Business Law & Tax (BD, June 2022)

BUSINESS LAW &TAX

JUNE 2022 WWW.BUSINESSLIVE.CO.ZA

A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW

Golden energy opportunities

Low-carbon transition creates •possibilities for mining companies Zinzi Lawrence ENSafrica

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he race to attain net zero by 2050 requires mining companies to prepare themselves to respond to the demands of a low-carbon economy.

To do this, they should start adopting sustainable mining practices and other nimble solutions suitable for their specific operations.

The growing threat of climate change has resulted in countries across the globe making commitments in international and domestic instruments to adopt measures to mitigate climate change by transitioning to a low-carbon economy.

The SA government sees itself as a responsible citizen in the global village. This is evident in the country’s commitments in various international instruments such as the Kyoto Protocol (1997) and the Paris Agreement (2015), and the country’s stated aspiration to reach net zero by mid-century in the Low Emission Development Strategy, published in 2020.

The mining industry remains a significant player in the economy and is set to continue to play a pivotal role,

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GREEN PATH TO THE FUTURE

minimise their carbon footprints, a factor which has become key for major stakeholders given the rise of environmental, social and governance (ESG) principles. In 2021, amendments to schedule 2 of the Electricity Regulation Act, 2006, which saw an increase in the threshold for embedded power generation from 1MW to 100MW, made the use of renewable energy at mines a possibility; ● Investing in sustainable mining practices to secure and maintain the social licence to mine. In this regard, SA’s robust environmental legislation already provides a good basis for mining companies; and ● Incorporating ESG principles in their operations.

especially with the predicted increase in demand for clean technology minerals or “metals of the future” such as platinum, aluminium and manganese, to name a few.

In the context of the transition to a low-carbon economy, SA faces unique challenges in that more than 70% of energy needs are being met by coal. However, the transition to a low-carbon economy not only poses a major threat to economies and livelihoods but it also places a significant challenge on mining companies to adopt environmentally sustainable methods of mining.

STRATEGY

EXPLORATION

The recently published Exploration Strategy for the Mining Industry of SA, which seeks to attract exploration investment into the country and secure a 5% share of global exploration expenditure in the next five years, recognises the significance of the minerals of the future and the potential these minerals have to reinvigorate the country’s mining industry.

These include cobalt, nickel, copper and rare-earth minerals. The exploration strategy identifies these minerals of the future as “critical minerals and metals that are essential

/123RF — SUNDAYCHILD for responding to the shift towards a green economy”.

Additionally, according to a World Bank Group report titled “Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition”, the production of minerals such as lithium, cobalt and graphite could increase by 500% by 2050 to meet the increasing demand for clean energy technologies.

Mining companies must be alive to the opportunities

THE MINING INDUSTRY REMAINS A SIGNIFICANT PLAYER IN THE ECONOMY AND IS SET TO CONTINUE TO PLAY A PIVOTAL ROLE

presented by the energy transition and begin positioning themselves in a manner that will enable them to take full advantage of the future commodities market. Some of the measures mining companies can take include: ● Investing in renewable energy for the generation of electricity. In the SA context, renewable energy has the potential to guarantee security of supply while also helping mining companies to

The opportunity for the mining industry in the transition to a low-carbon economy is clear and has been endorsed by the government in the exploration strategy.

It is now in the hands of all key stakeholders, including the government and mining companies, to ensure the realisation of the transition to a low-carbon, while also deriving substantial economic benefits in the process. ● Reviewed by Ntsiki Adonisi-Kgame, head of ENSafrica’s Natural Resources and Environment department.

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BusinessDay www.businessday.co.za June 2022

BUSINESS LAW & TAX LATERAL THINKING

Slap in the face for work bullies Business Law & Tax Editor Evan Pickworth talks to Johan Botes, Partner and Head of the Employment & •Compensation Practice at Baker McKenzie in Johannesburg. They discuss the new Code of Good Practice on the Prevention and Elimination of Harassment in the Workplace, its key features and why it could be a timely slap in the face for bullies at the office

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P: What is the Employment Equity Act’s Code of Good Practice on the Prevention and Elimination of Harassment in the Workplace?

