The National Union of Metal Workers of South Africa (Numsa) has made history as the first trade union in the country to force a company into a business rescue. In response to an application brought to liquidate Wilro Supplies – where 165 jobs hung in the balance – Numsa applied to the Pretoria high court to have the company enter into business rescue proceedings. This was granted last month after the union was able to prove that there were reasonable prospects for rescuing the business.
According to the provisions of the Companies Act, persons who can launch a business rescue application are shareholders or creditors of the company, registered trade unions or ordinary nonunionised employees. Numsa is the first labour organisation to do so.
Rory Voller, acting commissioner at the Companies and Intellectual Property Commission, said that, from a policy perspective, it was the first application for a business rescue the commission was aware of where the applicant was a trade union.
Voller said it was a significant development because “workers are playing a more meaningful role in the direction of a company”, and their rights to protect their interests in a company that has solvency or liquidity problems was being entrenched in the South African corporate landscape.
The dispute kicked off in 2011 when Wilro Supplies dismissed 16 workers, all of whom were Numsa members. After a protracted battle in the Labour Court in March this year, the dismissal was found to be procedurally and substantively unfair, and the company was ordered to compensate and reinstate them. Their back pay amounted to R1.9-million and the company was also ordered to pay Numsa’s legal costs, estimated at R200 000.
Wilro Supplies reinstated the workers but did not give them their back pay. It applied for liquidation on April 1, citing its debt to the union and the workers as the main cause of its financial distress.
The company manufactures nails, fixed and retractable security gates and burglar guards, toilets and steel reinforcements for mines. In applying for liquidation, it argued there was no longer a substantial market for its products and that it could simply not compete with cheap imports.
Absolved of responsibilities
Numsa said in its court papers, however, that the liquidation application appeared to be a way for the company to be absolved of its responsibilities in terms of the order granted by the Labour Court.
The union claimed that Wilro Supplies and another company, registered as Dunrose Investments but trading as Abracon, were one and the same and were both controlled by their managing director, Willie Steenberg. The two companies were housed on the same premises, Numsa said.
Numsa alleged that Wilro Supplies’ employees were doing Abracon’s work but that Wilro was bearing the cost of salaries and wages for Abracon employees without being properly compensated by the company.
As a result, Numsa said, Wilro Supplies’ financial distress could largely be attributed to the contractual relationship between itself and Abracon, and not the Labour Court order. The union argued that the relationship between the two companies required further investigation, but that this would not happen if Wilro was liquidated.
Wilro Supplies, however, denied that it was one and the same as Abracon. In Wilro Supplies’ court papers, Steenberg said the allegation that the two were linked was speculative, unconfirmed and unproven. He said Wilro Supplies’ primary business activities were the provision of specialised administrative services, skills and manpower to its clients. He further argued that a liquidation process would yield more return for employees and creditors than a business rescue.
Reasonable prospect of rescue
The court agreed with Numsa that there was a reasonable prospect of rescue based on the fact that there were no debtors or creditors, with the company’s only costs being the Labour Court order and Numsa’s cost order. The company’s trading functions since 2011 had remained the same until the date of the award, and Wilro Supplies’ financial statements had been approved by its auditors with no issue until, and immediately prior to, the liquidation application.
Alex Eliott, a partner at Hogan Lovell’s, which represented the union in court, said about 90% of companies had applied for rescue as a result of a resolution from their directors or members, and in the other 10% of cases it was shareholders or creditors that brought a court application.
“It’s the first time a trade union has successfully applied to a court as an affected party. A lot of trade unions are ignorant of the power of business rescue,” said Eliott. “It means you can replace management – and [the fact is that] the majority of companies fail due to poor management.”
To succeed with a business rescue application, an affected party has to demonstrate reasonable prospects for saving the business. The problem is that unions often don’t have access or insight into a company’s financial records, Eliott said.
Numsa’s primary objective was keep its members employed and in this case business rescue could yield a better result than liquidation, he said, adding that there was some disclosure in the liquidation application, the shop stewards had some insight into how the company worked and the company itself was compelled to provide some of its financial information as part of the business rescue application.
“We put our toes in the water where we never have before,” said Norma Craven, head of Numsa’s legal department. “We’ve thought for a long time about the necessity of unions to be involved in business rescue.”
Craven said it was a costly affair and not something unions could easily jump into.
“But for Numsa it was a matter of principle after having won an excellent settlement for our members in the Labour Court, to hear they were threatening to close down the business,” she said. “For us it was a first. We are very proud to be the first trade union to do so and we hope that out of it we will save those jobs.”
Steenberg told the Mail & Guardian this week that Wilro Supplies had warned the Labour Court, when it sought to reinstate retrenched workers, that “the company will fold and then 150 jobs, instead of 16, will go down the drain”.
Steenberg said he was all for saving jobs where possible, but did not know how the business could be rescued in the face of the Labour Court order, which had “crippled the business”.
Eliott said the business rescue practitioner has the power to renegotiate contracts on behalf of Wilro Supplies, such as the deal with Abracon. But Steenberg said there was no room to renegotiate the contract. “The [unions and bargaining councils] just want us to pay more and more and more, but the industry cannot afford to.”
Eliott said the union’s success in court showed that capital did not have a monopoly on expertise in company management. “It’s often just assumed that owners who are in positions of management are the people who know how to run the company. Sometimes they need to take guidance,” he said.