1 INTRODUCTION

1.1 Arising out of a review of the impact of the labour laws, Cabinet approved for public comment and negotiations at NEDLAC, three draft amendment bills namely:

Draft Labour Relations Amendment Bill;

Draft Basic Conditions of Employment Amendment Bill; and

Draft Insolvency Amendment Bill.

1.2 The first two Bills have been enacted and the Insolvency Amendment Bill 14 of 2002 has been approved by Parliament.

1.3 The Insolvency Amendment Bill did not include amendments to sections 4 and 9 agreed on in NEDLAC. The proposed amendments provide for notice of a petition for the sequestration of a debtor's estate to employees of the debtor and registered trade unions representing the employees.

1.4 Amendments to section 4 and 9 will apply to individual debtors (natural persons, trusts and partnerships). Most of the cases intended to be covered by the amendments to sections 4 and 9 are companies or close corporations. Amendments to the Companies Act are necessary in order to apply amendments to sections 4 and 9 to companies and close corporations.

1.5 When the Portfolio Committee on Justice and Constitutional Development of the National Assembly reported the Insolvency Amendment Bill 14 of 2002 with amendments on 7 June 2002, it recommended that the Minister for Justice and Constitutional Development request his Department to consider the inclusion of the proposed amendments to sections 4 and 9 of the Insolvency Act in proposed uniform legislation that dealt with both corporate and individual insolvencies.

1.6 During the last week of July 2002 NEDLAC requested that Bill 14 of 2002 should be amended to include the amendments to sections 4, 9 and 11 of the Insolvency Act. In order not delay the enactment of the Bill and to give Cabinet an opportunity to consider legislation applicable to both individual and corporate insolvencies, the Minister for Justice and Constitutional Development requested the National Council of Provinces (NCOP) to approve Bill 14 of 2002 and undertook to prepare a Bill to provide for the amendments to sections 4 and 9 as soon as possible. The NCOP approved Bill 14 of 2002 on 2 August 2002 and the attached Bill provides for the agreed amendments to sections 4 and 9 of the Insolvency Act in a format that will apply to individuals, companies and close corporations. Provision is also made for notice to the South African Revenue Service.

2 The draft Insolvency Second Amendment Bill

2.1 It is not uncommon that the first time that employees are informed about the insolvency of their employers, is when they find the premises closed and are informed of the insolvency by the trustee or liquidator of the employer. It is advisable that employees and their registered trade unions should be informed of insolvency at an earlier stage to enable them to assist in finding solutions to the financial difficulties of their employer and to warn them about the financial position of the employer.

2.2 The recently enacted section 197B of the Labour Relations Act 66 of 1995 provides that an employer who faces financial difficulties that may reasonably result in the winding-up or sequestration of the employer or who applies for sequestration or winding-up or receives an application for winding-up or sequestration, must advise the consulting parties contemplated in section 189 of the Labour Relations Act (the person designated by a collective agreement, or a workplace forum or a trade union or a representative nominated by employees).

2.3 It is proposed further that a petitioner for the voluntary surrender of an estate should furnish a copy of the notice of voluntary surrender to registered trade unions and employees. The notice to employees must be affixed to a notice board used for that purpose or, if there is no access to the premises by employees, the notice must be affixed to the front gate or door of the premises. (Proposed new section 4(2)(b) of the Insolvency Act 24 of 1936.) In order to expedite the administration of estates and safeguard the interest of the State, it is further provided that a copy of the notice should be furnished to the South African Revenue Service.

2.4 A debtor who receives notice of an application by a creditor for the sequestration of the debtor's estate, must notify employees and their registered trade unions and the South African Revenue Service of the application in a similar manner. (Proposed new section 9(4A)(a) of the Insolvency Act.) It is proposed that a debtor who fails to comply with this provision will upon conviction be guilty of an offence and liable to imprisonment for a period not exceeding three years. (Proposed new section 136(d) of the Insolvency Act.) Notice of insolvency to employees may have serious consequences if insolvency is not in fact imminent. A debtor need not give notice of an application for sequestration while an application is pending to have sequestration proceedings declared an abuse of the court's procedures or malicious or vexatious. (Proposed new section 9(4A)(b) and (c), read with proposed new section 14 of the Insolvency Act.)

2.5 It is proposed that a copy of a provisional sequestration order must be served on registered trade unions and employees and on the South African Revenue Service. (Proposed new section 11(2A) of the Insolvency Act.) Service on employees must take place by affixing a copy of the order to a notice board on the employers premises, or if there is no access to the premises by employees, a copy of the order must be affixed to the front gate or door of the premises. (Proposed new section 11(4) of the Insolvency Act.)

2.6 Section 339 of the Companies Act 61 of 1973 applies provisions of the Insolvency Act to companies unable to pay its debts, but only provisions dealing with the process of liquidation which commences once an order of winding-up has been granted and not to legal proceedings which lead to the grant or refusal of such an order. (Kalil v Decotex (Pty) Ltd 1988 (1) SA 943 (AD) at 961.) Sections 4 and 9 of the Insolvency Act deal with procedures before the sequestration order is granted and do not apply to companies. The Bill includes provisions for companies which are similar to the proposed new sections 4(2) and 9(4A) of the Insolvency Act. (Proposed new section 346(4A) of the Companies Act.)

2.7 Section 11 of the Insolvency Act provides for the granting of a rule nisi (a provisional sequestration order) in the case of an application by a creditor for sequestration of a debtor's estate. The Companies Act provides for different procedures and there is no requirement for a rule nisi (although in practice a rule nisi is issued in most cases). It is proposed that a winding-up order for a company should be served in a manner similar to the proposed new section 11(2A) and (4) of the Insolvency Act. (Proposed new section 346A of the Companies Act.) In terms of the definition of "winding-up order" in section 1 of the Companies Act a winding-up order includes a provisional winding-up order for so long as it is in force.

2.8 It is proposed that, similar to the provisions of the proposed new section 136 of the Insolvency Act, directors who fail to give notice of an application for winding-up should upon conviction be guilty of an offence and liable to a fine or to imprisonment for a period not exceeding two years or both such fine and such imprisonment. (Proposed new section 441 read with proposed new section 346(4A)(d) of the Companies Act.)

2.9 In terms of section 66 of the Close Corporations Act 69 of 1984, the proposed sections 346(4A) and 346A of the Companies Act will apply to the liquidation of a close corporation. Any person who is convicted in respect of an offence under the proposed section 441(d) read with the proposed section 346(4A)(d) of the Companies Act, will, in terms of section 82(3) of the Close Corporations Act, be liable to be sentenced to the penalties which are provided for in respect of that offence by section 441(d) of the Companies Act.