JB: In March this year, the employment & labour minister released subordinate legislation, the Code of Good Practice on the Prevention and Elimination of Harassment in the Workplace (code), to replace the Code of Good Practice on the Handling of Sexual Harassment Cases in the Workplace, as amended.

The new code expands substantially on the different types of violence an employee may experience in the workplace and what steps employers are required to take to deal with these forms of violence.

EP: So what are the four forms of violence and harassment in the workplace listed by the Code of Good Practice?

JB: Sexual violence and harassment This includes any conduct the person knows (or should know) is not welcome, offends the complainant or makes the complainant feel uncomfortable, and interferes with work. The code lists various forms of conduct which would amount to sexual violence and harassment, including unwanted sexual attention and quid pro quo sexual harassment.

The code also compels employers to consider further factors in a matter involving sexual violence and harassment. These factors include whether the conduct was unwelcome; the nature and extent of the conduct; and impact of the conduct.

Racial, ethnic or social origin violence and harassment In terms of the code, racial violence and harassment are types of conduct which demean, humiliate or create a hostile or intimidating work environment for a complainant. This may include conduct which (1) intends to induce submission based on actual or threatened adverse consequences for the complainant and (2) relates to a person’s membership of a group. Abusive language and racist jokes, racially offensive material, racist name calling, negative stereotyping, offen-

sive behaviour creating hostility, exclusion from workplace interaction and activities, and marginalisation and threatening behaviour fall under this form of violence and harassment.

Workplace bullying Workplace bullying is unwanted persistent conduct (or a single incident) which is serious and demeans, humiliates or creates a hostile or intimidating work environment. This conduct includes a wide range of insulting, demeaning or intimidating behaviours that lower the self-esteem or self-confidence of an employee. Some examples of workplace bullying include harassing, offending, professionally or

WORKPLACE RULES WILL GENERALLY REFLECT THE VIEWS OF THE SOCIETY WITHIN WHICH THE EMPLOYER IS LOCATED socially excluding someone, or negatively affecting their work tasks.

Protected disclosures The code sets out when a whistle-blower should be protected. This is determined using four stages of the Protected Disclosure Act, namely: (1) whether the disclosure includes information regarding one of the categories of impropriety; (2) whether the disclosure is protected; (3) whether the whistle-blower suffered an occupational detriment; and (4) what remedy should be awarded.

EP: Does the new code follow international guidance?

JB: Yes, SA promulgated this legislation in compliance

with its obligations as a member state of the International Labour Organisation.

EP: How does the code relate to the Employment Equity Act, which also addresses harassment?

JB: The code further confirms the statutory prohibition against harassment (as found in section 6(1) and 6(3) of the Employment Equity Act).

However, harassment in terms of the EEA presupposes that the unwanted conduct (harassment) is related to one or more of the protected grounds against which discrimination is prohibited. If one employee bullies another because of the colleague’s race, ethnicity, gender, sex, marital status, sexual orientation or other protected characteristics (or any arbitrary ground), the offending employee has patently committed harassment as prohibited in the EEA and the code.

EP: But what is the situation where one employee bullies or harasses another for nondiscriminatory reasons?

JB: The protected grounds cover arbitrariness as well.

Where an employee harasses another for an arbitrary reason, the misconduct could still qualify as the type of harassment prohibited in the EEA and the code. For example, our courts have held that excluding permanent residents from permanent teaching positions — merely because they were not South African citizens — constituted unfair discrimination on an arbitrary ground. Similarly, discrimination on the basis of Type 1 diabetes status was held to be akin to discrimination on the basis of HIV. The court even found that, on particular facts, pay differentiation on the basis of provincial or geographical location constituted unfair discrimination.

EP: Does it mean, though, that a complainant must show harassment or bullying was arbitrary if the misconduct was not motivated (directly or indirectly) by a protected characteristic?

