National Union of Leather Workers v Barnard NO and another (DA14/00) [2000] ZALAC 6 (24 April 2000)

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[2000] ZALAC 6
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National Union of Leather Workers v Barnard NO and another (DA14/00) [2000] ZALAC 6; 2001 (4) SA 1261 (LAC); (2001) 22 ILJ 2290 (LAC); [2001] 9 BLLR 1002 (LAC) (24 April 2000)

IN
THE LABOUR APPEAL COURT OF SOUTH AFRICA
HELD AT
DURBAN
Case No. DA
14/2000
In the matter
between
THE
NATIONAL UNION OF LEATHER WORKERS
Appellant
and
H BARNARD
N.O. and G PERRY N.O.
Respondent
JUDGMENT
________________________________________________________________________
DAVIS
AJA
INTRODUCTION.
[1] On
9 March 1998 the shareholders of Vittmar Industries (Pty) Ltd (‘the
company’) passed a special resolution which provided
that the
company be wound up in terms of section 349 read together with
section 351 of the Companies Act 61 of 1973 (‘the Companies
Act’).
The resolution was duly registered by the Registrar of Companies on
13 March 1998, on which date the winding up of the
company commenced
in terms of the provisions of section 352(1) of the Companies Act.
In consequence of this winding up, the contracts
of employment
between the company and its employees terminated on 13 March 1998.
[2] The
preliminary and only issue which was required to be decided by the
court
a quo
was whether or not the termination of these
contracts of employment in the circumstances described constituted
dismissal in terms
of section 186(a) of the Labour Relations Act 66
of 1995 (‘the Act’) read together with section 213 thereof.
[3] In
the judgment of the court
a quo, Soni AJ
found that the
termination of the contracts of employment in question did not
constitute a dismissal as contemplated in section 186(a)
of the Act.
Soni AJ
held “Neither party could contend that it was the
decision of the employer to institute proceedings which terminated
the contract
of employment for the purposes of Section 186(a) of the
LRA, and that the employee was effectively dismissed on 1 February.”
Appellant
now appeals against this finding.
THE
NATURE OF THE DISPUTE.
[4] The
case as argued before the court
a quo
was based upon an agreed
set of facts which read as follows:
“
STATEMENT
OF AGREED FACTS:
On 9 March 1998 the shareholders of Vittmar
Industries (Proprietary) Limited (‘the company’)
resolved,
inter alia
, that:
the company be wound up in terms of Section
349 as read with Section 351 of the Companies Act, Act No. 61 of
1973 (as amended) (‘the
Act’);
such winding-up of the company be a creditors
voluntary winding-up;
(‘the resolution’).
A copy of the resolution is annexed to the
respondent’s Response to the applicant’s Statement of Claim and
marked “R2”.
The resolution was a special resolution as
contemplated in Section 200 of the Act and was duly registered by
the Registrar of Companies
on 13 March 1998.
In terms of Section 352(1) of the Act the
winding-up of the company commenced on 13 March 1998.
The company is and, at all material times,
was unable to pay its debts as contemplated in Section 339 of the
Act.
In consequence of the winding-up of the
company as aforesaid the employment of all the persons employed by
it (‘the employees’)
terminated by operation of law on 13 March
1998 in terms of Section 38 of the Insolvency Act, Act No. 24 of
1936 (as amended).
2.
THE PRELIMINARY
ISSUE TO BE DECIDED BY THE COURT:
Whether or not the aforesaid termination of
the employment of the employees was a dismissal as contemplated in
Section 186(a), as
read with the definition of the word “dismissal”
in
Section 213
, of the
Labour Relations Act, Act
No. 66 of 1995 (as
amended) (“the LRA”);
and, if so,
whether or not such dismissal was a dismissal
as contemplated in
Section 189
of the LRA.”
[5] Mr
Winchester, who appeared on behalf of respondent, referred to the
passage in the statement of agreed facts which provided that
‘the
employment of all the persons employed by it….terminated by
operation of law
on 13 March 1998 in terms of
section 38
of
the Insolvency Act….” Accordingly, he submitted that it was
common cause that the termination of the employment had been
by
operation of law as opposed to an act of the employer in which latter
case the termination would have fallen within the scope
of section
186(a) of the Act. For this reason Mr Winchester contended that the
statement of agreed facts ran counter to the essence
of appellant’s
case.
