Rights of employees during corporate rescue

This article seeks to explain the effect of corporate rescue on company employees and the rights of those employees during the corporate rescue proceedings.

Corporate rescue

Corporate rescue is also known by other terms such as business rescue or judicial management. According to Section 121 of the Insolvency Act (Chapter 6:07) (hereinafter “the Act”) of 2018 corporate rescue means the proceedings to facilitate the rehabilitation of a company that is financially distressed. It involves providing for:

Temporary supervision of the company and of the management of its affairs, business and property, and

Temporary moratorium (relief) on the rights of claimants against the company or in respect of property in its possession, and

The development and presentation, if approved, of a plan to rescue the company by restructuring its affairs, business, property, debt and other liabilities and equity.

A corporate rescue practitioner, also known as insolvency practitioner, hereinafter called “the practitioner”, is a professional who is registered with the Estate Administrators Council of Zimbabwe.

In Zimbabwe corporate rescue is regulated by the Insolvency Act (Chapter 6:07) or the Act of 2018. Previously this was regulated by the Companies Act (Chapter 24:03), which was repealed and replaced by the Companies and Other Companies Act (Chapter 24:31), which became operational in February 2020. A corporate rescue practitioner derives his or her powers from Section 133 of the Act.

Effect of corporate rescue on employees and contracts

This is provided for in section 129 of the Act. According to section 129(1), despite any provision of an agreement to the contrary:

(a) During a company’s corporate rescue proceedings, employees of the company immediately before the beginning of those proceedings continue to be so employed on the same terms and conditions, except to the extent that:

Changes occur in the ordinary course of attrition (reduction), or

The employees and the company, in accordance with applicable labour laws, agree different terms and condition, and

(b) any retrenchment of any such employees contemplated (considered or thought of) in the company’s corporate rescue plan is subject to the Labour Act (Chapter 28:01) and any other applicable employment related legislation.

Further, section 129(2) provides that subject to 129 (3) and despite any provision of an agreement to the contrary, during the corporate rescue proceedings, the (corporate rescue) practitioner may:

(a) entirely, partially or conditionally suspend, for the duration of the corporate rescue proceedings, any obligation of the company that (i) arises under an agreement to which the company was a party at the commencement of the corporate rescue proceedings and (ii) would otherwise become due during those proceedings, or

(b) apply to a court to entirely, partially or conditionally cancel, on any terms that are just and reasonable in the circumstances, any obligation of the company contemplated in 129 (2) (a).

Section 129 (3) (a) (i) provides that when acting in terms of 129 (2) the practitioner should not suspend any provision of an employment contract. According to section 129 (3) (b) (i) a court should not cancel any provision of an employment contract unless done in terms of 129(1).

Rights of Employees

Section 137 of the Act provides for the rights of employees. According to section 137 (1) during a company’s corporate rescue proceedings any employees of the company who are:-

Represented by a registered trade union may exercise any rights set out in this Part (section):

Collectively through their trade union, and

In accordance with applicable labour laws, or

Not represented by a registered trade union may elect to exercise any rights set out in this Part (section) either directly, or by proxy through an employee organisation or representative.

According to section 137 (2) as regards employment amounts that were due and payable to the employee by the company before commencement of corporate rescue proceedings the employee shall become a preferent creditor. A preferent creditor ranks between secured and concurrent (unsecured) creditors.

In terms of section 137 (3) of the Act, during a company’s corporate rescue process, every registered trade union representing any employee of the company, and any employee who is not so represented, is entitled to:

Notice, which must be given by standard notice to employees at their workplace, and served at the head office of the relevant trade union, of each Court proceeding, decision, meeting or other relevant event concerning the corporate rescue proceedings,

Participate in any Court proceedings arising during the corporate rescue proceedings,

Form a committee of employees’ representatives,

Be consulted by the practitioner during the development of the corporate rescue plan, and afforded sufficient opportunity to review the plan,

Be present and make a submission to the meeting of the holders of voting interests before a vote is taken on any proposed corporate rescue plan as contemplated in section 144(1)(c).

Vote with creditors on a motion to approve a proposed corporate (rescue) plan, to the extent that the employee is a creditor, as contemplated in section 137(2).

If the proposed corporate rescue plan is rejected to (i) propose the development of an alternative plan, or (ii) present an offer to acquire the interests of one or more affected persons.

Employee’s rights as a creditor

If the employee is a creditor, in terms of the Act, there are additional rights that he / she is entitled such as those in section 138 of the Act.

This simplified article is for general information purposes only and does not constitute the writer’s professional advice.-heraldc.l.zw