JB: That would seem to place too great an onus on complainants (and, by extension, employers seeking to rid their organisations of harassers and bullies). It cannot be expected of an employer to show that its troublesome employee’s attack on another

employee was motivated by the victim’s race, gender, ethnicity or similar protected characteristics, or by the perpetrator’s arbitrary conduct.

EP: Referring to recent news events as an example, what would be the outcome of an employee slapping a colleague in the work environment?

JB: Let’s be clear: an employee would certainly have been dismissed for misconduct in most jurisdictions for slapping the presenter of an award show, or anyone else for that matter. Employee conduct at social gatherings and events generally does not escape the reach of their employer’s right to discipline and terminate for cause.

Employees are routinely disciplined and even have their employment terminated for poor conduct at staff yearend functions or client events.

Acting poorly (pardon the pun) in front of a global television audience certainly aggravates the matter.

EP: In this example, would an employer have to prove that slapping another employee out of rage constitutes harassment for arbitrary reasons?

JB: In my view, that cannot be

the requirement as it will place too great a burden on employers to prove the misconduct.

EP: So can employers make their own rules around workplace harassment?

JB: Employers may determine their own reasonable workplace rules. These rules will generally reflect the views of the society within which the employer is located. In our society, where we say violence, harassment and bullying are unacceptable to us, the employer may readily adopt rules to prevent such conduct in the workplace. It can determine that employees may not harass or bully one another for any reason, irrespective of the motivation.

The employer need not prove that a complainant committed statutory harassment before terminating an employee’s service for workplace bullying.

EP: Can the employer’s internal rules be more stringent than those suggested in the EEA and the code?

JB: The company may instruct its staff that it is unacceptable to slander or malign a colleague, perform any act which humiliates, insults or demeans a colleague, withhold work-related information or supply incorrect information, ostracise or exclude the employee from work, or any of the other examples of harassment mentioned in item 4.7.5 of the code. However, the employer may clarify that such conduct is prohibited irrespective of whether it constitutes discrimination or not — the mere act of committing such conduct will constitute workplace misconduct.

/123RF — PIXELSAWAY

Thus, where an employee assaults another because the employee was offended by a colleague’s remarks, it would not matter that the victim’s race, gender or other protected characteristics or any arbitrary grounds played no role in the perpetrator’s motivation. The prohibited conduct need not constitute discrimination under the EEA and code for it to constitute workplace misconduct.

EP: What happens when employees misbehave because their conduct is motivated by or influenced by their base views of people of different categories than themselves?

JB: Such conduct should be eradicated from the workplace with the full might that the EEA and code offers employers. However, emp-

EMPLOYERS MUST ALSO ENSURE THEIR POLICIES AND PRACTICES ARE COMPLIANT WITH THE CODE OF GOOD PRACTICE (ALREADY IN FORCE) loyers should not hesitate to exit employees from the workplace who assault, bully or harass others under circumstances where it may be difficult to prove the reason constitutes unfair discrimination. Employers may rely on their own workplace rules, the common law and various other guidelines on unacceptable behaviour to frame the allegations against the employee. Misconduct by any other name would dismiss as sweetly.

EP: What should employers do next?

JB: Employers must also ensure their policies and practices are compliant with the Code of Good Practice (which is already in force).

Forward thinking employers of the modern workforce have already implemented, or are in the process of updating, policies that comprehensively outline procedures ensuring all employees feel safe and protected from all forms of harassment and bullying in the work environment.

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BusinessDay www.businessday.co.za June 2022

BUSINESS LAW & TAX

How Steinhoff decision was arrived at

CASE CLOSED

on the retailer gives welcome clarity that •anRuling external company can be wound up in SA Nomfundo Nkosi, Phylicia Naidoo & Paul Crosland Webber Wentzel

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relevant ruling in the Steinhoff case gives welcome clarity on the status of insolvent external companies in SA. The recognition and incorporation of external companies is provided for in SA legislation. External companies were recognised in the Companies Act 61 of 1973 (the 1973 act) and this recognition was continued in the Companies Act 71 of 2008 (the 2008 act). The question whether a SA court has the necessary jurisdiction to bring about the winding-up of an external company has important consequences for foreign-registered entities, especially large multinational corporations operating in our jurisdiction.

