REPUBLIC OF SOUTH AFRICA
INSOLVENCY AMENDMENT BILL
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(As introduced in the National Assembly as a section 75-Bill; explanatory summary of Bill published in Government Gazette No. of ) (The English text is the official text of the Bill)
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(MINISTER FOR JUSTICE AND CONSTITUTIONAL DEVELOPMENT)
[B - 2002]
031001se
GENERAL EXPLANATORY NOTE:
[ ] Words in bold type in square brackets indicate omissions from existing enactments.
___________ Words underlined with a solid line indicate insertions in existing enactments.
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B I L L
To amend the Insolvency Act, 1936, so as to further regulate the effect of sequestration on employment contracts and the claims for severance and retrenchment pay; and to provide for matters incidental thereto.
BE IT ENACTED, by the Parliament of the Republic of South Africa, as follows:—
Substitution of section 38 of Act 24 of 1936
1. The following section is hereby substituted for section 38 of the Insolvency Act, 1936 (hereafter referred to as the principal Act):
"Contract of employment suspended on insolvency of employer
38. (1) The contracts of service of employees whose employer has been sequestrated are suspended with effect from the date of the granting of a sequestration order.
(2) Without limiting subsection (1), during the period of suspension of a contract of service referred to in subsection (1)—
(a) an employee whose contract is suspended is not required to render services in terms of the contract and is not entitled to any remuneration in terms of the contract; and
(b) no employment benefit accrues to an employee arising out of any contract of service that is suspended.
(3) An employee whose contract of service is suspended is deemed to be employed for the purposes of the Unemployment Insurance Act, 1966 (Act No. 30 of 1966), from the date of such suspension and, subject to the provisions of that Act, is entitled to receive unemployment benefits in terms of section 35 of that Act.
(4) An employee whose contract of service has been—
(a) suspended in terms of subsection (1); or
(b) terminated in terms of subsection (5) or (10),
is entitled to claim compensation from the insolvent estate of his or her former employer for loss suffered by reason of the suspension or termination of a contact of service prior to its expiration.
(5) A trustee appointed in terms of this Act may terminate the contracts of service of employees, subject to subsection (6) and (8).
(6) A trustee may not terminate a contract of service unless the trustee has consulted with—
(a) any person who the insolvent employer was required to consult with, immediately before the sequestration, in terms of a collective agreement defined in section 213 of the Labour Relations Act, 1995 (Act No. 66 of 1995);
(b) a workplace forum defined in section 213 of the Labour Relations Act, 1995, if there is no such collective agreement, that existed immediately prior to the sequestration;
(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.
(7) The consultation referred to in subsection (6) must seek to reach consensus on appropriate measures to save or rescue the whole or part of the business of the insolvent employer—
(a) by the sale of the whole or part of the business of the insolvent employer; or
(b) by a transfer as contemplated in section 197A of the Labour Relations Act, 1995; or
(c) by a scheme or compromise referred to in section 311 of the Companies Act, 1973 (Act No. 61 of 1973) or;
(d) in any other manner.
(8) If any party referred to in subsection (6), wishes to make proposals concerning any matter contemplated in subsection (7), that party must submit written proposals to the trustee within 21 days of the appointment of the trustee in terms of section 56, unless the trustee and an employee agree otherwise.
(9) A creditor of the insolvent employer may, with the consent of the trustee, participate in any consultation contemplated in this section.
(10) All suspended contracts of service shall, subject to measures contemplated in subsection (7), terminate 45 days after the date of the appointment of a trustee in terms of section 56.
(11) An employee whose contract of service terminates or has been terminated in terms of this section is entitled to claim severance benefits from the estate of the insolvent employer in accordance with section 41 of the Basic Conditions of Employment Act, 1997 (Act No. 75 of 1997).".
Amendment of section 98A of Act 24 of 1936
2. Section 98A of the principal Act is hereby amended by the substitution
for paragraph (iv) of subsection (1)(a) of the following subparagraph:
"(iv) any severance or retrenchment pay due to the employee in terms of any law, agreement, contract, [or] wage-regulating measure, or as a result of termination in terms of section 38: and".
Short title and commencement
3. This Act shall be called the Insolvency Amendment Act, 2002, and shall come into operation on a date determined by the President by proclamation in the Gazette.
sv100202
MEMORANDUM ON THE OBJECTS OF THE INSOLVENCY AMENDMENT BILL, 2002
1. INTRODUCTION AND NEGOTIATION PROCESS
1.1 In 1999 the Department and Minister of Labour conducted a review process of the Labour law, including consultations with stakeholders. This process concluded that the policy fundamentals that shape the laws were sound but that adjustment and refinements were required to—
* improve the sensitivity of our legal framework to the imperative to create jobs;
* address unintended consequences of some provisions of our laws;
* ensure the effective alignment of our laws with the changing labour market environment.
