice to the debtor and, in the case of a natural person debtor, also to the debtor's spouse with whom he or she is married in community of property, unless the court, at its discretion, dispenses with notice where the court is satisfied that it would be in the interest of the debtor or of the creditors to dispense with it

(ii) When an application is presented to court the applicant must, furnish a copy of the notice-

(aa) by direct notice to the head office of every registered trade union that, as far as the applicant can reasonably ascertain, represents any of the debtor's employees; and (bb)· to the employees themselves -

(1) by affixing a copy of the application to any notice board to which the applicant and employees have access inside the debtor's premises; or

(2) if there is no access to the premises, by the applicant and the employees, by affixing a copy of the application to the front gate of the premises, where applicable, failing which to the front door of the premises from which the debtor conducted any business at the time of the presentation of the application;

(cc) to the South African Revenue Service and the head office of bondholders with special bonds registered against property of the debtor.

(iii) Business to revert on the following: The document Signed as the founding affidavit in the application must be attached to the notice to the head office of a registered trade union.

(e) Provisions similar to paragraph (iii) must apply to clauses 3 and 4.

4.1.9 Clauses 3 and 5 Trading names (a) In order to promote transparency, it is agreed that trading names should be

reflected when application is made for liquidation. (b) Clause 3(2) should be amended as follows:

(2) The application shall contain the following information, which shall also appear in the heading of the application: (a) The full name and date of birth of the debtor and,

if an identity number has been assigned to him or her, that identity number;

(aA) any other names under which the debtor traded; and

(b) the marital status of the debtor and, if he or she is

married in community of property, the full name

and date of birth of his or her spouse and, if an

identity number has been assigned to the spouse,

that identity number.

(c) Clause 5(3)(b) should be amended as follows:

(b) An application contemplated in subsection (1) shall, subject to subparagraph (d), contain the following information, namely -

(i) in the case of a natural person debtor, the full name and date of birth of the debtor and, if an identity number has been assigned to him or her, that identity number and, in the case of any other debtor, the registration number or other reference number which has been assigned to such

Page 8 of 32

debtor and, if no such registration number or reference number exists, this fact shall be stated;

CiA) any other names under which the debtor traded;

4.1.10 Clause 4 Application by debtor for liquidation of debtor other than natural

person

(a) It was agreed that the requirement of a Statement of Affairs should apply as well

in the case of an ex parte application by a debtor other than a natural person.

The following amendment to clause 4(3), similar to clause 3(3) for individuals,

was agreed to:

(3) Every application to the Court referred to in subsection (1), except an application by the Master in terms of paragraph (d) of that subsection, must be accompanied by-

(a) a statement of affairs of the debtor corresponding substantially with Form A of Schedule 1 i and llil a certificate of the Master, issued not more than 14 days before the date on which the application is to be heard by the court, that sufficient security has been given for the payment of all costs in respect of the application that might be awarded against the applicant and all costs of the liquidation of the estate referred to in section 83, which are not recoverable from other creditors of the estate.

(b) It was agreed that the statement of affairs should require information about previous

liquidations involving the debtor. The following amendments to Schedule 1 Form A are

agreed to:

SCHEDULE 1 FORMA

STATEMENT OF DEBTOR'S AFFAIRS FAILURE TO SUBMIT THIS FORM TO THE MASTER AND THE LIQUIDATOR

WITHIN 7 DAYS IS A CRIMINAL OFFENCE AND MAY DELAY REHABILITATION, WHERE APPLICABLE

PART 1 BALANCE SHEET OF ................................................................................................................................... *

PART 9 PERSONAL INFORMATION (TO BE COMPLETED BY NATURAL PERSON DEBTORS)

State whether the debtor is married, widowed or divorced

Was the debtor's estate or the estate of a partnership in which the debtor is or was a partner previously liquidated or placed in bankruptcy, whether in the Republic or elsewhere?

If the preceding answer is in the affirmative, state -

(a) whether debtor's own estate or his partnership's estate was (i) liquidated; or (ii) placed in bankruptcy

(b) the place where and the date when that estate was liquidated or placed in bankruptcy

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(c) whether the debtor has been rehabilitated or his estate released; if so, when

Was the debtor, or a member of management of the debtor, a director of a company or a member of a close corporation which was liquidated within 10 years before the liquidation of the estate of the debtor?

If the preceding answer is in the affirmative state the name of each liquidated company or close

corporation, the date of liquidation and the office of the Master of the High Court which had jurisdiction

4.1.11

(a)

Clause 8 Voluntary liquidation by resolution

Clause 8(2)(b): Notice of meeting to decide on voluntary

liquidation:

The period of 7 days is too short and must be increased to 14

days.

(b) Clause 8(2) Voluntary liquidation by resolution

(i) Voluntary liquidation by resolution applies to insolvent companies and

notice to unions, workers, and SARS should be similar to notice for other

liquidations in the Bill. It is agreed that section 62 of the Companies Act

71 of 2008 should be amended to provide that a resolution for the

voluntary winding-up of a solvent company is invalid unless, when notice

was given of the meeting at which the resolution was passed, a copy of

the notice and draft resolution was delivered in the prescribed manner to

the parties indicated in proposed clause 8(2)(c) in the next paragraph.

(ii) The following paragraph (c) should be inserted after paragraph (b) in

subclause 8(2)-

(c) when notice was given in terms of section 199(1) of the general

meeting at which the resolution was passed a copy of the notice

was furnished-

(i) to the head office of every registered trade union that, as

far as the debtor could reasonably ascertain, represented

any of the employees of the company and to the head

office of bondholders with special bonds over property

registered in the name of the debtor; and

(ii) to the employees themselves-

(aa) by affixing a copy of the notice to any notice board

to which the employees had access inside the

premises of the company; or

(bb) if there was no access to the premises by the Page 10 of 32

employees, by affixing a copy of the application to

the front gate of the premises, where applicable,

failing which to the front door of the premises from

which the company conducted any business at the

time of the meeting;

(iii) to the South African Revenue Service.