The question recently came to the fore in the Western Cape Division of the High Court in the case of AJVH Holdings and Others v Steinhoff Int Holdings and Other (the Steinhoff case).

Although this was partly addressed in the Supreme Court of Appeal (SCA) judgment of Sackstein NO v Proudfoot SA (Pty) Ltd, which dealt with the position in terms of the 1973 act, in the

recent Steinhoff case Slingers J was called on to consider a similar question, following the coming into force of the 2008 act.

The court was, inter alia, asked to determine whether an external company can be considered as a “company” in terms of the applicable definition found in the 2008 act, read with the remaining provisions of the 1973 act. It is worth noting here that, despite its repeal, certain transitional arrangements pertaining to winding-up and

IN MAKING ITS DETERMINATION, THE COURT APPLIED CERTAIN TRITE INTERPRETATION PRINCIPLES DETAILED BY THE SCA liquidation found in the 1973 act still apply to insolvent companies by virtue of Schedule 5, Item 9 of the 2008 Act. In the Steinhoff case, certain contingent creditors (the applicants) of Steinhoff International Holdings NV (the respondent, or Steinhoff) brought an application for its provisional winding up. This application was opposed by Steinhoff, and various finan-

cial creditors and the Dutch administrators (the intervening parties) intervened and opposed it. In the intervention and opposition application, the court’s jurisdictional competence to wind up Steinhoff as an external company was challenged — the only aspect of the judgment discussed here.

To decide whether it had jurisdiction, the court had to determine whether the applicable definition of “company” would be made with reference to either section 1 of the 2008 act or section 337 of the 1973 act.

In terms of section 337 of the 1973 act, a “company” was defined to include “a company, external company and any other body corporate” (our emphasis), while section 1 of the 2008 act did not provide for an external company in its definition of a “company”.

From a plain reading of these definitions, it is clear the 1973 act considers a “company” to include an external company, but the 2008 act does not. This explains why the court in the Sackstein case dealt with the definition of a “company” in the manner it did in 2003. Since the 2008 act came into force on May 1 2011, the question would need to be revisited, given that the 2008 act departed from the definition used by its

/123RF — OLIVIER26 antecedent legislation.

Slingers J essentially had to interpret the transitional arrangements found in Schedule 5, Item 9 and what impact, if any, they would have on determining which definition of “company” would apply under the 2008 act when it came to the question of the winding-up of an insolvent external company.

(The court accepted that, for the purposes of presenting argument on the question of jurisdiction, it would be accepted that Steinhoff was commercially insolvent.)

The arguments advanced

by Steinhoff and the intervening parties challenging the court’s jurisdiction were that the remaining provisions of Chapter 14 of the 1973 act only applied to companies as defined in the 2008 act, and which are insolvent. They argued that the provisions of section 337 could not be used to change the definition of a company as it exists in the 2008 act and that, if the applicants failed to show that Steinhoff was a company in terms of the 2008 act, then the court had no jurisdiction to wind it up. They essentially chose to read Item 9(1) of schedule 5 as follows:

“Despite the repeal of the 1973 act, until the date determined in terms of sub-item (4), Chapter 14 of the 1973 act continues to apply with respect to winding-up and liquidations of companies duly defined in terms of the 2008 act, as if the 1973 act had not been repealed subject to sub-items (2) and (3).”

COUNTERARGUMENT

The applicant’s counterargument was that Chapter 14 of the 1973 act had to be applied in its entirety, including its definitions. They submitted that Item 9(1) of schedule 5 could also be read as follows: “Despite the repeal of the 1973 act, until the date determined in terms of sub-item (4), Chapter 14 of the 1974 act continues to apply under the 2008 act with respect to the winding-up and liquidations of companies, as if the 1973 act had not been repealed subject to sub-items (2) and (3).”

In making its determination, the court applied certain trite interpretation principles detailed by the SCA, namely that when embarking upon an interpretative exercise the reader must apply an objec-

tive approach, considering the language of the provision, reading it in context, and having regard to its purpose and the background to its preparation and production. The interpretation must be one of ordinary grammatical meaning unless that would result in an absurdity.

