Category: Company

Commencement of Business Rescue proceedings

A1_BIs your company experiencing financial strain? Are creditors breathing down your neck? Business Rescue proceedings may be a solution to your problems.

Business Rescue is a new approach that is governed by the Companies Act 71 of 2008 (“the new Companies Act”) with the aim of assisting companies which are experiencing financial strain and are unable to pay their creditors in the ordinary course of business. This article will look at what Business Rescue encompasses, as well as how Business Rescue proceedings are commenced.

Section 128(1) (b) of the Companies Act defines Business Rescue proceedings as proceedings to facilitate the rehabilitation of a company that is financially distressed by providing, inter alia, temporary supervision of a company under a Business Rescue practitioner.

The role of the Business Rescue practitioner (who must be appointed within 5 days after the company has been placed under Business Rescue) is to ensure that the company complies fully with the steps to be taken once Business Rescue proceedings have commenced. They must also ensure that everything reasonably possible is being done (including the drafting of a Business Rescue plan) to assist the company in getting out of its current state of financial strain and into a position where it will be able to pay its creditors in the ordinary course of business.

The new Companies Act stipulates that, in order to place a company under Business Rescue, a resolution must be taken by the Board of Directors and an application thereto must be made to the CIPC (Companies and Intellectual Property Commission). The Commissioner must then consider the application and approve or reject it. Alternatively, any interested or affected party may apply to the Court for a court order placing the company under Business Rescue.

A company that is under Business Rescue is protected from creditors in that no legal action or proceedings may be taken against a company that has commenced with Business Rescue proceedings.

It is imperative to note that a lack of full compliance with the requirements in respect of Business Rescue proceedings may render the Business Rescue proceedings null and void. This position was reiterated in the High Court case of Advanced Technologies & Engineering Company (Pty) Ltd v Aeronautique et Technologies Embarquees SAS (unreported CASE NO 72522/20110), and the Court further held that the new Companies Act does not provide for condonation of non-compliance with the requirements.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

References:

  • Companies Act 71 of 2008
  • D Davis, W Geach, T Mongalo, D Butler, A Loubser, L Coetzee, D Burdette, 3rd Edition (2013) Commercial law: Companies and other Business Structures in South Africa.

Discrimination against pregnant women in the workplace

A3_BEmployees are often faced with a difficult situation in the workplace when falling pregnant. Many establishments react unfavourably towards female employees that fall pregnant. These employees are often discriminated against in various direct and indirect manners. There are, however, clear provisions that protect employees in these situations which employees should familiarise themselves with.

There are different ways in which employees can be discriminated against in the workplace due to the fact that the employee has fallen pregnant. These forms of discrimination have different degrees of disadvantage towards the employee. It can range from having her contract terminated, being treated badly, being verbally abused or being ridiculed because she has fallen pregnant.

As a point of departure, it is stated in Section 9(3) of the Constitution of the Republic of South Africa[1], that nobody may be discriminated against based on the fact that they are pregnant. It is therefore a constitutional right for an employee not to be discriminated against in any form or manner because of her pregnancy. This right is further confirmed by Paragraph 4.2 of the Code of Good Practice on the Protection of Employees during Pregnancy[2].

The most severe form of discrimination against an employee is the dismissal of an employee due to the fact that she has fallen pregnant. The Labour Relations Act [3] specifically mentions that an employer is not entitled to dismiss an employee due to her pregnancy. However, there are various other ways of discriminating against a pregnant employee that should be noted.

Employees should be mindful of more subtle forms of discrimination, such as contracts not being renewed when it was earlier apparent that it would have been, or where a promotion is not granted to an employee purely because she has fallen pregnant at a certain time. Whenever an employee can prove that there was a direct link between any disadvantage and her pregnancy, she will most likely be entitled to the appropriate remedy. Employees are further entitled to a certain amount of unpaid maternity leave and will be entitled to insist on it.

In the event of an employee being dismissed due to her pregnancy, or where it is clear that an employee was discriminated against in any way for this reason, there are various remedies for the employee to choose from. It is always a good idea to resolve the issue without taking legal action, as this will be an expensive exercise and will most likely cause a relatively uncomfortable atmosphere between an employee and an employer. An informal arrangement between the employer and employee is therefore recommended, yet it is not always a practical solution. However, if no other option is available to the employee, she will always have the option to approach the CCMA as well as Labour Courts to prove that she was discriminated against due to her pregnancy. She will then be in a position to request the appropriate remedy.

