A critical evaluation of business rescue and employment safeguards in South Africa

Introduction

Within South Africa, Chapter 6 of the Company Act 2008 introduced the statutory mechanism of “business rescue” that provides financially struggling businesses a chance to recover and reform their business operations. It acts as a great tool for financially unsound companies to avoid the lengthy process of liquidation process (Rosslyn-Smith et al., 2020). The ultimate goal of business rescue is to save struggling businesses from going out of business and allow them to keep operating as continuing businesses. The main target is to speed up the business’s restoration and avoid its greatest liquidation. It tries to create a safe atmosphere for recovery by offering an interim order against litigation filed against the company when restructuring is ongoing.

Figure 1: Impact of Business Rescue Framework

Several businesses in South Africa opt for business rescue as a preferable choice to liquidation due to the nation’s economic instability and lengthy process of liquidation. Business rescue is a lifesaver for struggling companies, in addition to a legal process. The primary target of business rescue is to raise the chances of the business’s successful comeback by reducing any possible damage to stakeholders, who serve as key players in every business (Olujobi, 2021). The study focused on how the business rescue impacted employment and on the other hand, it is crucial in saving employment that would’ve been lost due to liquidation.

By studying the connections between employment effects and the business rescue system, the study improves the overall understanding.This research aims to gain deeper insights about the employment consequences arising during business rescue, in both direct and indirect ways. The real-life experiences faced by the workers during business rescue steps have provided the opportunity to conduct the study to find out the strategies to safeguard the employees. Moreover, employees might believe that the process is confusing and that their interests have not been considered when creating the strategies for business to prevent them from liquidation. 

Problem Statement

The introduction of the business rescue mechanism in South Africa within the Companies Act 2008, was one of the greatest developments to prevent and preserve the companies from liquidation and its strict procedures. However, despite the numerous benefits of business rescue mechanisms for businesses, the employees faced few challenges since it does not give protection to the employees. The primary challenge that comes within the business rescue mechanism is the mandatory employment safeguarding provisions.

Thus the report will find out the major challenges faced by the business and employees when adopting a business resume scheme.Moreover, another issue was that it focuses on maintaining the business’s profitability and avoiding the safety of workers (Walton et al., 2020). Workers’ job stability is doubtful if a particular company go for business rescue, and this insecurity gets harsher due to the lender or financial institution’s high demands. 

Figure 2: Challenges in Business Rescue Framework

Thus from the above, it can be found that even though South Africa has developed an effective legislative mechanism for company protection, there are still major issues for carrying out the business rescue effectively, particularly when it relates to employee security and rights due to various reasons (Rajaram et al., 2018).Therefore, business rescues have a variety of effects on jobs and workers since it impacts adversely on employees in terms of layoffs, salary cuts, or worse working conditions.

Additionally, the investigation examined how business rescues affected workers and how much it prevented companies from going through the liquidation process. Thus, the relationship between job safety and business rescue is an important topic to study. Understanding the business rescue mechanism to prevent companies from the liquidation process can enhance employee rights during business rescue.

Aim of the Study

Aim

The aim of the current study is to ascertain the evaluation of business rescue and employment safeguards in south Africa.

Research Objectives

• To identify importance of business rescue and new employment safeguards in South Africa
• To analyse importance of legal provisions and labour laws, in business rescue and employment safeguards in South Africa
• To analyse challenges faced by companies in business rescue and employment safeguards
• To recommend future policy recommendations, for enhanced business rescue employment safeguards in the South African business

Research Questions

The following are a few research questions that this study explores:

1. What are the impact of the business rescue and employment safeguarding framework in South Africa?

2. What are the major challenges faced by the business and employees when adopting a business resume scheme?

3.   How does the business rescue frameworkprevent companies from the liquidation process?

Literature Review

The literature review reveals the importance of business rescue and employment protection measures in South Africa. They discuss how the frameworks for the corporate rescue- the Companies Act of 2008- seek to safeguard staff during company failures. But concerning employment protection these provisions are often violated; different case studies reveal the discrepancy to exist between legislation and practice.

The importance of business rescue and new employment safeguards in South Africa.

The assessment of the effectiveness of corporate rescue coupled with the evaluation of employment protections in South Africa includes the examination of the corporate rescue machinery for the employment status of employees during organisational failure. The process is useful since it helps businesses survive by providing on how to reorganise debts, cut costs of doing business, and renegotiate with creditors, which can save employment.

