THE AMENDMENT TO THE INSOLVENCY ACT TO BE INSERTED INTO THE GENERAL LAWS AMENDMENT ACT

31 May 1996

1. INTRODUCTION

• The Ministry of Labour's "Programme of Action" states that the Insolvency Act, 1936 does not adequately provide for the protection of workers in cases where the employer becomes insolvent.

• The Minister of Labour's "Programme of Action" outlines a process for amending the Insolvency Act, 1936, to protect workers' claims in the event of the insolvency of their employer. This process included the submission of an amendment bill and explanatory memorandum to Nedlac.

2. THE AMENDMENT BILL AND EXPLANATORY MEMORANDUM

• In a letter dated 8 December 1995 the Minister of Labour proposed an amendment to the Insolvency Act, 1936, to protect workers' claims in the event of the insolvency of their employer. The Minister requested that the proposed amendment be placed on the agenda of the Nedlac Labour Market Chamber for finalisation. Please refer to annexure "A" for a copy of the letter and attached amendment bill and explanatory memorandum.  It is stated in the explanatory memorandum that the failure of legal systems to adequately address the position of employees of insolvent companies was an international problem that had led to the International Labour Organisation adopting the Protection of Workers' Claims (Employer Insolvency) Convention (173 of 1992).The Minister of Labour noted in his proposal that there were several reforms to the Insolvency Act, 1936, that were required to improve the position of employees and to bring the law into line with Convention 173. A copy of the International Labour Organisation Convention 173 is attached as annexure "B".An amendment to the Insolvency Act, 1936, was proposed to bring the Act in line with Article 6 of the Convention by:

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1. Extending the category of workers' claims that are privileged.
2. increasing the privilege enjoyed by workers' claims.

3. THE PROCESS IN NEDLAC

• The proposed amendment to the Insolvency Act, 1936, was circulated to the members of the Labour Market Chamber on 23 January 1996.

• At the Labour Market Chamber meeting of 14 March 1996 it was agreed in principle that workers' claims should receive a higher preference than was the case under the current Insolvency Act, 1936.

• It was agreed at the Labour Market Chamber meeting of 14 March 1996 that a three-person legal team would be established to seek consensus on the proposed amendment to the Insolvency Act, 1936.

• The legal-team comprised:

1. Mr P. Anscombe (business).
2. Mr R. Lagrange (labour).
3. Mr P. Benjamin (government).

    

• The three-person legal team met on 7 May 1996 and revised the draft amendment to the Insolvency Act, 1936, in order to meet the concerns of labour, business and government.

• A revised amendment was circulated to the Labour Market Chamber on 13 May 1996.

• The Nedlac Management Committee on 17 May 1996 mandated the Labour Market Chamber to finalise agreement on the amendment to the Insolvency Act, 1936, in order that the amendment could be included in the General Laws Amendment Bill being prepared for submission to Parliament by the Department of Justice.

• At the meeting of the Labour Market Chamber on 30 May 1996 the Labour Market Chamber agreed to the following amendment to the Insolvency Act, 1936:

DRAFT AMENDMENT TO THE INSOLVENCY ACT TO BE INSERTED INTO THE GENERAL LAWS AMENDMENT ACT

1. Insert into the Insolvency Act, 1936 (24 of 1936), immediately after section 98, a new section 98A -

98A - Former employees of insolvent

(1) Thereafter any free residue shall be applied in paying

(a) to any employee employed by the insolvent:

(i) any salary or wages due for to the employee a period not exceeding three-months;

(ii) any payment in respect of holidays which has accrued to the employee as a result of his employment by the insolvent in the year of the insolvency or the previous year;

(iii) 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;

(iv) any severance or retrenchment pay due to the employee in terms of any law, agreement, contract or wage-regulating measure; and

(b) any other contribution payable by the insolvent (including any such contributions payable in respect of his employees), which, immediately prior to the sequestration of the estate, were due by the insolvent, in his capacity as an employer, to any pension or medical scheme, medical, unemployment, holiday, provident, or other similar insurance fund.

(2)

(a) The Minister of Justice shall determine by notice in the Government Gazette a maximum amount that may be paid out in terms of any of subsections (1)(a) and (b) and shall from time to time review and, if necessary revise these amounts.

(b) At least two months before the publication of a notice in terms of subsection (2)(a), the Minister of Justice shall cause to be published in the Government Gazette a draft of the proposed notice and at the same time invite interested persons to submit in writing within a specified period comments and representations on the proposed notice.

(3) An employee shall be entitled to salary, wages or other payments in terms of sub-section (1)(a) even though he has not proved his claim therefor in terms of section 44, but the trustee may require such employee to submit an affidavit in support of his claim for such salary, wages or payment.

(4)

(a) The claims referred to in subsection (1)(a)(i) shall be preferred to the claims referred to in subsections (1)(a)ii - iv and 1 b).

(b) The claims in subsections (1)(a)(ii) -(iv) shall be preferred to the claims referred to in subsection (1)(b) and shall rank equally and abate in equal proportions, if necessary.

(c) The claims referred to in subsection 1(b) shall rank equally and abate in equal proportions, if necessary.

(5) For the purposes of section 98A -

(a) "employee" shall mean:

i) any person, excluding an independent contractor, who works for another person and who receives, or is entitled to receive, any remuneration; and

ii) any other person who in any manner assists in carrying on or conducting the business of an employer.

and "employed" and "employment" shall have corresponding meanings;

(b) "salary or wages" shall include all cash earnings received by the employee from the employer;

(c) "unemployment fund" does not include the Unemployment Insurance Fund established in terms of the Unemployment Insurance Act, 1996 (Act 30 of 1996).

2. The following sections in the Insolvency Act, 1936 (Act 24 of 1936) are repealed -

(a) section 99(1)(f);

(b) section 100.

4. CONCLUSION

This report, therefore, completes consideration of the issue within Nedlac, and the report and agreed draft amendment is hereby submitted to the Minister of Labour and Minister of Justice in terms of section 8 of the Nedlac Act, No. 35 of 1994.