[6] Mr
Broster, who appeared on behalf of appellant, referred to the
statement of claim which provided,
inter alia,
that “The
resolution passed by Vittmar Industries (Pty) Limited’s
shareholders to effect a voluntary creditors winding up of the
company was a decision by an employer which resulted in the
termination of its employees’ contract of employment.” In short,
Mr Broster contended that it had always been appellant’s case that
the decision to voluntarily wind up the company constituted
an act of
termination of the employees’ contracts of employment and that the
statement of agreed facts had to be read within that
context.
[7] I
agree. The relevant passage of the statement of agreed facts reads
thus: “In consequence of the winding up of the company
of aforesaid
the employment of all the employees employed by …. terminated by
operation of law….” That the provisions of section
38 of the
Insolvency Act 24 of 1936 (‘the Insolvency Act’) constitute the
legal source of the termination of the contract of
employment in
terms of the law is clear. However, the dispute between the parties
concerns another legal question, whether a voluntary
winding up of
the company by shareholders or creditors constitutes an act of a kind
which can be considered to be a dismissal as
contemplated in terms of
section 186(a) of the Act. In other words the dispute between the
parties is whether the initial act which
caused the voluntary winding
up of the company, which in turn gave rise to the termination of the
employment contracts by operation
of law was an act which fell within
the scope of section 186(a) of the Act.
[8] Section
213 of the Act defines dismissal as being a dismissal in terms of
section 186 thereof. Section 186(a) of the Act defines
dismissal as
being where:- “an employer has terminated a contract of employment
with or without notice”. In order to decide whether
the employer
terminates a contract of employment when it is wound up by the
shareholders in terms of a voluntary winding up, an analysis
of the
law relating to voluntary winding up of a company is required.
THE
LAW RELATING TO THE VOLUNTARY WINDING UP OF THE COMPANY
[9] A
company may be wound up voluntarily if the company resolves by
special resolution that it is to be so wound up in terms of section
349 of the Companies’ Act. This statutory provision to so wind up
the company voluntarily cannot be excluded by a company’s
articles.
See
Southrand Exploration Co. Ltd v Transvaal Coal Association
Limited
1923 WLD 91
–97. Significantly a court will not
interfere with the right which the Companies’ Act gives to the
requisite majority even where
‘the company has undertaken
obligations which have to be fulfilled during or for a period of
years…..or the effect of such liquidation
would establish the
inability of the company to carry out these obligations”.
Southrand Exploration, supra
at 98.
[10] A
voluntary winding up of a company is a members’ voluntary winding
up, where a special resolution for its winding up provides
that the
winding up is to be a members’ voluntary winding up in terms of
section 350(1) of the Act. The resolution is of no force
and effect
unless
it has been registered in terms of section
220 of the Companies’ Act and
security has been furnished to the
satisfaction of the Master for the payment of the debts of the
company within a period not exceeding
twelve months from the
commencement of the winding up of the company or the Master has
dispensed with the furnishing of such security
on production to him
of (i) a sworn statement by the directors of the company that it
has no debts; (ii) by the auditor of the
company that to the best of
his knowledge and belief and according to the records of the
company, it has no debts.
[11] A
voluntary winding up of a company is a creditors’ voluntary winding
up if the special resolution for its winding up states
that the
winding up is to be a creditors’ voluntary winding up in terms of
section 251(1) of the Act. Such resolution has no force
and effect
unless it has been registered. Where it is intended to pass a
resolution for a creditors’ winding up of a company, the
directors
of the company must make out or cause to be made out in the
prescribed form of statement as to the affairs of the company
and lay
it before the meeting convened for the purpose of passing the
resolution.
[12] A
voluntary winding up commences at the time of the registration of the
special resolution authorising the winding up in terms
of section 200
of the Companies’ Act. As soon as the Registrar has registered the
special resolution he must transfer a copy of
it to the Master. From
the commencement of its winding up the company must cease to carry on
business otherwise than for its beneficial
winding up and all the
powers of its directors cease save insofar as its continuance is
sanctioned by the liquidator or the creditors
in a creditors’
winding up or in a members’ winding up by the liquidator or the
company in general meeting. Although the company
retains control of
its assets until the appointment of a liquidator, where the company
being wound up is unable to pay its debts,
every disposition of its
property including rights of action after the commencement of winding
up is a void unless the court otherwise
orders. In the case of the
winding up of a company, including a voluntary winding up,
section 38
of the
Insolvency Act applies
where the company is unable to pay its
debts.