To give effect to the above, the Departments of Labour and of Justice and Constitutional Development prepared draft amendment bills in respect of the Labour Relations Act, the Basic Conditions of Employment Act and the Insolvency Act.
1.2 Cabinet approved these draft amendment bills on 26 July 2000 for public comment and negotiations at NEDLAC. They were published on 27 July 2000. Fifty four public comments were received, of which 10 dealt with the draft Insolvency Amendment Bill.
1.3 The negotiations at NEDLAC began in September 2000 but were suspended after a short period and process of bilateral engagement included discussions between organized business and labour in the Millennium Labour Council (MLC).
1.4 Negotiations began again in NEDLAC in June this year after the MLC has concluded discussions on key principles in respect of certain aspects of the Amendment Bills.
1.5 At the end of July, agreement was reached at NEDLAC on the provisions of the draft Insolvency Amendment Bill.
2. THE INSOLVENCY AMENDMENT BILL, 2002
2.1 All but two of the clauses in the draft Insolvency Amendment Bill, 2000 also require amendments to other legislation, such as the Companies Act and the Close Corporations Act. The Department of Justice and Constitutional Development is considering proposals by the South African Law Commission and the Standing Advisory Committee on Company Law for uniform legislation that deals with all corporate and individual insolvencies. The proposals in the clauses that require further legislation will be considered when a decision has been made on the uniform legislation.
2.2 The two clauses of the Insolvency Amendment Bill, 2002 deal with sections 38 and 98A of the Insolvency Act. These sections apply to both the insolvency of individual employers who trade in their personal name as well as to companies and close corporations that are wound up because of insolvency.
2.3 Section 38 of the Insolvency Act, 1936, presently provides that the sequestration of the estate of an employer terminates all contracts of employment between the employer and employees. (In contrast, section 37 of the Act provides that leases entered into by the employer continue in force for three months from the date of sequestration unless they are terminated earlier by the trustee).
2.4 The termination of a contract of employment in terms of section 38 does not constitute a dismissal for purposes of labour law. It is classified as a termination of a contract by operation of law. Employees are consequently deprived of a range of protections such as the right not to be unfairly dismissed in terms of the Labour Relations Act, 1995, and the right to severance pay in terms of the Basic Conditions of Employment Act, 1997.
2.5 It is proposed that the insolvency of an employer should only suspend obligations between employers and employees in terms of their contracts of employment. (Proposed new section 38(1).) The effect of this would be that employees would not be required to tender their services in terms of their contracts and employers would not be obliged to remunerate them. (Proposed new section 38(2).) Despite the fact that contracts of employees are suspended, employees will be deemed to be unemployed for purposes of the Unemployment Insurance Act, 1966, and will therefore be entitled to register for unemployment benefits as if they had been dismissed. (Proposed new section 38(3).) In terms of existing law a trustee may engage the services of certain of the employees of the insolvent employer in order to continue running the business.
2.6 The trustee is given the power to terminate the contracts of service of the employees in terms of the proposed new section 38(5). The trustee may, however, not exercise this power unless the trustee has entered into consultations regarding measures that could be adopted to save a whole or part o the business with the employees, their trade unions or any other representatives of the employees. (Proposed new section 38(6).) A creditor of the insolvent employer may also participate in these consultations with the consent of the trustee. (See proposed new section 38(9).)
2.7 Unless otherwise agreed between a trustee and an employee, all contracts of service not already terminated, terminate 45 days after the appointment of the final trustee. (See proposed new section 38(10).)
2.8 It is generally accepted that employees whose services are terminated as a result of insolvency are currently not entitled to the statutory severance benefits provided for in section 41 of the Basic Conditions of Employment Act, 1997. The proposed new section 38(11) provides that, for purposes of severance benefits, these employees will be treated as employees who have been dismissed because of the employer's operational requirements. The claim for severance benefits will be against the estate of the insolvent employer, which is regulated in terms of the new section 98A, which is also being amended to reflect this change.
3. FINANCIAL IMPLICATIONS
None.
4. OTHER DEPARTMENTS CONSULTED
4.1 The following Departments were consulted on the proposed draft amendment Bill by the Department of Labour:
* The Presidency;
* Treasury;
* Department of Trade and Industry;
* Department of Health:
* Department of Public Service and Administration;
* Department of Minerals and Energy.
4.2 The Department of Public Service and Administration and the Treasury have been briefed and consulted about developments at NEDLAC and have been furnished with the almost final drafts by the Department of Labour.
5. PARLIAMENTARY PROCEDURE
The State Law Advisers and the Department of Justice and Constitutional Development are of the view that the Bill must be dealt with in accordance with the procedure established by section 75 of the Constitution since it contains no provision to which the procedure set out in section 74 or 76 of the Constitution applies.