(iii) Clause 8(5) must be amended as follows:

(5) The notice referred to in subsection (2)(b) and (c) must be

accompanied by the following, failing which the resolution will have no force or

effect-

(a) a copy of the statement of affairs of the debtor corresponding

substantially to Form A contained in Schedule 1;

(b) a copy of the liquidation resolution which is to be tabled for

adoption at the meeting in question; ...

4.1.12 Clause 9(SA) Special provisions for the winding up of small

cooperatives

The Minister's authority to change the amount of R15,OOO should be limited to

changes to take account of subsequent fluctuations in the value of money as is

the case with similar provisions elsewhere.

4.1.13 Clause 10(4) Court may dispense with provisional liquidation order

(i) It is agreed that the court should have a discretion to dispense with a

provisional order if the court is satisfied that no one will be prejudiced.

(ii) Clause 1 0(4) should be amended as follows:

If the court does not grant a first liquidation order as contemplated in subsection (1) it may-

(i) grant aft final order in terms of section 11 if it is satisfied that no one will be prejudiced by such an order without a provisional order in terms of this section;

(ii) dismiss the application;

(iii) postpone the hearing thereof, but not sine die; or

(iv) make any other order which it deems just.

4.1.14 Clause 11(1) preconditions for issue offinal order

Service of provisional order

The Bill should not, in addition to the requirements of practice, provide for proof

of service of the provisional order, but clause 11 (1) should require that the court

be satisfied that the requirements in clauses 3, 4, or 5 (which includes notice to

unions and workers), as the case may be, have been complied with.

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4.1.15Clause 14(8) Changes of amounts for exemptions from insolvent estate

The Minister's authority to change the amount in clause 14(8) should be limited

to changes in order to take account of subsequent fluctuations in the value of

money.

4.1.16 Clause 16(5) Exemption of pension benefit limited to R200,OOO

It is agreed that the limitation of the exception to R200, 000 in clause 16(5)

should be deleted as the limitations in clause 24 are sufficient.

4.1.17 Clause 21 (2)(c) Presumption in ordinary course

(a) It is a defence to an application for the setting aSide of a voidable

disposition to prove that the dispOSition was made in the ordinary course

of business. Clause 21 (2) contains presumptions of transactions in the

ordinary course of business. Paragraph (c) provides for a disposition

made by way of securing an existing unsecured debt, or securing a debt

in novation or substitution of an existing unsecured debt, which existed

for more than one month after the creditor in respect of such debt

performed his or her obligations in respect of the transaction giving rise

to that debt. In short, securing a debt which has been unsecured for

more than a month.

(b) The presumption may result in a previously unsecured debt being called

up for payment rather that being secured where there is a decline in the

debtor's financial stability. It is clear that the presumption will apply if

security is given for a new as well as a previously unsecured debt. It is

not outside the ordinary course of business for financiers to require

security as an alternative to immediate payment when a debt becomes

due. If this is in the ordinary course of business it should not be

presumed not to be so.

(c) It is agreed that the presumption in paragraph (c) should be deleted.

4.1.18 Clause 25 Attachment of property of "associate"

See paragraph 4.1.1 above.

4.1.19 Clause 29(1) Proceedings by liquidator for setting aside dispositions

(a) Business raised the concern that the liquidator should only be

able to institute legal proceedings in terms of clause 29 subject to

authorisation thereto by creditors or by the Master in terms of

clause 45(4).

(b) It seems that clause 29( 1) is subject to clause 45(4)( a) which

requires authorisation by the Master or a resolution by creditors

to institute or defend any legal steps in civil proceedings by or

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against the estate.

(c) It is agreed that the State Law Advisers should be asked to

confirm that clause 45(4)(a) is applicable to these proceedings.

4.1.20 Clause 29(4) Presumption of insolvency

(a) It is agreed that the presumption in clause 29(4) should be limited

to one year and it should not apply to proceedings under clause

22.

(b) It is agreed that similar wording should be used in clause 29(4)

and clause 19(1). In connection with voidable dispositions it is

appropriate to consider the position at the time when the

application was presented and not the time when the liquidation

order was granted. If this is not done the position can be

manipulated through postponements to ensure a long delay

between the presentation of the application and the granting of

the order.

(c) It is agreed that clause 29(4) should refer to the "date of the

presentation of the application for liquidation" instead of "date of

liquidation" and the introduction to clause 23(2) should read "For

the purposes of applying section 19, 21,22 and 29(4)".

4.1.21 Clause 29(5) Payment of interest where disposition set aside

It is agreed for the sake of ciarity that the portion after the last comma in clause

29(5) should be replaced with the following:

and the court may order in any case where the court sets aside a

disposition that interest in accordance with section 2A of the Prescribed

Rate of Interest Act, 1975 (Act 55.of 1975) must be paid on the

amount and for the period ordered by the court.

4.1.22 Agreements providing for termination and netting

It is agreed that clause 32 should be adapted to agree with the amended section

358 of the Insolvency Act. The section number should change and subclause

(4) should read as follows:

Sections 19, 21, 22 and 172(2) of this Act shall not apply to dispositions

in terms of a master agreement.