Employment protection and the business rescue process

The employment protection assessment is highly linked with business rescue procedure. Section 136 of the South African Companies Act tries to protect employment by limiting the discharge of employees unless authorised by a company rescue expert or during the course of bargaining. However, employment security is not total in these regards. Business rescue procedures may help to prolong the implementation of dismissals but could be the preliminary stages of restructuring processes which may lead to dismissals.

More than 60% of the firms under rescue in 2022 continue to engage in layoffs due to situations such as unsustainable operating models. That is why the situation revealed the contradiction between the legislation and real practices when the concerns of employees might be left behind in favour of the business’s sustainability.

One of the goals is to evaluate the legal requirements and labour laws in employment during the course of rescue. The Labour Relations Act only permits business rescue to proceed while not doing so as taking away the rights of employee unfair treatment. The framework has also taken into consideration negotiations with trade unions and employee representatives at the rescue negotiation stage. However, in practice this process may be carried out only formally on the surface. Contrasting more on the structure of the Act, the system discriminates in the favour of the creditors.

This was evidenced when Edcon business went through the business rescue process in 2020, where over 22, 000 employees were laid off despite bargaining. Under the law, employee salaries are deemed to be secured during liquidation or business rescue, while the enforcement is rather week; with up to 35% of cases failing to meet salary commitments. This means that although legal frameworks have been developed, the effectiveness of these in implementation is doubtful.

The case studies assist in shedding light on the practical effects of company rescue on employment. The business rescue framework was first applied regarding the South African Airways (SAA) in 2020, but the result shows the inefficiency of the framework. As mentioned during the rescue proceedings, the flow lost over 3000 employment opportunities with the help of governments. Although SAA’s business rescue strategy was to prevent the company’s deterioration, employment measures were insufficient on enactment.

Comprehensive examples include Comair where business rescue measures did not help to avoid liquidation which in return eliminated 1800 plus persons in the year 2022. As these cases demonstrate, there is significant conflict between the preservation of a company and the employment of staff under South Africa’s business rescue regime.

Legal provisions and labour laws, in business rescue and employment safeguards in South Africa.

This research aims to critically analyse corporate rescue and employment safeguards in South Africa to examine how legal provisions and labour laws are implemented to shield workers in the course of business failure, especially in industries vulnerable to business rescue. The mention aim here is to evaluate the extent to which these laws help in enhancing employment sustainability throughout restructuring processes of organizations.

Labour legislation and Legal Requirements in Business rescue

The Companies Act of 2008 of South Africa regulates the corporate rescue processes and has provisions regarding the employee’s protection. Nevertheless, the use of the labour laws in business rescue sometimes results in disparate consequences. For example, employees’ rights during business rescue process, concerning their rights at the time of restructuring are also provided, but their enforcement is not always strong as in the cases of structural changes in mining and tourism sectors.

The issues of closure of mines and its effects on employment. The South African mining sector, which is one of the vital industries in the country, has witnessed the entrance of many businesses to the business rescue regime. This goes contrary to the aim provided by the labour laws that are meant to protect the employees, but instead, experiences are retrenchment among other things. In 2020 some mining companies made massive layoffs of employees by over 20% even after restructuring through business rescue.

This shows a difference between the existence of legal rights and reality in observing the rights where though business rescue prevents immediate liquidation, employment protection may not be secured. This issue is reflected in other sectors cannot by such as tourism sector where consumer satisfaction is key to the success of businesses. This study established that companies which entered business rescue throughout the covid-19 lockdown in South Africa did not exercise sufficient job protection.

After the advent of the pandemic, the employment of staff in the industry cut down to half as many companies laid off their employees or shut down business. However, Labour relations Act of South Africa and Basic Conditions of Employment Act gives some guidelines of how layoffs can be negotiated and how severance packages can be secured by employees.  It needs to be banked that during this period of Lockdown many organisations were financially stricken and he could not afford to retain employees. This implies that business rescue while constituting to protect employment is usually non-successful in sectors that are fragile to external forces.