The court favoured the applicant’s argument and believed it was consistent with the mandate to properly contextualise the statutory provisions when they are applied. After applying the principles provided by the SCA, the court held that the definition under section 337 of the 1973 act was applicable, because favouring the 2008 act definition would render section 337 of the 1974 act unnecessary. It would have the result of repealing section 337 of the 1973 act, which was not the legislature’s intention.

The court found that, if it were the legislature’s intention, the intention would have been stated clearly and unequivocally when settling on the contents of Schedule 5.

Accordingly, it was found a SA court does have jurisdiction to wind up an external company.

Tobacco laws throw light on ‘indoor public place’ Jonathan Goldberg & John Botha Global Business Solutions When the state of disaster was lifted by President Cyril Ramaphosa on April 4, regulations requiring the continued wearing of masks, protocols at gatherings and stipulations regarding entry across SA borders were published, to be applied for a transitional period of 30 days.

These regulations ran in parallel to the Code of Practice on Managing Covid-19 at the Workplace as well as the Hazardous Biological Agents regulations, both of which.

have no end date. When the review date in respect of the April 4 regulations arose on May 4, the department of health published a lastminute Gazette renewal. This basically required the continued mandatory wearing of masks, protocols at gatherings and stipulations governing entry into SA through border posts.

FINAL COMMENTS

These requirements are likely to remain in place for the next three months until the social partners at Nedlac have found a way forward and final comments on the

department of health regulations have been received.

On May 4, the legal requirement to wear masks when entering and being inside an “indoor public place” was extended. As we said, this is likely to remain the case for at least the next three months while the health minister receives and considers public comments in respect of the regulations relating to the surveillance and control of notifiable medical conditions.

But what constitutes an “indoor public place”? The truth is there is no clear definition in Covid-19-related

law in this regard. Reference should then be made to the World Health Organisation (WHO) which has served as a point of reference for many of SA’s policy provisions. The WHO defines “indoor public place” as “any indoor place accessible to the public, including places accessible by appointment or permission … during the normal course of work”.

If one considers this definition, then most places of employment would fall within the definition of “indoor public place” as it would be possible for members of the public to access their premis-

es from time to time, even if it is not a frequent occurrence.

For example, labour inspectors, visitors, suppliers and volunteers may enter manufacturing premises in terms of an appointment or with permission. These premises do not exist in a

THE REQUIREMENT TO WEAR MASKS WHEN ENTERING AND BEING INSIDE AN ‘INDOOR PUBLIC PLACE’ WAS EXTENDED ON MAY 4

vacuum and the reality is that third parties will enter these from time to time and they need to be protected from threats to their health and safety.

Currently, according to the SA Tobacco Products Act, 83 of 1993, no person may smoke any tobacco product in any indoor public place.

This prohibition applies to all business premises and, as such, the use of the word “public” should not be used to seek to exclude certain workplaces from the application of the wearing of masks as long as this is required by law

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BusinessDay www.businessday.co.za June 2022

BUSINESS LAW & TAX

Geoscience rules now in tune with law

IN THE KNOW

A Council for Geoscience is to be set up to which •certain data on exploration must be submitted Stephen Motsusi ENSafrica

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o manage and promote the exploration, knowledge of and investment in minerals in SA, the government published the “Geoscience Act Regulations 2022” on March 30.

Under the regulations the Council for Geoscience (CGS) is to be established, to which it is mandatory for mining/ exploration and upstream energy companies to submit certain geoscience data related to their prospecting and reconnaissance activities.

Owners of geoscience data related to prospecting and reconnaissance obtained after 2004 (the year in which the Mineral and Petroleum Resources Development Act, 2002 became effective) are required to lodge data associated with prospecting with the regional manager of the department of mineral resources & energy, and data associated with upstream oil and gas reconnaissance activities, with the Petroleum Agency of SA. Geoscience data and information related to prospecting and reconnaissance must be submitted in line with the applicable legislative framework. This mainly refers to the Mineral and Petroleum Resources Development Act, as the pri-

mary statute in the sector and the submissions would, at a minimum, need to be those prescribed in the act.

