The current strikes and demands for wage increases in the South African mining sector hold an interesting opportunity for employees and trade unions.

In terms of the Companies Act, employees and/or trade unions can bring business rescue proceedings against a company if wage demands are not met, as businesses are finding it increasingly difficult to afford the increases.

This option is highlighted by law firm Hogan Lovells (previously Routledge Modise) director Alex Eliott, who says that companies can go into business rescue when the company is in “financial distress”.

Financial distress occurs when the company is unable to pay its debts when they are due, or if the board of directors reasonably expects that the company will, at any time during the next six months, not be able to pay its debts on the due date.

He states that business rescue proceedings are commonly brought about to achieve an outcome that enables the company to survive and which ensures that employees’ jobs are saved.

It also aims to restore the business to a financially viable position and to maximise the return to creditors, or, at the very least, deliver a better return for creditors than would have been the case if the company had been immediately liquidated.

Eliott explains that going into business rescue means the company is placed under the temporary supervision of an independent business rescue practitioner and is granted a temporary moratorium on claims against it.

It is then the job of the practitioner to develop a plan for the rescue of the business in consultation with affected parties, such as creditors, employees, shareholders and trade unions. Should the plan be accepted by the creditors, the practitioner proceeds to implement the plan.

A benefit of initiating business rescue proceedings is the immediate benefit for an employer, as the pressures of demands for cash and threatened or actual litigation cease, owing to the temporary moratorium.

Usually, the outcome of the business rescue proceedings is that the creditors accept a compromise on their debts, and once they have been paid in terms of an adopted business rescue plan, the creditors have no further claims.

Eventually, the business rescue process result in the business being able to start again on a clean slate.

Further, there are other crucial benefits during the business rescue process. For example, the powers of the business rescue practitioner can be used to force counter parties with unfavourable contracts to renegotiate more favourable terms for the company, or even terminate those unfavourable contracts entirely.

Business rescue inevitably places a powerful tool in the hands of the practitioner to negotiate with labour on matters such as retrenchments and productivity.

The benefits for an employee is that, as a creditor, chances are that business rescue will result in a higher proportion of arrear salaries, leave pay and severance pay being paid as opposed to the proportion of payouts after immediate liquidation.

Further, business rescue increases the odds of employees’ jobs being saved. The practitioner is obliged to investigate the company’s affairs and consult with employees, which gives them access to reliable information about the company’s true financial position, and allows them to vote on the company’s future, along with other creditors. If employees can see that the company is genuinely in financial distress and not merely greedy, they will be more likely to agree to more affordable wages.

Eliott does, however, emphasise that while business rescue seems advantageous and beneficial, as all the affected parties are likely to benefit from a successful process, most business rescues fail, according to the findings Companies and Intellectual Property Commission and statistics compiled by the University of Pretoria.

“In my experience, the success rate is about 15% and, while this may sound unimpressive, every one of those successes made a big difference to the lives of the company’s creditors and employees, which would not have been possible if there was no business rescue legislation.”

Despite this, Eliott believes business rescue is advantageous when implemented when a company is in financial distress, as employers and employees are more likely to cooperate with one another to achieve a mutually beneficial outcome when both parties are facing the real prospect of losing everything if the rescue is unsuccessful.