NEDLAC REACHES AGREEMENT ON AMENDING THE INSOLVENCY ACT

13 June 1996

Nedlac's Labour Market Chamber has reached agreement on an amendment to the Insolvency Act, 1936, in terms of which employees' financial claims against an insolvent employer will in future receive considerably more preference than is currently the case.

The agreement will bring South African law in line with International Labour Organisation convention 173, called "Protection of Workers' Claims (Employer Insolvency)". The ILO adopted this convention in 1992 after recognising that legal systems across the world fail to adequately address the position of employees of insolvent companies.

Nedlac executive director Jayendra Naidoo describes the agreement as "a positive development which will go a long way to redressing a long-overdue deficiency in the Insolvency Act. Workers often have no choice but to provide their labour on a credit basis in that they only get paid after providing labour to an employer. The agreement we have now reached redresses this existing imbalance between powerful and powerless creditors." In terms of the agreement, the free residue in an insolvent employer's estate-that is, the money left after secured creditors have been paid-will, after the costs of sequestrating the estate have also been met, in future be applied to paying employees:

• Any salary or wages due to the employee for a period not exceeding three months.
• Any payment in respect of holidays.
• Any payment due in respect of any other form of paid absence for a period not exceeding three months prior to the date of the sequestration of the estate.
• Any severance or retrenchment pay due to the employee in terms of any law, agreement, contract or wage-regulating measure.
• Any other contribution payable by the insolvent which, immediately prior to the sequestration of the estate, was due to any pension or medical scheme, medical, unemployment, holiday, provident or any other similar insurance fund.

In terms of the Ministry of Labour's five-year programme of action, the minister earlier this year tabled an amendment to the Insolvency Act in the Labour Market Chamber. This amendment proposed that the Act be brought in line with article 6 of ILO convention 173 by extending the category of workers' claims that are privileged, and increasing the privilege enjoyed by workers' claims. In response, the Labour Market Chamber constituted a tripartite three-person legal team to seek consensus on the proposed amendment.

The agreed amendment will be included in the general laws amendment bill, which is being prepared for submission to Parliament later this year by the Department of Justice.