Employment in the framework of the COVID-19 Effect

The impact of the epidemic on the employees in the game parks and captured how vulnerable industries were to downturns. Analysing such scenarios, it emerged that the business rescue process provided negligible safeguard to employees: many of whom lost their jobs despite the availability of labour laws. Research conducted from the employees of the tourism sector in the problem areas such as game parks and resorts revealed that 80% of the employees received their reduced or faced retrenchment during Covid-19. This once more indicates how powerless legal measures are in a crisis situation where business rescue insists on creditor interests even at the detriment of employees.

CSR, Environmentalism and Protection for Workers

The South African and Nigerian CSR models and insists on increased safeguards for stakeholders, particularly employees. Although South Africa has embarked on establishing a legal structure that incorporates business rescue procedures, Amodu opines that there is still a long way for the appreciation of CSR principles with a focus on worker rights during periods of instability. This is especially so where, as in the case of mining, most of the employment is of the direct variety and the employees are most exposed during restructuring.

The challenges faced by companies in business rescue and employment safeguards.

An assessment of business rescue and employment safety laws in South Africa shows that SME enterprises’ specific circumstances after the completion of business rescue reveal both benefits and costs.

The Blessing of Business Rescue and Employment Rights

There is South Africa’s company rescue mechanism in the Companies Act, 2008 and its function can help alleviate job losses through company restructuring. The South African government took throughout epidemic were intended to protect the businesses and their employees. The Temporary Employer/Employee Relief Scheme (TERS) released funds to struggling industries so as to accommodate their workers during business rescue processes. This was especially helpful for industries that received the brunt of the pandemic for example hospitality and tourism where Sun International was for instance able to pin employees digitally thereby not having to resort to references due to financial relief from TERS.

Nevertheless, it was established that business rescue effectiveness in preserving employment relies on industry specificity. Employees agree that sometimes companies can achieve restructuring without the elimination of large numbers of workers. An example is Edcon, south Africa’s largest clothing retailer, which started business rescue early this year 2020. There was anticipation of massive retrenchment exercises, however, due to creditor negotiations and adherence to labour laws, in calculation save thousands of jobs although at a lesser pay.

Figure 1:The Temporary Employer/Employee Relief Scheme (TERS)

Problems and Risks

As much as there are provisions of the law that sought to protect employees, business rescue is not always positive when it comes to employment. The gig economy workers from Cape Town, with a focus on ride-hailing workers who suffered pre Covid-19 from the general economic decline and corporate rescues. The business rescue framework is predominantly formulated for the formal corporate environment and is insufficiently sufficient to secure informal and insecure employee of modern gig economy. This sector lost 40% of its jobs during the pandemic as business such as Uber and Bolt downsized their operations with no legal access to business rescue mechanisms that can protect gig Economy workers.

The mining industry also demonstrates how business rescue framework fails to protect employment as some of its tenets below show. The South African mining sector remains characterized by work insecurity, and business rescue results in the loss of employees’ jobs because companies prefer creditors’ claims to employees’ rights. This is evident with the case of Optimum Coal Mine that shut down in 2018 seeing over 2,000 employees lose their jobs even after efforts were made to bailout the company.

The Role of Labour-Management Relations

Labour-management relations are highlighted to be a central aspect in the outcome of employment protection during business rescue. They also indicate that the likelihood of continuing to work or being paid decent remunerations during the restructuring is higher in organisations with powerful labour unions that uphold bargaining rights. But in industries where workers are hardly unionized as in case of domestic workers or small to medium scale industries the consequences are severe. For instance, the Comair airline rescue in 2020, although union participation was imminent over 1 800 employees where retrenched because the company failed to secure enough financial support.

Conclusion

The literature review concludes that business rescue is a legal tool under the companies Act of 2008 that focuses on the reestablishment of an ailing business organization. Problems such as financial insolvency and creditor claims overrode the provisions on employment protection under the Labour Relations Act. On this basis, it is still unclear to what extent this framework helps protect employment. Thus, how employment sustainability can be achieved or maintained in the framework of corporate rescue short of a more active CSR practice. Therefore, the case demonstrates that in some circumstances business rescue may establish a synergy between company restructuring and employment protection.

Research Methodology

Introduction

The group of steps and methods required for gathering and analysing data related to the subject of a study can be referred to as research methodology (Al-Ababneh, 2020). The present research method provides data on the impact of the employment safeguarding framework and business rescue in South Africa. It additionally provides the rationale for a method’s selection and makes it easier to determine that the chosen approach works well for the study.

