The Brave New World Of Business Rescue – Which Companies Qualify?

What do you do if your company is in “financial distress”? Help is at hand – the new business rescue procedure is aimed at helping such companies to return to commercial viability, or – where full or partial rescue is impossible – to at least secure a better return for creditors and other stakeholders than would result from a liquidation. For this purpose the company is given temporary protection from creditors whilst a business rescue practitioner takes over control from the directors and – where feasible – formulates a business rescue plan.

Directors – your risk!

Bearing in mind that directors who continue to trade when failure looms risk both criminal prosecution and personal liability for company debts, they should take immediate advice on the best course of action in each case.

Decisions, decisions: and, just how sick is your company?

Normally the decision will boil down to applying for either liquidation or for business rescue protection. A recent run of High Court decisions gives some guidance on which option to choose: –

  • Business rescue is always preferred to liquidation;
  • Nevertheless the court has a discretion not to grant a business rescue application, and is only likely to grant it if given sufficient “concrete” (i.e. not vague or speculative) information addressing the cause of the business failure, and offering a rescue plan with a “reasonable prospect” of success. It all boils down to how sick the company really is – as a recent judgment put it: “……business rescue proceedings are not for the terminally ill close corporations. Nor are they for the chronically ill. They are for ailing corporations, which, given time, will be rescued and become solvent”;

When a company cannot be rescued, the enquiry switches to whether a better result for stakeholders (creditors, employees, directors and shareholders) is likely to be achieved by a liquidator or by a business rescue practitioner. Every case will be different, and will be decided on its own facts – factors such as prices likely to be realised for assets, the legal effects of liquidation, the powers of liquidators to investigate and impeach transactions etc will come into play.

Return Of Earnings – Deadline Extended

Employers: the Department of Labour has extended the 31 March deadline for Return of Earnings returns to 31 May 2012, so don’t worry if your W.As.8 forms haven’t arrived yet.

Note:  if you aren’t yet registered with the Compensation Fund in terms of COIDA (the Compensation for Occupational Injuries and Diseases Act), you almost certainly should be.  All employers, including those with office based businesses, are obliged to register and render annual returns (domestic workers are currently excluded but there is talk of the Act being extended to cover them as well).

Tax Fraud: Courts Crack Down (Again)

“There is no kind of dishonesty into which otherwise good people more easily and frequently fall than that of defrauding the government” (Benjamin Franklin)

The High Court has once again given notice that it will show no mercy to tax cheats and other “white-collar” criminals.

The crime

An accountant had been convicted by a Regional Court of 20 counts of fraud against SARS, involving registration of companies with false information and the generation and submission of false invoices and VAT returns. As a result SARS lost R425,843-33 in unwarranted VAT refunds before detecting the crime.

The sentence

The Regional Court sentenced the accountant to a wholly-suspended term of 7 years’ imprisonment. His subsequent appeal to the High Court against his conviction went disastrously wrong for him – not only was his conviction confirmed, but the Court stiffened his sentence by making 3 years of the sentence effective (with the other 4 still suspended conditionally).

A wholly-suspended sentence was, held the Court, “excessively lenient”. “Our society, where fraud and corruption are rife, expects harsher treatment in cases like [this one]”. Not only was the appellant an accountant and therefore “in a position of trust”, but his scheme had required careful planning and execution and had been perpetrated on a sustained and continuous basis.

Fixed Term Contracts – A New Twist You Need To Know!

The unfair dismissal claim

Employees: Are you employed on a fixed contract basis? If so, what are your rights when your contract expires? In a nutshell, you will have a case against your employer for unfair dismissal if: –

  1. You have “a reasonable expectation” that the fixed term contract will be renewed on the same or similar terms; and
  2.  Your employer fails, without a “fair reason”, to renew your contract on the same or better terms, or fails to renew it at all.

Employers: Tread carefully here, and take advice in doubt! Routine renewal of a fixed term contract without explanation and without justification will virtually guarantee an unfair dismissal claim in the end.

And a new twist – can an employee demand a permanent position?

There’s a new twist here which both employers and employees need to be aware of – the effect of a recent Labour Appeal Court decision is that an employee is not protected by our labour laws where he/she has an expectation of indefinite (i.e. permanent) employment. In other words, although it is “dismissal” where the employee reasonably anticipates renewal of a fixed term contract, it is not “dismissal where he/she expects to be offered a permanent position but is instead offered only renewal.

The facts of the LAC case were that, after her fixed term contract had been renewed seven times over a three and a half year period, a university employee was interviewed for a permanent position but was unsuccessful. Instead she was offered another temporary contract on improved conditions – she declined the offer and approached the CCMA with an allegation of unfair dismissal.

Think twice before declining any offer!

However the LAC held that there had been no “dismissal” – the employer had complied with its statutory obligation to offer the employee a renewal of her fixed term contract and she had declined the offer. She was therefore not protected by the labour legislation, and (although it seems likely that amending legislation will change that in due course) for the moment at least employees need to think twice (and seek legal assistance!) before declining any similar renewal offer.