4.1.23 Clause 36 Effect of liquidation on contract of service

(a) In order to make it clear that a liquidator cannot ignore proposals without

consulting, it is agreed that the first line of clause 36(5) should read as follows:

A liquidator who has received proposals referred to in subsection (7) or

who intends to terminate the contracts of service of employees must, in

Page 130(32

accordance with relevant labour legislation, consult with-

(a) any person whom the insolvent employer was required to

consult. immediately before the liquidation, in terms of a

collective agreement defined in section 213 of the Labour

Relations Act, 1995 (Act No. 66 of 1995);

(b) in the absence of a col/ective agreement immediately

prior to the liquidation-

(i) a workplace forum defined in section 213 of

the Labour Relations Act, 1995, and

(ii) any registered trade union whose members are

likely to be affected by the termination of

contract of service;

(c) a registered trade union representing employees whose

contracts of service were suspended in terms of subsection (1)

and who are likely to be affected by the termination of the

contract of service, if there is no such workplace forum; or

(d) the employees whose contracts of service were suspended in

terms of subsection (1) and who are likely to be affected by the

termination of the contract of service or their representatives

nominated for that purpose, if there is no such trade union.

(b) Obligation to provide information to workers

In order to align the provision with labour law legislation the fol/owing provisions

must be inserted after clause 36(6):

The liquidator must disclose to the consulting parties all relevant

information that will aI/ow the parties to consult effectively.

(c) Reference in clause 36(3) to the Unemployment Insurance Act of 1966

It is a9reed that the reference should be updated to refer to Act 63 of 2001: In

addition the Department of Labour has agreed in principle to look at the

amendment of the Unemployment Insurance Act when amendments are

considered to insert a cross-reference to the Insolvency Act.

(d) See paragraph 4.1.43 below for the effect of the setting aside of liquidation on

employment contracts.

4.1.24 Clause 37 Nomination of liquidator by unions

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The following amendments are agreed to:

(1) A creditor of the estate with a liquidated claim, the cause

of which arose before liquidation and who will after proof of the claim

have the right to vote for a liquidator at a meeting and a registered

trade union who represents employees of the debtor may in writing

nominate a person to be appointed by the Master as liquidator.

(2) The Master must as soon as possible after 10:00 a.m. on

the second working day after the granting of the first liquidation order, or,

in the case of a voluntary liquidation by resolution in terms of section 8,

after receipt of a duly adopted liquidation resolution in terms of section

8(2)(b), or after the time when a liquidator ceases to function as

liquidator according to section 73, as if the nominations were votes for a

liquidator at a meeting, appoint the liquidator or liquidators nominated by

creditors in nominations received by the Master before 10:00 a.m. on the

said working day: Provided that the Master may reject a nomination or

amend the amount of a claim in a nomination if it appears from the

information in nominations that the creditor's ciaim cannot be proved at a

meeting or cannot be proved for the amount reflected in the nomination;

Provided further that an employee who has lodged a declaration

that he or she was employed by the debtor at the date of liquidation

and who has not lodged a nomination as a creditor, will be counted

as a vote in number: Provided further that the nomination of a

registered trade union will be counted in number for the employees

represented by the union and that the nomination by the union

prevails if the nomination by an employee conflicts with a

nomination of a union of which the worker is a member.

(11) The written nomination referred to in subsection (1) must

be substantially in the form of Form AA of Schedule 1 for a creditor

and Form AS of Schedule 1 for a registered trade union. Page 15 of 32

4.1.25 Clause 41 Registration as creditor

It is agreed that clause 41 should be amended as follows:

Registration of name and address with liquidator

41.(i) Any person who claims to be a creditor of the estate may register his or her name and address in the Republic with the liquidator of the estate and may indicate property which he or she claims to hold as security for a claim.

(2) The liquidator must send -

(a) to that address a notice of every meeting of creditors of the estate, a copy of every report contemplated in section 42(1), and a copy of every notice in terms of section 93; and

(b) notice of the sale of property to a person who indicated that he or she holds the property as security in terms of subsection (1).

(3) The liquidator must send a copy of an account which has been advertised to lie open for inspection to a person registered in terms of this section upon request and payment of the reasonable costs of making a copy of the account.

(4) Failure on the part of the liquidator to comply with a provision of this section constitutes a failure to perform his or her duties but does not invalidate anything done under this Act.

4.1.26 Clause 42 Report by liquidator

(a) Clause 42(1)(k) Proof of security for claims

The liquidator should in all cases investigate the security of secured creditors

and report on it to creditors. It is agreed that clause 42(1 )(k) should be amended

as follows:

42. Liquidator's report. - (1) The liquidator shall investigate the

affairs of the debtor and the business transactions entered into by

him or her before the liquidation of his or her estate and shall at the

first meeting of creditors of the insolvent estate, or in so far as he or

she is then not ready to do so, at a special meeting of creditors

submit a full written report on those affairs and transactions and on

any matter of importance relating to the debtor or the insolvent estate.

The liquidator shall in particular report on -

(k) the names of secured creditors with the amounts of

the secured claims and steps taken or envisaged to investigate the

validity of security er tAs reasons 'a'lhy it 'Nas net regafded as

nseessary to investigate the validity af seewrity;

4.1.27 Offences regarding failure to pay over deducted contributions

It is agreed that clause 42(1 )(f) should be amended as follows: Page 16of32

(f) the question whether the debtor appears to have contravened any provision of this Act or to have committed any other offence, in particular-(i) whether RS ElF 8RS the debtor has failed to submit a

statement of affairs and, in the case of a natural person debtor, of his or her income and expenses as required by this Act; and

(ii) whether the debtor has contravened paragraph 30(1)(a) of the Fourth Schedule to the Income Tax Act, 1962 (Act No. 58 of 1962), section 87(3) of the Compensation for Occupational Injuries and Diseases Act, 1993 (Act No. 130 of 1993); section 20(b) of the Skills Development Levies Act, 1999 (Act No. 9 of 1999), or section 17(1)(a) of the Unemployment Insurance Contributions Act, 2002 (Act No 4 of 2002), or section 136(eA) of this Act;

See also the proposed amendment to clause 136 below.

