“Rescued” by the Trade Union

We recently acted for the National Union of Metalworkers of South Africa (NUMSA) in a ground-breaking matter (National Union of Metalworkers of South Africa Obo Hlongwane and Others v Wilro Supplies CC (JS 207/12) [2015] ZALCJHB96 (16 March 2015) in which a close corporation was put into business rescue by means of a High Court application, which was opposed by the corporation itself.

Wilro Supplies CC employs approximately 156 of NUMSA's members. In 2011, the CC retrenched 16 employees who were NUMSA members. NUMSA challenged the fairness of the dismissals in the Labour Court. In March 2015 the Labour Court declared the dismissals to be unfair and granted a reinstatement award against Wilro, with a monetary value in the amount of ZAR1.7 million. In addition the Labour Court ordered Wilro to pay NUMSA's legal costs. Shortly thereafter the members of the CC brought an application to place Wilro in liquidation. NUMSA brought a counter-application against Wilro to stay the liquidation proceedings and place the CC under supervision and business rescue. This was granted by Judge Kollapen despite stiff opposition from the corporation. The court found that liquidation was not in the best interests of Wilro’s employees, who were also the largest creditors, and that a business rescue practitioner ought to investigate the affairs of Wilro and endeavour to offer the creditors a better return than in liquidation.

A crucial factor in the case was the role of another company, Dunrose Trading 57 Pty Ltd, which traded as Abracon from the same premises of Wilro and had the same management. Abracon was Wilro's only customer and effectively set the price Wilro charged it. NUMSA successfully made out a case that Wilro's financial distress arose because it was being run entirely for the benefit of Abracon, and that an independent business rescue practitioner would be in a position to negotiate a fair contractual arrangement between the two companies that would allow Wilro to be run at a profit.

Although the rescue proceedings are ongoing, the employees have already benefitted; without NUMSA's intervention, Wilro would have been liquidated on 20 April, but instead is today still trading without any jobs having been lost.

This was the first case since the introduction of business rescue provisions in the new Companies Act where a trade union representing the labour force has succeeded by court application to place an employer in business rescue - saving jobs in the process. It is hoped that this decision will herald an era of embracing business rescue as an opportunity for labour and not as a threat to jobs and membership.

As published in Without Prejudice in November 2015.

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