In conclusion, female employees should be mindful of possible forms of discrimination against them as it is clearly prohibited. Direct and indirect forms of discrimination exist but aren’t always easy to identify. However, if identified and proven, such discrimination will not be allowed and must subsequently be corrected.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Bibliography

Acts:

Constitution of the Republic of South Africa, 1996

Code of Good Practice on the Protection of Employees during Pregnancy

Labour Relations Act 66 of 1995

[1] Constitution of the Republic of South Africa, 1996

[2] Code of Good Practice on the Protection of Employees during Pregnancy

[3] Labour Relations Act 66 of 1995

 

Are restraint of trade agreements always valid and enforceable?

A2blHistorically restraint of trade agreements were void and unenforceable unless the employer could prove that it was a reasonable agreement entered into between the parties. Fortunately for employers the position in our law has changed.

What are restraint of trade agreements?
An agreement that seeks to restrict a party’s right to carry on a trade, business or profession in such manner or with such persons as he/she sees fit, is restraint of trade.

Restraint of trade clauses are most commonly found in employment and partnership contracts, which usually takes effect after termination of the contract, or in sale of a business or practice.

Why are they controversial?

They are controversial because there is a clash of fundamental values: on the one hand there is freedom or sanctity of contract which relies on agreements being honoured, and on the other hand there is freedom of trade which is a constitutionally recognised right.

As with other contracts, restraint of trade agreements are presumed to be prima facie valid and enforceable. Whereas the onus had earlier been on the employer to prove that implementation of restraint of trade was fair and in public interest, the onus is now on the employee to show why enforcement in the particular circumstances would be against the public interest.

An unreasonable restraint is contrary to the public interest and hence unenforceable. The reasonableness of a restraint of trade clause or agreement is judged on two bases: broad interests of community, and interests of the parties themselves.

Reasonableness inter partes depends on a variety of factors:

  • Does the employer have a protectable interest?
  • Area and duration of restraint (possibility of partial enforcement)
  • Concession by the employee in the contract that restraint is reasonable, and inequality of bargaining power of parties (these factors carry little weight)

Examples of protectable interests are confidential information, trade secrets, customer connections and lists, and goodwill of the business. However, it does not include interest in the elimination of competition, and the investment of time and capital in the training of the employee.

It is not sufficient simply to label confidential information as such. In order to be confidential the information must be commercially useful, in other words capable of application in trade or industry, have economic value to the person seeking to protect it, and be known only to a restricted number of people.

With regards to trade connections, it will only be relevant when the employee has close working relations with the customers, to such an extent that there is a danger of him/her taking them with him/her when he/she leaves the business. Relevant factors here include the following:

  • duties of the employee;
  • his/her personality;
  • frequency and duration of the contact with the customers;
  • his/her influence over them;
  • nature of his/her relationship with them (degree of attachment, extent of their reliance on him/her);
  • level of competition between the rival businesses;
  • type of product sold; and
  • evidence that customers were lost when he/she left the business.

With reference to the above the following questions must be asked:

  1. Does party A have an interest deserving of protection?
  2. Is such interest being prejudiced by party B?
  3. If so, how does A’s interest weigh up qualitatively and quantitatively against B’s interest in not being economically inactive and unproductive?
  4. Is there some broader facet of public policy that requires the enforcement or rejection of the restraint?

If restraint of trade agreement is reasonable inter partes, it may still be unenforceable if it is damaging to the public interest for a reason not peculiar to the parties.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

Sources:

Basson v Chilwan & Others [1993] 3 SA 742

Sunshine Records (Pty) Ltd v Flohing & Others 1990 (4) SA 782 (A)

Magna Alloys & Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A)

Sick letters or fake letters?

A1blThis article deals with medical certificates and whether or not an employee is justified in taking the day off for an “illness”.

Angela informed her employer on Monday morning that she would be staying at home as she felt very sick and was unable to do her work in her condition. Angela only decided on Wednesday that she would go to the doctor because she knew she would be returning to work on Thursday, and therefore needed a medical certificate from the doctor so that her work would not deduct the money from her salary. However, Angela had a surprise waiting for her.

In terms of Rule 15(1) of the Ethical and Professional Rules of the Medical and Dental Professions Board of the Health Professions Council of South Africa a practitioner shall only grant a certificate of illness if such certificate contains the following information:

  • the name, address and qualification of the practitioner;
  • the name of the patient;
  • the employment number of the patient (if applicable);
  • the date and time of the examination;
  • whether the certificate is being issued as a result of personal observations by the practitioner during an examination, or as the result of information received from the patient and which is based on acceptable medical grounds;
  • a description of the illness, disorder or malady in layman’s terminology, with the informed consent of the patient, provided that if the patient is not prepared to give such consent, the medical practitioner or dentist shall merely specify that, in his or her opinion based on an examination of the patient, the patient is unfit to work;
  • whether the patient is totally indisposed for duty or whether the patient is able to perform less strenuous duties in the work situation;
  • the exact period of recommended sick leave;
  • the date of issuing of the certificate of illness; and
  • a clear indication of the identity of the practitioner who issued the certificate which shall be personally and originally signed by him or her next to his or her initials and surname in printed or block letters.