4.1.28 Clause 44 Remuneration Qf liquidator

(a) Time sheets

It is agreed that liquidators should keep time sheets with the level

of experience and expertise of persons doing the work and lodge

them with the Master if the amount of the remuneration becomes

an issue.

(b) Tariff

A tariff based on a percentage of the gross proceeds should be

retained as a starting point.

It is agreed that the remuneration on debts collected by a creditor

on behalf of a liquidator should be 5% and not the general 10%.

It is noted that Government supports an adjustment of the

minimum fee to at least R5,000. It is agreed that Government

should, when a revised Bill is tabled at Nedlac, revert with an

analysis of how an appropriate amount is reached, bearing in

mind the workload of the liquidator.

(c) Sliding scales for liquidator's remuneration

It is agreed that Government be given an opportunity to look at

the implications of sliding scales for remuneration and make

proposals for consideration by constituents of their final positions

when a revised Bill is tabled at Nedlac.

(d) Discretion for Master

Despite its drawbacks, a discretion for the Master to increase or

decrease remuneration, should be retained, but the application of

the discretion by the Master is a concern.

Page 17 of 32

(e) Negotiated fees

Negotiating of their fees by liquidators with creditors is not

supported.

(f) Notice of application by liquidator for special fee; and

Increased remuneration for time spent on criminal

prosecutions

(i) Special provision should not be made for additional fees

to handle criminal prosecutions.

(ii) Notice to creditors should be required of any application

for a special fee and not for fees above a specified

amount.

(iii) It is agreed that clause 44(3) should be amended as

follows:

The liquidator may apply for an increase in remuneration.,#! tR@ €lase @f aft iFllSFsase sf R§Q seQ @f m®rs at least 14 days after a copy of his or her application with the reasons for the increase has been delivered to proved creditors who will be affected by the increase by personal notice. The Master may for good cause increase or decrease the liquidator's remuneration or disallow his or her remuneration, either wholly or in part, by reason of any failure of or delay in the discharge of his or her duties or on account of any improper performance of his or her duties, .Hl€l iA Flai'ti€llollaF tAs Master me)' if-l@feSSe tRe li~Elig9tQr'S feml4FlSrati@Jil t9 €@FFl~9I9sat€l Rim: @f f;qer f@rtl=l9 time SP9Rt il9 99SistiFl§j witl9 grimiA91 f5f@s€lgl:;(ti€lRS @f iRv9Sti@9til'9§ tAs affaire sf tRe ijest@F.

(g) Limitation of powers of Minister to adjust minimum and sliding scales for liquidator's remuneration to fluctuations in the value of money

It is agreed that there should be no limitation and that the

Minister should with due consideration of recommendations

and relevant ircumstances exercise the authority to amend

Schedule 2 in terms of clause 184(2).

(h) Payment of remuneration before confirmation of account

Payment of fees before confirmation is not supported and clause

44(6) must be amended as follows:

A liquidator shall not be entitled to receive any

remuneration before the liquidation account making

provision for the remuneration has been confirmed as

provided in section 95, (,11'11899 fila)'R'lIilAI sf SEl9A

Page 18of32

l5ly tR€l Mast@fi.

4.1.29 Clause 45(4) Authority by Master to exercise certain powers: General

duties and powers of liquidator

4.1.30

(a) Before the first meeting the Master should give authority only if

the power is required so urgently that the liquidator cannot obtain

a resolution at the first meeting.

(b) It is agreed that clause 45(4) must be amended as follows:

(4) The liquidator shall, if authorised thereto by the Master or by resolution of a meeting of creditors of the estate, have the power-

Provided that the powers set out in this subsection can before the issue of a final order only be exercised with the consent of the debtor, the management of a debtor or the court and that the Master must authorise the liquidator only if the power is required so urgently that the liquidator cannot obtain a resolution at the first meeting.

Clause 46 Notice of first meeting

(a) Notice to workers

It is agreed that provision should be made for notice to workers at the

workplace.

(b) Notice of first meeting to trade unions

It is agreed that notice should be given to trade unions which informed

the liquidator that the represent workers of the company in liquidation.

(c) The following amendments to clause 46(4) is agreed to

(4) The liquidator must at least 14 days before the date

determined in the Gazette for the holding of the first meeting of creditors

of the estate -

(a) give notice to the employees-

(i) by affixing a copy of the notice to any notice board to

which the employees have access inside the debtor's

premises; or

(iiI if there is no access to the premises by the

employees, by affixing a cOPY to the front gate of the

premises. where applicable, failing which to the front

door of the premises from which the debtor

Page 19 of 32

conducted any business immediately prior to the date

of the applica~ioni

ill send by liquidator's notice to every creditor whose name and

address are known to him or her or which he or she can

reasonably obtain and to the head office of every registered

trade union which has notified the liquidator that it

represents employees of the debtor -

ill a copy of the notice of the meeting;

fl!l a copy of the report contemplated in section 42( 1 );

4.1.31 Clause 47 Special meeting of creditors

It is agreed that notice to workers and unions should be the same as for

the first meeting. Clause 47(4) should be amended as follows:

(4) The liquidator shall at least 14 days before the date determined in the Gazette for the holding of the meeting send by personal notice to every creditor whose name and address are known to him or her or which he or she can reasonably obtain and to every head office of a registered trade union which has notified the liquidator that it represents employees of the debtor, the following documents, namely: ...