[13]
Section
38
provides that: “The sequestration of the estate of an employer
shall terminate the contract of service to him and his employees
but
any employee whose contract of service has been so terminated shall
be entitled to claim compensation from the insolvent estate
of his
former employer or any loss which he may have suffered by the
termination of his contract of service prior to its expiration.
[14] Mr
Winchester referred to the case of
Ndima and Others v Waverley
Blankets Ltd
(1999) 20 ILJ 1563 (LC) in support of his submission
that the contracts of employment were terminated by virtue of
section 38
of the
Insolvency Act rather
than in terms of any act of
the company. In
Ndima’s
case,
supra¸ Zondo J
(as
he then was) said “It seems to me, from an analysis of
s 197
in
general and sub-section (2)(b) read with sub-section (1)(b) in
particular that the legislature bore in mind that at the time of
the
winding up, the contracts of employment of the employees would have
terminated by reason, maybe, of
s 38
of the
Insolvency Act and
that
if it used the time of transfer only as a cut-off point, that would
not be effective to ensure that the employees did not lose
their jobs
in circumstances where the business continued.” (at 1577 F).
[15] Mr
Winchester also referred to
SA Agricultural Plantation and Allied
Workers Union v H L Hall & Sons (Group Services) Ltd and Others
(1999) 20 ILJ 399 (LC) where
Landman J
said at para 21
“The liquidation of the other companies will terminate the contract
of employment between them and their employees.
The employees have a
claim for damages but nothing more. This court cannot interdict the
ipso jure
termination of employment of employees. Moreover
‘the threat’ is not a threat; in my view it is an accurate
statement of the
law.” In dealing with this
dictum
of
Landman J, Zondo J
in
Ndima’s
case
supra
at
para 26 said “In the end it would appear that whether or not there
was to be a dismissal it turned on the effect of
s 38
of the
Insolvency Act on
contracts of employment.
Landman J
concluded
s 38
has the effect of
ipso jure
terminating the
contracts of employment of employees such termination would not be
brought about by any act of the employer,
Landman J
concluded
that the court could not interdict such a termination”
THE
DISTINCTION BETWEEN VOLUNTARY WINDING UP AND
COMPULSORY
LIQUIDATION.
[16] The judgments cited by Mr Winchester dealt with cases of winding
up of a company by the court, the so-called compulsory winding
up as
opposed to the voluntary winding up described above.
[17] In the case of a compulsory winding up, section 344 of the
Companies’ Act sets out the grounds in terms of which a company
may
be wound up by a court. The court’s powers to grant a winding up
order is a discretionary power. Accordingly the court is
not obliged
to grant a winding up order when one or other of the grounds for
winding up in terms of section 344 is established. Having
concluded
that the grounds for winding up existed, the court must proceed to
the second step in the process in which it must exercise
its
discretionary power of issuing or declining to issue a winding up
order. See
M.S. Blackman
The
Law of South Africa
volume
4 part 3 at para 110.
[18] Accordingly there is a clear distinction to be drawn between a
procedure leading to a compulsory winding up of a company in
which a
court has a clear discretion as to whether to grant such an order and
a voluntary winding up where the court cannot interfere
with the
right which the Companies’ Act gives to the requisite majority to
so effect a winding up once the proper procedures have
been followed.
[19] When account is taken of this distinction between the compulsory
winding up procedure and that which pertains to the voluntary
winding
up of a company, it becomes clear that in the case of a voluntary
winding up, the passing of a resolution duly registered
is the only
act required to produce the desired result. Hence the question
arises as to whether a resolution passed by the company’s
shareholders to effect a voluntary creditors’ winding up of a
company constitutes a decision of dismissal of employees.
[20] For this reason Mr Broster submitted that the stark distinction
between the two processes of liquidation illustrates that in
the case
of a voluntary winding up, the shareholder is in control of the
process and makes a decision which results in the termination
of the
employees contract whereas in the compulsory winding up, the decision
is made by the court and there is opportunity for opposition
to the
granting of an order.