In terms of the act, the minerals resources & energy minister may prescribe the kind of data to be submitted by holders of rights granted in terms of the act. Furthermore, section 21 of the act provides that holders of prospecting rights and reconnaissance permissions are required to keep proper

THE ATTEMPT TO HARMONISE THE PROVISIONS OF THE ACT PROVIDES MUCH NEEDED CERTAINTY IN THE MARKET records at the registered office or place of business of the holder, of reconnaissance or prospecting operations and the results and expenditure connected to them, as well as borehole core data or core-log data, whichever is appropriate.

These holders must submit progress reports and data in the prescribed manner and at the prescribed intervals to the regional manager.

Onshore and offshore prospecting and reconnaissance geoscience data and

information from before 2004 (pre-Mineral and Petroleum Resources Development Act) are deemed to be historical geoscience data.

In terms of the Geoscience Regulations, holders of historical geoscience data and information related to prospecting and reconnaissance must notify — rather than lodge, as in the case of nonhistorical geoscience data — the CGS of this data after which the CGS will, at its own expense, make arrangements for the transportation and collection of the data.

Although the department of mineral resources & energy is the competent authority and custodian of geoscience data related to prospecting and reconnaissance obtained on or after 2004, the CGS is the competent authority and custodian of pre-Mineral and Petroleum Resources Development Act data related to prospecting and reconnaissance.

DISSEMINATION AND SALE OF DATA

The Geoscience Regulations provide for the dissemination and sale of geoscience data, albeit only in circumscribed instances.

Geoscience data lodged in terms of a prospecting right and a reconnaissance permit are to be treated as confidential by the CGS, until the right or permit has lapsed or is

/123RF — LAKHESIS abandoned. Similar protection is afforded to supplies of geoscience data and information related to prospecting and reconnaissance in section 30 of the act.

In terms of the act, the regional manager is required to submit records of information and data in respect of reconnaissance and prospecting to the CGS. This includes progress reports and data related to reconnaissance or prospecting operations and the associated results and expenditure, as well as borehole core data and core log data.

The Geoscience Regulations have been harmonised with the provisions of the Mineral and Petroleum Resources Development Act, in so far as it permits sharing, with the CGS geoscience data and information related to prospecting and reconnaissance that has been obtained by the department of mineral resources & energy.

All geoscience data not related to prospecting and reconnaissance may be obtained by third parties if: ● The owners of the geoscience data provide prior written approval to the CGS, which must also be underpinned by written confidentiality arrangements between the owner of the data and the

public recipient the request relates to; or ● The geoscience data is older than 15 years.

The Geoscience Regulations provide that any person is prohibited from engaging in conduct detrimental to the affairs of the CGS, including the improper disclosure of information without consent of the CGS or its board. However, the regulations do not provide guidelines on what “improper disclosure” entails.

All geotechnical reports, including geotechnical site investigation reports, must to be prepared by a person registered as a professional natural scientist in terms of the Natural Scientific Profession Act, 2003 or a professional engineer or professional engineering technologist in terms of the Engineering Profession Act, 2000.

The Geoscience Regulations promote and enhance the mandate of the CGS to ensure that integrated, systematic and thematic maps and research on the onshore and offshore geology of SA is gathered by the CGS. This will go a long way to facilitate SA’s mineral, energy and agricultural development and to contribute to the assessment and sustainable management of mineral, geohydrological and geo-envi-

ronmental resources.

The Geoscience Regulations adequately balance the interests of the CGS and that of onshore and offshore explorers in providing for confidentiality of all geoscience data related to prospecting and reconnaissance. This is an important aspect given that certain kinds of geoscience data related to prospecting and reconnaissance — such as geochemical and assay data and information, geohydrology information, seismological and geotechnical data — is often considered commercially sensitive information and not utilised for research purposes in the ordinary course of things.