4.1.32 Clause 59 - Claim by partnership creditor against estate of partner

4.1.33

For the sake of simplification it is agreed that clause 59 should be amended as follows:

When the estate of a partner is liquidated without the partnership being placed in liquidation-

(a) the partnership is dissolved; and

(b) until the debts of the partnership have been settled in terms of

the dissolution of the partnership any claim by a creditor of the

partnership against that estate of the partner must be tendered

as an unliquidated claim in terms of clause 61(10).

Clause 60 - Claims against partnerships

For the sake of simplification it is agreed that clause 60 should be

amended as follows:

When the estate of a partnership and the estates of the partners are under liquidation-

(a) a claim for a partnership debt must be proved against the partnership estate despite liability of a partner for the debt;

Page 20 of 32

4.1.34

(b) a shortfall on the claim against the partnership is admitted without formal proof as a claim against each of the estates of the partners which is liable for the debt; and

(c) any balance in the partnership estate after payment of the debts is distributed amongst the estates of the partners in so far as the partner would have been entitled to such a balance upon the dissolution of the partnership.

Clause 68 Election of liquidator

The following amendment is agreed to:

68. (1) Any creditor of an insolvent estate who has proved claims against the

estate may vote for one liquidator at the first meeting of creditors or at a subsequent

meeting convened to elec! a liquidator and an employee who has not voted as a

creditor and who has lodged a declaration that he or she was employed by

the debtor at the date of liquidation may vote in number.

4.1.35

4.1.36

4.1.37

Clause 69 Qualifications of liquidators

(a) Concern is expressed about the standard of the work of

liqUidators. There must be clear guidelines for the qualifications

and training of liquidators.

(b) The Minister should have the option to institute one statutory

regulatory body.

(c) Clause 69(2) of the Bill must be amended as follows:

(2) The Minister may from time to time publish by notice in the Gazette the name of a recognised profeSSional body if it appears to him or her that such body regulates the practice of a profession and maintains and enforces rules for ensuring that a member of such body-(a) is a fit and proper person to be appointed as

liquidator; (b) is subjected to appropriate disciplinary measures where the conduct of a member justifies it; and (c) meets acceptable requirements for education and

practical experience and training. (2A) The Minister may replace professional bodies in SUbsection (2) with a statutory council for the exercise of control over liquidators.

Clause 70 Objections to appointment or refusal by Master

The period in clause 70(3) must be changed from 7 days to 10 days.

Clause 77 Realization of security

(a) It is agreed that security should form part of the insolvent estate

Page 21 of 32

4.1.38

4.1.39

4.1.40

(vital for business rescue).

(b) Remuneration on secured assets

It is agreed that no remuneration should be payable on security sold in

terms of clause 77(2) (listed securities sold through an authorised user).

Clause 79 Application of proceeds of security

The preference for assessment rates should be limited to rates and

taxes for a period of two years before liquidation. The following wording

for clause 79(6) is agreed on:

Notwithstanding the provisions of any law which prohibits the transfer of any immovable property unless any assessment rates as defined in subsection (7) due thereon or other amounts have been paid, that law shall not debar the liquidator of an insolvent estate from transferring any immovable property in that estate for the purpose of liquidating the estate, if the liquidator has paid or offered reasonable security for payment of the assessment rates which may have been due on that property in respect of the periods mentioned in subsection (5) and no preference, either as costs of liquidation or otherwise, shall be accorded to any other claim for assessment rates or such other amounts.

Clause 82 - Mortgages that affords no security

It is agreed that the period of 6 months in clause 82 should be replaced by a period of 9 months.

Clause 84 Distribution of free residue

(a) It is agreed that Government investigate appropriate

thresholds, if any, for the preferences, including the

possibility of using the standard occupational

classifications to distingUish between those employees who

will be subject to the application of a threshold for their

preference and those excluded from the application of a

threshold.

(b) Clause 84 must subject to paragraph (a) be amended as follows: (i) Change the preference in clause 84(2) so that severance

and retrenchment is moved forward to come after salary, before leave or holiday and payment for other paid absence.

(ii) For the sake of clarity, add to clause 84(2)(b) "shall not exceed R12,OOO in respect of any individual employee".

(iii) Delete clause 84(3)(b). (iv) In clause 84(3)(c) refer to the amounts in subsections

(2)(b) and (3)(a). (c) See clause 184 below for regular adjustments of amounts in

the Bill. (d) Amendment of amounts after consultation with NEDLAC

Clause 84(3)(c) should be amended as follows: The Minister must at least once in every three years after the commencement of this Act, after consultation with the National,

Page 22 of 32

4.1.41

Economic, Development and Labour Council established by section 2(1} of the National Economic, Development and Labour Council Act, 1994, consider amendments to the amounts in paragraphs (a) and (b) in order to take account of changed circumstances other than fluctuations in the value of money.

Clause 93 Copies of liquidator's account open for inspection

(a) Notice that an account is open for inspection should, in addition

to proved creditors, be given to employees who are entitled to

payment in terms of clause 84(14} - without proving a claim­

and any registered trade unions which has notified the liquidator

that it represents employees of the debtor.

(b) The following amendment to clause 93(2} is agreed on:

(2) The liquidator shall give notice in the Gazette that the account

will lie open for inspection by any person having an interest in the estate at the

place and during the period stated in the notice and shall give ~€ilr8€il!l81

liquidator's notice to each creditor who has proved a claim against the estate, to

each creditor who is entitled to payment in terms of section 84(14) and to

any registered trade union which has notified the liquidator that it

represents employees of the debtor.