Research Philosophy

Research philosophy is concerned with the improvement, assumptions, and foundation for the data collected. This term is acknowledged as guiding the collection, handling, application, and analysis of data. The researcher may apply this to increase their awareness and attention to presumptions and different points of view (BRM, 2023). The three research in philosophy are pragmatism, positivism, and interpretivism.

The current study adopts the interpretivism research philosophy. As with implementing this approach, the investigator minimises partiality in the investigated results by focusing on discovering and assessing possible risks (Alharahsheh and Pius, 2020). Furthermore, this philosophy can support the discovery of significant findings and theories about the effect of the job safeguarding and business rescue framework in South Africa.

Research Method

Research methods can be described as specific approaches that can be implemented for gathering and analysing the required information. There are two different kinds of study methodology such as qualitative and quantitative. A qualitative method is utilised in this study process for precisely gathering data from secondary sources. To obtain a deeper knowledge of the concepts, opinions, and views regarding the research issues, qualitative research promotes the collection of non-numeric data (Adedoyin, 2020). Therefore, the researcher could possibly simplify the study by incorporating the results swiftly through using qualitative research.

In quantitative research, flexibility is very high.This facilitates an accurate collection and effective use of the knowledge gained about the primary challenges that the company and its employees encounter when implementing a business resume strategy. Furthermore, it makes trustworthy data simpler to obtain, which enhances results (Bhangu et al., 2023). A qualitative methodology will be applied in this research since it facilitates the review of previously published works, books, journals, articles and reports.

Data Collection Method

The data collection method is the process of acquiring data from all appropriate and dependable sources. Secondary, primary, and mixed sources are some key methods for obtaining the information.  The success of research is raised when suitable data is used to enhance stability during the investigation (Hassan, 2023). The information necessary for the research was gathered from secondary sources. The major methods to gather data from secondary sources are information that has been provided by others through books, documents, scientific journals, and various additional sources. It makes it easier to learn more about the investigation issue.

Furthermore, it raises the accessibility of precise data, which raises performance (Frigola, 2021). Therefore the research to gather the data about the impact of business rescue and employment safeguarding framework on businesses and employees in South Africa was gathered through secondary sources. Also, it is quite feasible and easy to gather past studies of the experts in comparison with the primary data. This method is not only feasible but also saves time and money for the researchers.

Data Analysis

Data analysis could enhance the examination of research findings as well as help in the creation of an efficient analysis. Through taking the most efficient data analysis method, the investigator may give useful guidance and reduce misconceptions regarding the challenges faced by the business and employees when adopting a business resume scheme (Kelley, 2023). The descriptive analysis is thus used to examine the data acquired in this study. The descriptive strategy is additionally helpful in strongly pinpointing the needs that are crucial for the research and enhancing the overall trend and connection among the facts. Thus, by concentrating on descriptive evaluation, an innovative and practical strategy can be built.

In this research, a descriptive-analytical approach is used to create the right findings. It argues that by employing this form of analysis, substantial findings may be generated and the relevance of the research could be boosted (Ahlskog, 2020). Adopting a descriptive technique provides the ability to precisely state the study’s parameters and underline the overall pattern and relationships identified within the data. Furthermore, it simplifies structuring the data and simply presents the details.

Summary

Therefore, it can be summarised based on the above discussion, for obtaining qualitative data, the use of secondary data collection can be advantageous. Hence, a successful data collection and analysis procedure can result in outstanding findings. Moreover, the process of descriptive analysis was utilized to assess the data gained from secondary sources.

Outline of the Chapters

This research is designed to achieve its goals and its questions effectively and it has five chapters with particular objectives:

Chapter 1: Introduction

The importance of research environment is shown in the extensive introduction in this chapter. It defines the investigation’s subject and reason for the setup to the following chapters including research’s aim, objectives and relevant questions.

Chapter 2: Literature Review 

Second chapter critically reviews relevant research material and theoretical foundation derives from reading the existing research and models, and concepts.

Chapter 3: Research Methodology

Research methods are justified in this chapter and research is observed on data collection and analysis methods allows research to be duplicated. Strategies for solving research problems are evaluated.

Chapter 4: Discussion and Data Analysis 

Chapter 4 analyses primary research data and it places results alongside theoretical perspectives and literature.

Chapter 5: Recommendations and Conclusion 

The summary and analysis of the study’s results is completed in the last chapter. It also provides recommendations for the future research and investigations.

