REPORT OF THE NATIONAL ECONOMIC DEVELOPMENT AND LABOUR COUNCIL ON INSOLVENCY ACT REGULATION

12 July 2000

1. BACKGROUND

1.1. The Insolvency Act, 1936, was amended by section 2 of the Judicial Matters Second Amendment Act, 1998, which provided for the insertion of section 98A.

1.2. Section 98A was inserted in order to bring the provisions of the Act in line with the provisions of the International Labour Organisation convention 173 concerning the protection of workers' claims (employer's insolvency).

1.3. The Convention provides that specified claims of workers should have a rank higher than most other preferent claims (and in particular those of the State and the social security system). It also provides that workers' claims may be limited to a prescribed amount, provided that the said amount is not set below a socially acceptable level and is adjusted regularly in order to maintain value.

1.4. The Act required the Minister of Justice to consult Nedlac in respect of the:

1.4.1. Maximum amounts to be paid from the balance of the free residue to employees who were employed by the insolvent.

1.4.2. Exclusion of a category of employees, schemes or funds from the operation of the provisions of section 98A.

1.5. The Department of Justice published a proposed determination of amounts and exclusion of employees for the purposes of section 98A of the Act, in the Government Gazette No. 20875 on 10 February 2000, inviting public comment.

1.6. The period for public comment was 60 days from date of publication.

1. PROCESS IN NEDLAC

2.1. The Department of Justice submitted the proposed determination to Nedlac on 17 February 2000.

2.2. The matter was tabled at the Labour Market Chamber meeting on 16 March 2000 for consideration. At this meeting labour and government undertook to revert prior to the meeting of the Management Committee in April.

2.3. Labour's submission on the proposed determination, which was received on 13 April 2000, was tabled at the Management Committee meeting on 17 April 2000.

2.3.1. In its submission, labour raised concerns regarding certain provisions in the Act. In particular, labour was of the view that the three-month limitation in respect of salary or wages payable in terms of section 98A(1)(a)(i) should not apply to employees earning less than R3000 per month. Labour undertook to address these concerns through other processes.

2.3.2. In the interim, labour proposed that subsequent to paying secured creditors, funeral and deathbed expenses of the insolvent and costs of sequestration and execution of the insolvent estate, in terms of sections 95, 96, 97 and 98 of the Act, the following maximum amounts should be payable:

      i.        R3000 per month owed in respect of any salary or wages, for a period not exceeding three months, due to an employee in terms of section 98A(1)(a)(i). The determination proposes R12000.
 

     ii.        R3000 for any payment in respect of any period of leave or holiday due to the employee which has accrued as a result of the employee's employment by the insolvent in the year of insolvency or the previous year, whether or not payment thereof is due at the date of sequestration in terms of section 98A(1)(a)(ii). The determination proposes R4000.
 

    iii.        R3000 for any payment due in respect of any other form of paid absence for a period not exceeding three months prior to the date of sequestration of the estate in terms of section 98A(1)(a)(iii). The determination proposes R4000.
 

    iv.        R9000 for any severance or retrenchment pay due to the employee in terms of any law, agreement, contract or wage-regulating measure in terms of section 98A(1)(a)(iv). The determination proposes R12000.
 

     v.        R9000 in respect of any contributions which were payable by the insolvent, including contributions which were payable in respect of any of his or her employees, and which were, immediately prior to the sequestration of the estate, owing by the insolvent, in his or her capacity as employer, to any pension, provident, medical aid, sick pay, holiday, unemployment or training scheme or fund, or to any similar scheme or fund in terms of section 98A(1)(b). The determination proposes R12000.

2.3.3. Labour motivated that a reduction in the maximum amounts, as proposed, would ensure that there was sufficient free residue to pay lower income earners' wages and benefits.

2.3.4. Fedusa stated that although it shared labour's concern, it supported the amounts proposed in the determination provided that the balance of the free residue was distributed in an equitable manner. It proposed therefore that lower income earners' claims should be awarded preference.

2.4. In view of labour's late submission, the Management Committee referred the matter back to the Labour Market Chamber for further consideration and mandated the overall convenors to ratify the recommendation of the chamber in this regard.

2.5. The matter was discussed at the chamber meeting on 4 May 2000. Business and government undertook to give further consideration to labour's submission.

2.6. The matter was again discussed at the chamber meeting on 25 May 2000. The meeting agreed that in the absence of consensus:

2.6.1. A Nedlac report should be drafted capturing constituency positions.

2.6.2. Subsequent to finalisation, the report should be forwarded to the Department of Justice for consideration by the Minister.

2.7. Subsequent to the chamber meeting, business requested an opportunity to given further consideration to labour's proposals. Business submitted a document outlining its revised response on 19 June 2000.

2.8. At the chamber meeting on 22 June 2000, labour amended their position to support the government proposal. However, they expressed Htheir continued concerns regarding the potential negative impact for low-income earners of the three-month limitation in respect of salary or wages payable in terms of the Act.

2.9. The report was ratified by the overall convenors on 12 July 2000.

1. CONSTITUENCY POSITIONS

After much consideration, Nedlac parties unanimously support the proposed determination as published in the Government Gazette No. 20875 on 10 February 2000.

1. CONCLUSION

This report therefore concludes consideration of the issue in Nedlac and the report is hereby submitted to the Department of Justice for consideration by the Minister.