4.1.42 Clause 118 Pre-liquidation composition

It is agreed that clause 118(5)(e} should be amended as follows:

4.1.43

(e) the debtor or management of such debtor may be questioned by the

court and by any creditor whose debt has been acknowledged or proved,

or by any other interested party with the permission of the court, about-

(i) his or her assets and liabilities;

(ii) ,where applicable, his or her present and future income and that

of his or her spouse living in with him or her;

(iii) ,where applicable, his or her standard of living and the

possibility of living more frugally; and

(iv) any other matter which the court considers to be relevant.

Business Rescue Chapter 24 Clauses 121 to 135 Judicial Management (a) Modern provisions for business rescue

Business rescue provisions for entities other than

companies and close corporations should be developed.

Chapter 6 of the Companies Act 71 of 2008 should be the

starting point when these business rescue provisions are

developed.

Page 23 of 32

4.1.44

4.1.45

(b) Pressure on liquidators to sell off assets rather than to try

and save the business or sell it as a whole:

Appropriate business rescue provisions will take care of this

concern.

Clause 136 Offences of withholding contributions and not paying it over

The following amendments to clause 136 is agreed to:

136 Offences. - (1) A debtor or the management of such debtor shall be guilty of an offence- ... (eA) if at any time before the date of liquidation of the estate of the

debtor the debtor deducted an amount from salary paid to an

employee for payment to someone other than the debtor and fails

to pay the amount to the person entitled thereto when required or

if payment is not required within a specified period within 14 days

after payment of the salary; or

(4)(b) Any person who is convicted of an offence contemplated

in subsection (1 )(c), (d), (e), (eA) (f), (g), (h), (i) U) or (k) shall be liable to a

fine or imprisonment for a period not exceeding twelve months or to both

such fine and such imprisonment.

Clause 184 Regulations, policy and other powers of Minister

(a) Clause 184(2) adjustment of amounts

(i) It is agreed that amounts should be adjusted to

fluctuations in the value of money in clauses 5(2), 9(8A),

14(8), 16(6), 24(2), 41(2), and 101(5). See clause 84

above for a proposal regarding the adjustment of amounts

in employees' preferences.

(ii) The following insertion after clause 184(2) is agreed to:

Where this Act provides that an amount must be determined from time to time so as to reflect subsequent fluctuation in the value of money the Minister must before 31 March of each year adjust the amount by notice in the Gazette in accordance with fluctuation of the weighted average of the consumer price index for the preceding period from January to December as published in the Gazette, rounded to the nearest Rl00.

(c) Clause 184 (3) Chief Master's directives and Ministerial Policy

(i) Clause 184(3) must be amended to indicate that policy

"must" be determined, not "may".

Page 24 of 32

4.1.46

Oi) Concern is expressed that there must be transparency

and consultation in the development of directives and

policy but no changes to the Bill is recommended in this

regard.

Schedules 1 forms AA and AS

The following amendments are proposed:

NOMINA nON FOR LIQUIDATOR BY CREDITOR (Section 37)

RE: ("the Debtor")

1. I understand that application has been/is to be made to the High Court for an order for the placing of the Debtor in liquidation.

2. I declare that -::--:-:-_____________________ ("the Creditor") is a creditor olthe Debtor.

3. I hereby nominate of-::--:-:-:-_-:-__ -:-_-,--telephone number for appointment as liquidator and request you to make the necessary appointment. The Creditor intends proving a claim and voting for the final appointment of the aforementioned person at the first meeting of creditors in this estate.

4. I declare that the Creditor is not a person disqualified, in terms of the provisions of sections 49 or 68(10) of the 11'l881' 'eRG), Act from voting for the appointment of the aforesaid person as liquidator. As far as I am aware the nominated person is not disqualified from the aforesaid appointment by virtue of the provisions of section 54 of the Insolvency Act.

5. I further declare that I have satisfied myself that the amount reflected herein as owing by the Debtor to the Creditor is, to the best of my knowledge and belief, true and correct.

6.1 NAME OF CREDITOR: ___________________ _

6.2 ADDRESS OF CREDITOR: __________________ _

6.3 TELEPHONE NUMBER OF CREDITOR: _______________ _

6.4 FAX NUMBER OF CREDITOR (IF ANY) ______________ _

6.5 E-MAIL ADDRESS OF CREDITOR (IF ANY) _____________ _

7. AMOUNT OF CLAIM: ____________________ _ (Amount in words)

8. CAUSE OF ACTION: The amount owing by the Debtor to the Creditor is owing in respect of:

[Amendment proposed by Nedlac Task Team]

Page 25 of 32

9. If the claim is by an employee who is a member of a registered trade union, state the name of the union.

Official Stamp Company/Business, Close Corporation/Financial Institution

SIGNATURE DATE

PRINTED NAME CAPACITY

SCHEDULE 1: FORM AB

NOMINATION FOR LIOUIDATOR REGISTERED UNION

(Section 37)

RE: ("the Debtor")

1. I understand that application has been/is to be made to the High Court for an order for the placing of the Debtor in liquidation.

2. I declare that ...................................... (the "Union") is a registered trade union which -

(a) represents the employees of the debtor listed in the annexure to this form signed by me, who were employed by the debtor at the time of liquidation; or

(b) represents the following number of employees employed by the debtor at the time of the liquidation, which number is calculated as indicated in the annexure to this form signed by me

3. I hereby nominate of

telephone number for appointment as liquidator and request you to make the necessary appointment.