Work Plan

Research Deliverables	Month1	Month2	Month3	Month4	Month5	Month6	Month7	Month8	Month9
Introduction
Literature Review
Methodology
Data Collection
Data Analysis
Conclusion
Recommendations
Write-up

Future Scope of the Study

There may be a great deal to be learned in a variety of crucial areas as a result of “A Critical Evaluation of Business Rescue and Employment Safeguards in South Africa.” Despite having corporate rescue and employment protection tools to respond to economic problems, such as rising unemployment and company volatility, South Africa requires them. It can be considering these issues in the rules, corporate practices and employee safety.

Evolution of Business Rescue Framework

Globally, the framework in South Africa may be used to study corporate rescue framework. To succeed in new industries and company models driven by technology and the digital era corporate rescue rules may have to be reformed. The research would compare the South African rules to best practices across the world and identify possible improvement areas in line with financially challenged enterprises.

Impact on Employment Safeguards

High unemployment rate in South Africa within an area of work economy, it might be advisable that there should be further research on company rescue initiatives and job security. However, the current system stratifies between employee rights and firm recovery, but does not protect workers if enterprises go bankrupt. But business rescue cases could show how employee efforts saved employment.

Social and Economic Impacts

The social and economic effects of business rescue on South African communities can be studied. It might entitle researcher to study impacts on worker lives, regional economies and stability of market. Examples of these studies might include discussion in how business rescue affects South African enterprise and the economy. Finally, the research of job protection and company rescue may benefit both the economy and people.

Significance of the Study

The research is of both theoretical and practical help in the research titled “A Critical Evaluation of Business Rescue and Employment Safeguards in South Africa”. It develops bankruptcy and labour law ideas, and contains vital employee protection notions.

Theoretical Importance

The results of this research make a contribution to the bankruptcy, labor, and corporate governance literature. How judicial systems in developing countries deal with corporate crises is assessed by using Company rescues in South Africa. By using bankruptcy theory to study the difficult job preservation-company regeneration trade off. Business rescue tactics often focus on creditor interests, but this study is not on that, as it looks at the case of employee rights on the legal platform, with fresh insights on how they can be incorporated into corporate restructuring.

Worker safety research in high unemployment countries is also promoted by the study. It critically evaluates applying workers’ rights, social justice, and legal fairness in corporate rescue. It also contrasts South African bankruptcy and labour law with global standards, contributing to global scholarly debates.

Practical Importance

One of the most vulnerable stakeholders is usually workers in an unstable organization. They will be much benefited by this research. South African workers already have massive unemployment but company rescues hit them. The second part of the research objectively evaluates the safeguards in place for rescues of company’s employment to determine if they can mitigate job losses in connection to company restructuring. It finds legal loopholes and calls for employee rights improvements. It prescribes what to do to make taking jobs more secure when the company picks up again.

However, the study gives emphasis on efforts to ensure employee well-being during the restructuring process as a means of protecting company human capital as well as attaining company sustainability. In order to protect employee rights through the company’s recovery, the study suggests legislative safeguards. There are two reasons why this research is relevant and it adds to the developing economy labor laws and business rescue frameworks. It provides advice on the employee protection and fair corporate recovery in South Africa.

Limitations of the Study

• Small Sample and Interviewing Methods 

This research is limited by an interview based data collection and a small sample size. Qualitative data is introduced by interviews, but participant viewpoints are skewed and shifted towards. The sample sizes are small, so opinions and experiences are limited. For this reason, the conclusions may produce a result that is not statistically correct and may not wholly reflect the objective of many business rescuers. Result validity and reliability are improved when a bigger, more representative sample or a mixed-methods approach of including surveys, interviews and secondary data are used.

• Limited Generalizability to Other Contexts

Since the study is limited to South Africa and is not applicable to the wider range of the world. This study’s worker rights and corporate rescue framework is shaped by the conditions of socioeconomic, legal and political landscape of South Africa. In this way, it offers a comprehensive and scenario-specific depth in the South African system, but it cannot be generalized to other countries with different labour markets, economic conditions and regulatory regimes. As such, its worldwide impact is limited by the lack of cross national comparisons in research. The constraint to this is eliminated when we compare job protection and business rescue studies to other nations and get more generally applicable findings and policy suggestions.