If preprinted stationery is used, a practitioner shall delete words which are irrelevant. A practitioner shall issue a brief factual report to a patient where such a patient requires information concerning himself/herself.

The above is largely self-explanatory. Subrule (e) refers to those occasions where, for example, the employee has been off sick on Monday and Tuesday and then on Wednesday he goes to the doctor and informs the doctor that he has had flu since Monday and requires a sick note. The doctor is then required to write in the sick note, “I was informed by the patient that …”

An employer does not have to accept this as a genuine illness. The doctor is only telling you that the patient says he was ill. The doctor is not certifying that he made an examination and is able to confirm the illness. You would therefore be perfectly justified in informing the employee that the time taken off will be regarded as unpaid leave and that in future he should visit the doctor when he falls ill and not after he has recovered from the alleged illness.

Unfortunately for Angela her employer recently read an article informing him of his rights to deduct money from her salary because she failed to come to work on Monday and Tuesday and only went to see the doctor on Wednesday, and there was no way of ascertaining that she definitely was ill on those days.

In light of the above it would be wise for employees to see the doctor on the same day that they feel ill, and for employers to insist on seeing the medical certificate and examining it properly.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

Who may be appointed as director?

A4blCertain people are not eligible to be appointed as directors of a company. In this article we look at who is disqualified from being a director as well as the effects of the actions of such persons while still acting as director.

A company must not knowingly permit an ineligible or disqualified person to serve or act as a director, according to section 69(3) of the Companies Act 71 of 2008. “Knowingly” includes the situation where the company should reasonably have known that the person is ineligible or disqualified.

Section 69(7) lists the persons on which there are an absolute prohibition, being juristic persons, minors or any persons disqualified in terms of the Memorandum of Incorporation. Section 69(8) lists the persons that are disqualified on a temporary basis, being someone who has been prohibited by the court or whom the court has declared a delinquent, unrehabilitated insolvents, persons who were removed from an office of trust on the grounds of misconduct involving dishonesty, and persons who were found guilty of a criminal offence and imprisoned without the option of a fine, or were ordered to pay a higher fine for being found guilty of any dishonesty crimes.[1]

A question that arises here is what the effect would be of appointing a prohibited director. Section 69(4) says that a person immediately ceases to be a director if they are prohibited from being a director, but section 71(3) states that if a shareholder alleges that a person is disqualified then the person must be removed by a board resolution before they cease to be a director. This means that any act done by such a person, despite his disqualification, will be valid and binding on the company unless the third party who was involved in the act was aware that the person they were dealing with was disqualified.[2]

Section 162(5) (a)-(f) sets out the grounds for an order of delinquency. A court must make an order declaring a person to be a delinquent director if the person:

  1. consented to serve as a director, or acted in the capacity of a director or prescribed officer, while ineligible or disqualified to be a director;
  2. acted as a director in a manner that contravened an order of probation;
  3. grossly abused the position of director while being a director;
  4. took personal advantage of information or an opportunity, or intentionally or by gross negligence inflicted harm upon the company or a subsidiary while being a director;
  5. acted in a manner that amounted to gross negligence, wilful misconduct or breach of trust while being a director; or as contemplated in section 77(3) (a), (b) or (c);
  6. has repeatedly been personally subject to a compliance notice or similar enforcement mechanism;
  7. has been convicted of an offence at least twice, or subjected to an administrative fine or similar penalty; or
  8. was a director of a company or a managing member of a close corporation, or controlled or participated in the control of a juristic person that was convicted of an offence, or subjected to a fine or similar penalty, within a period of five years. [3] & [4]

If a person is declared a delinquent in terms of section 162(5) (a) or (b) it is unconditional and for the lifetime of the person. If a person is declared a delinquent in terms of section 162(5) (c)-(f) this is temporary for a minimum of 7 years.[5]

It is therefore very important, when appointing a director, to make sure that he is qualified in terms of the new Companies Act. One must do proper research about a person accordingly before appointing him as a director of a company because it is possible that if you do not do so, the company in which you are a shareholder may have to bear the consequences of the actions of this disqualified person. 

References:

  • Companies Act 71 of 2008
  • FHI Cassim et al Contemporary Company Law (2012)

[1] Section 69(7) – (8) of the Companies Act 71 of 2008.

[2] Section 69(4) and 71(3) of the Companies Act 71 of 2008.

[3] Section 162(5) (a)-(f) of the Companies Act.

[4] FHI Cassim et al Contemporary Company Law (2012) 435 – 437.

[5] FHI Cassim et al Contemporary Company Law (2012) 438.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

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