4.1 NAME OF UNION:

4.2 ADDRESS OF UNION:

4.3 TELEPHONE NUMBER OF mIION:

4.4 FAX NUMBER OF UNION OF ANY)

4.5 E-MAIL ADDRESS OF UNION OF ~W

Official Stamp of Registered Union

SIGNATURE DATE

PRINTED NAME CAPACITY

4,1.47 Schedule 3 Provisions of laws amended or repealed

Page 26 of 32

Notice of the meeting where a winding-up resolution is considered must be

given to workers. The following amendment to section 350 of the Companies

Act, indicated in bold and underlined, should be added to paragraph 17 on page

192 of the Bill:

(1) A voluntary winding-up of a company shall be a members'

voluntary winding-up if the resolution contemplated in section 349 so states, but such a

resolution shall be of no force and effect unless-

(a) It has been registered in terms of section 200; and

(aA) when notice was given in terms of section 199(1) of the

general meeting at which the resolution was passed a copy of

the notice was furnished-

(j) to every registered trade union that, as far as the debtor

could reasonably ascertain, represented any of the

employees of the company; and

(ii) to the employees themselves-

(aa) by affixing a copy of the notice to any notice board to

which the employees had access inside the premises

of the company; or

(bb) if there was no access to the premises by the

employees, by affixing a copy of the application to the

front gate of the premises, where applicable, faiiing which to

the front door of the premises from which the company

conducted any business at the time of the meeting;

(iii) to the South African Revenue Service; and

(b) prior to the registration thereof- .

4.2 Agreement on insolvency matters falling outside the scope of the bill

The issues below came up for discussion.

4.2.1 Exercise of Master's discretion in deciding on special fees

Nedlac should engage the Department of Justice and Constitutional Development

about concerns expressed about the exercise of the Master's discretion in deciding on

special fees for liquidators (clause 44).

4.2.2 Non-enforcement of notice requirements regarding workers and Unions

Nedlac should engage the relevant authorities, for example the Judicial Services

Commission, on the non-enforcement by courts of notice requirements.

Page 27 of 32

4.2.3 Ombud for the Master

It was noted with approval that Government, will propose that the Department of Justice

and Constitutional Development consider the possibility of promoting legislative

measures to create an Office of Ombud for the Master, after the financial implications

associated with such an Office have been considered, together with a proper needs

assessment on the matter,

5. AREAS OF DISAGREEMENT

5.1. Clause 8 Voluntary liquidation by resolution

The meeting to consider a resolution for the liquidation of the company is scheduled for

a specific time and place accessible to the public (clause 8(4)(b» and notice of this

meeting is given to workers and unions who can follow up on the matter,

(a) Business and Government submits that notice of the passing of a liquidation

resolution need not be given to unions and workers,

(b) Labour disagrees and submits that notice of the passing of the resolution must

be given to unions and workers,

5.2. Clause 45 - General duties and powers of liquidator

(a) Labour and Government submit that the following paiagraph (m) should be

added to clause 45(4) to give effect to what should happen under the National

Credit Act 34 of 2005:

(m) to apply to a debt counsellor for a declaration of reckless credit in terms

of section 86(6)(b) of the National Credit Act, 2005 (Act No, 34 of 2005):

(b) Business disagrees with this proposal because it is covered sufficiently by other

areas of the law,

5.3. Clause 64 Valuation of conditional claims

Special provision for severance benefit claims

It was agreed to assist workers whose claims cannot be proved immediately,

(a) Business and Government agree to the insertion of the following subclause in

clause 64:

(5) A claim for severance payor retrenchment pay which is subject to a condition that the contract of service has been terminated may be proved for the full amount of the claim, but until the contract of service has been terminated -

Page 28 of32

(a) no award is paid on the claim; and

(b) the creditor has no vote on the claim.

(b) Labour disagrees and submits that paragraph (b) of subsection (5) should be

omitted so that the creditor has a vote on the claim for severance pay as this is

the invariable outcome in many liquidation matters, and is therefore different

from other suspensive conditions.

5.4. Clause 46(9) - majority in value or number may reject report

(a) Business submits that the proposal is unacceptable because of the veto given to small creditors.

(b) Labour and Government submit that clause 46(9) should be amended as follows: (i) If the majority in value or number of creditors voting at the meeting

rejects the liquidator's report the liquidator shall submit a report to an

adjoumed or subsequent meeting or refer the report to the Master who

may give such directions with regard to the report as he or she deems

appropriate.

5.5 Realization of security

(a) Business and Government agree that an appropriate scale for liquidator's

remuneration should be determined for cases where the creditor assists in

realising the assets

(b) Labour submits that the emphasis on remuneration undermines the objective to

try and save the business. It creates an incentive for the secured creditor to

realise assets rather than allow it to be used as a mechanism to save the

business.

5.6. Super preference for salary claims (with reference to clause 84)

(a) Regarding the position of workers' claims in general the Commission Report contains the following on page 205 and the following: (i) 80.18 A commentator on Discussion Paper 86 says employees lose, not

only wages, leave pay and long service bonus, but also their contributions to the workers= medical aid and retirement funds which the employer has not yet paid over. The Commentator proposes that in respect of wages and other benefits workers should be ranked above all secured creditors.

(ii) 80.19 Another commentator on Discussion Paper 86 says a super preference cannot be supported since claims for salary, etc, can be of such a magnitude that it will simply wipe out the securities; this would work against the whole scheme of credit supply and have a devastating effect on the economy; the introduction of a guarantee fund as well as a preference based on section 98A of the Insolvency Act is an option.

(iii) 80.20 The Commission accepts that a preference for salaries is essential because an employee has no choice but to render services on a credit basis and a salary is, in most cases, the employer's only livelihood.