THE MEANING OF ‘TERMINATION’
[21] In analysing section 186(a)
Brassey
submits that section
186(1)(a) means that an employee is dismissed only when the employer
brings the contract of employment to an
end in the manner recognised
by the law.
M.S.M. Brassey Employment and Labour Law.
Vol. 3
at A8:8.
[22] With regard to the phrase ‘with or without notice’
Brassey
writes as follows:
“’With notice’ has a slightly different connotation from ‘on
notice’: the latter makes the expiry of notice properly
given the
occasion for the termination, whereas the former signifies only that
notice accompanies a termination and so leaves the
basis of this
dismissal unstated. It is unnecessary to consider which meaning the
legislature intended. Under the sub-section
the giving of notice is
a matter of no consequence – what counts is whether the contract
was legally terminated ‘with or without
notice’. It was, it
seems, included to make it clear that summary determination is
embraced by the sub-section.” (at A8:9).
[23] The key issue in the interpretation of the phrase ‘an employer
has terminated the contract of employment with or without notice’
is whether the employer has engaged in an act which brings the
contract of employment to an end in a manner recognised as valid by
the law.
[24] In the present case the only dispute is whether the action in
invoking the process of voluntary winding up of the company
which
inevitably gives rise to the application of
s38
of the
Insolvency Act
in
the case of a company being unable to pay its debts constitutes
an act of termination of the contract of employment. In terms of
s
349 and s350 of the Companies Act , once the resolution passed by the
company has been registered, the voluntary winding up commences.
No
further act is required to bring s38 of the Insolvency act into
play.
[25] Analysed thus, the decision to pass the special resolution
caused the contracts of employment to be terminated in that they
were
brought to an end by an action, being the decision to wind up and in
a manner recognised as valid by law that is in terms of
section 38
of
the
Insolvency Act.
[26] This position is entirely different from that which applies in
the case of a compulsory winding up. In such a case, the court
plays
a major role in the ultimate decision to wind up a company in that
it has a statutory discretion as to whether to grant such
an order.
In such a case it probably could not be said that the act of the
employer brought about the termination of the contract
of employment
in that there existed a
novus actus interviens,
namely the
decision of the court which in terms of the Companies Act is
interposed between the initial application to wind up and
the
termination of the contracts of employment.
[27] Mr Winchester referred to s 197(1)(b) read with s 197(2)(b) of
the Act which deals with the transfer of employees’ contractual
rights against the old employee who is insolvent and being wound up
or sequestrated to the new employer. He submitted that the
legislature
had considered the question of insolvency and hence posed
this section. S 197 provides that the contracts between the new
employer
and the transferred employees commences afresh save that
continuity of service is interrupted .
John Grogan Workplace Law
(5 ed) of 197. The claims against the old employer remains to be
lodged with the liquidator. The legal position of the termination
of
the contract of employment remains unaffected by s 197 insofar as the
old employer is concerned.
[28] Mr Winchester submitted that a finding in favour of appellant
could have far reaching consequences for all parties affected
by a
voluntary winding up of a company. That indeed may be so. However,
when an Act falls to be interpreted in a manner which raises
policy
concerns, the answer to such policy imperatives is not to find
ambiguity in legislation where none would otherwise exist but
rather
for the legislature to cure the position by way of legislative
amendment when it considers the interpreted result to run contrary
to
the intended policy. In this connection mention can be made of the
Insolvency Amendment Bill 2000 in terms of which it is proposed
to
introduce a new
section 38
of the
Insolvency Act, which
would cause
contracts of employment to be suspended on the insolvency of an
employer and for a detailed process of consultation to
take place in
an attempt to reach consensus on the appropriate measures to save or
rescue the whole or part of the business of the
insolvent employer
(see clause 38(7)) of the Bill. In the event that the Bill becomes
legislation, the policy difficulties to which
Mr Winchester referred
would be accommodated by detailed legal framework. In conclusion I
am of the view that the appeal should
succeed.
[29] In the result I make the following order:
The
appeal is upheld with costs.
The
order of the court
a quo
is set aside and in its stead the
following order is made:
The termination of employment of employees of respondent on 13 March
1998 constitutes a dismissal as contemplated in
section 186(a)
read
with section 213 of the Labour Relations Act 66 of 1998 as amended.
_____________
DAVIS
AJA
I agree

­­­­_____________
ZONDO JP
I agree

_______________
DU PLESSIS AJA