Page 29 of 32

(iv) 80.21 A preferent claim against an insolvent estate has obvious shortcomings, for instance delays to obtain payment and the unavailability of sufficient assets. This is not purely an insolvency law matter, and the viability and affordability of a guarantee fund for the payment of claims against the estate of an insolvent employer should be considered by the appropriate labour authorities. It is submitted that serious consideration should be given to a broadly based fund for the payment of claims against the estate of an insolvent employer. This is a popular option in Europe and other countries. (See the discussion of guarantee funds in several jurisdictions by M P Olivier and 0 Potgieter "The Legal Regulation of Employment Claims in Insolvency and Rescue Proceedings: A Comparative Inquiry" 1995 Industrial Law Journal 1295 par 7.3 on page 1326.) It is fair that employers and employees and perhaps even Government should contribute to such a fund rather than having no funds available in an insolvent estate to pay wages or related claims, or paying the funds that are available in insolvent estates to such claims to the detriment of a small group of other creditors who already suffer as a result of insolvency.

(v) 80.22 The Commission proposed in the Preferences Report that no claims other than claims for administration costs payable out of the free residue should enjoy a higher preference than those of employees. A super­preference or secured status by means of devices such as statute created security devices is not advisable. It is predicted with confidence that investments in companies with substantial work forces would be discouraged substantially if wages and other benefits of workers are ranked above secured creditors. On balance this will probably do more harm than good to workers in general. In order to assist employees clause 80(2A)(a) provides that the maximum preference should be increased to R20 000 per employee and clause 80(3A) provides for interest on employees= preferent claims.

(vi) International trends have not been uniform in this regard. In some

systems there is a strong movement away from allowing claims before

the payment of secured claims although others have introduced limited

claims which are paid before secured claims.

(vii) Govemment and Business submits that a super preference for salary

claims is not advisable.

(viii) Labour supports a preference above secured creditors.

5.7. Clause 77A Special provisions for the Land Bank

(a) Clause 77 A provides that the Act shall not affect the powers and duties of the Land and Agricultural Development Bank (Land Bank) in relation to any property belonging to an insolvent estate. This provision replicates the provision under the current Insolvency Act.

(b) Labour and Business submit that there is no justification for the continued exclusion of the Land Bank from insolvency legislation since no other creditor (including both public and private entities) enjoys similar preferential treatment.

(c) In view of specific support of this provision by Cabinet, Government cannot support the deletion of the provision.

5.8 Clause 99 Contribution by creditors towards costs

(a) Business and Labour submits that contributions towards costs should be

abolished.

Page 30 of 32

(b) Government submits that contribution by creditors could only be abolished if

alternative provision has been made for the administration of assetless estates

or estates with insufficient free residue. There is insufficient capacity to

introduce alternative provision at this stage.

5.9 Clause 170 Court may stay or set aside liquidation

(a) The effect that setting aside a liquidation order has on contracts of service is

unclear.

(b) On the one hand it could be disastrous to provide that the contracts are

automatically reinstated when the liquidation order is set aside. The employees

may have claimed from the Unemployment Insurance Fund and found new

employment. It may be a breach of new contracts of employment if the old one

is revived. Actions performed by the liquidator in good faith (for instance the

piecemeal sale of the assets of the business) cannot be ignored or reversed. A

strong arg ument can be made out that the setting aside of the order should

restore the position at the date of the setting aside and not at the date of the

order.

(c) On the other hand the position would be subject to abuse if assets were to re­

vest in a debtor and contracts of service which were terminated by the liquidator

or terminated by operation of law did not revive. This would be an easy method

to get rid of unwanted employment contracts by means of a friendly liquidation

proceeding followed by the setting aside of the order.

(d) Business and Government agree that the following subsections should be

inserted in clause 170~

(3) Notice of an application to set aside liquidation proceedings must

be furnished to -

(i) every registered trade union that, as far as the applicant

can reasonably ascertain, represents any of the debtor's

employees at the date of liquidation;

(ii) all employees whose addresses can be obtained from the

liquidator.

(4) An order setting aside liquidation proceedings shall set out the

effect of the setting aside of the order on the assets of the debtor immediately

before the date of liquidation, actions taken by the liquidator during the

liquidation and, taking into account the best interests of employees, the effect on

contracts of service terminated during the liquidation.

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(e) Labour submits that subclause (4) should contain guidelines for the court to decide on

what effect the setting aside of the liquidation should have on contracts of service

terminated during the liquidation.

5.10 Government Department to wind up insolvent estates.

Labour submits that it is impossible for a person nominated by creditors to be impartial.

Labour proposes as a new proposal that on the longer term a government department

under the Department of Justice or the courts be created to wind up insolvent estates.

Business disagrees and submits that it would be problematic because people earn a

living from liquidating estates. Labour responds that this is a small elitist group of

persons. Business submits that creditors have a real interest in the liquidation of

estates and deserve a say. Government states that proper regulation of the industry

should be addressed, but that resources and skills are not available at present to create

a government department to liquidate estates - the Master's office has problems to

oversee liquidations so how will they do it themselves; the other skilled persons are

practising liquidators who are not acceptable to Labour.

7. CONCLUSION

7.1. This report therefore concludes preliminary consideration of the draft Insolvency and

Business Recovery Bill at NEDLAC. The interim report is submitted to the Ministers of

Labour and other relevant Ministers in terms of Section 8 of the Nedlac Act, No. 35 of

1994. As indicated in paragraph 2.7 the amended Bill will be tabled at Nedlac after

publication of the Bill

7.2. It is acknowledged that the Nedlac parties may continue to advocate their views in the

public consultation and other structured processes.

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