The attempt to harmonise the provisions of the Geoscience Regulations and the Mineral and Petroleum Resources Development Act provides much needed certainty in the market. What remains to be seen, from a practical perspective, is how the requirements of the Geoscience Regulations will work in the current legislative framework as a whole. ● Reviewed by Ntsiki Adonisi-Kgame, head of ENSafrica’s Natural Resources and Environment department.

Steinhoff judgment makes the most commercial sense Nomfundo Nkosi, Phylicia Naidoo & Paul Crosland Webber Wentzel Although the judgment of the Western Cape High Court in the case of AJVH Holdings and Others v Steinhoff Int Holdings and Other might not be binding on other divisions of the high court, we believe the correct interpretation was given to the applicable legislation and it is unlikely a court in a different jurisdiction, when faced with similar facts, would come to a different decision.

From a practical perspective, the judgment makes the

most commercial sense, especially where external companies hold significant assets in SA and face hard times. It is in the interests of creditors of an insolvent company (whether local or external) that a liquidator familiar with the rights of creditors in this jurisdiction, as well as the SA insolvency law framework, is empowered to take immediate control of the assets and ensure equitable treatment for all stakeholders.

The judgment is helpful in giving more clarity on the status of insolvent external companies in SA. It gives the

shareholders and boards of these companies added reason to consider the impact of our insolvency legislation when it comes to the operation of such companies in SA. A point of interest noted in Steinhoff’s and the intervening parties’ arguments discussed above is their reliance on the case of Cooperativa Muratori & Cementisti and Other v Companies and Intellectual Property Commission and Other[5] (the CMC case), which held that it was not possible to place an external company under business rescue, as it was not included in the definition of company

in the Companies Act 2008.

Their argument was possibly misplaced, because there is no ambiguity when it comes to business rescue, a regime which did not exist prior to the 2008 act. As such, the question of the impact of surviving transitional arrangements from chapter 14 of the 1973 act did not have to be answered by the SCA in the CMC case.

Curiously, this effectively means the legislature has allowed insolvent external companies to be wound up

by SA courts, yet the same does not apply to placing an external company in busi-

ness rescue. This is especially surprising as an external company could be placed under judicial management, the rarely utilised precursor to business rescue under the 1973 act.

In addition, the Companies Amendment Bill 2021 does not amend the 2008 act to include an external company in the definition of a

IT GIVES CLARITY ON THE STATUS OF INSOLVENT EXTERNAL COMPANIES IN SA

company.

Possibly we can assume it is not the legislature’s intention to make business rescue available as a relief to external companies under financial distress. This might result in an inequitable treatment of external companies and, by extension, their stakeholders, in the SA context.

Would a financially distressed external company be refused an opportunity to restructure its affairs and then be forced to enter liquidation, to the detriment of various parties?

As matters stand, this appears to be the case.

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BusinessDay www.businessday.co.za June 2022

BUSINESS LAW & TAX VIEWPOINT AFRICA

Clarity needed in Uganda

Industrial court’s controversial award glosses over •distinction between ‘termination’ and ‘dismissal’ Phillip Karugaba & Anita Kenyangi ENSafrica

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he Industrial Court in Uganda has passed a controversial award insisting employers must give reasons before an employment contract is terminated (Asiimwe Apollo v Law Development Centre).

The award contradicts the Court of Appeal’s recent decision that an employer may terminate a contract of employment without giving reasons, provided that notice or payment in lieu of notice was given (Bank of Uganda v Joseph Kibuuka).

The Industrial Court was expected to follow the Court of Appeal decision in the Kibuuka case on the principle that a lower court is bound by the decision of a higher court.

This leaves a perplexing state of affairs for employees and employers. Should an employer give reasons for termination? Should an employee insist on reasons for termination?

Termination of an employment contract on notice or payment in lieu of notice is a helpful option for employers and may also serve an employee in some circumstances. Where the employee/employer relationship has deteriorated and become unbearable, the option to terminate on notice may save both the employer and employee an acrimo-

nious hearing process. It may serve all parties, including the morale of the other employees if the objectionable employee is simply let go without inquiry.

The claimants sued for a declaration that the termination of their employment was unfair as the termination letters did not stipulate the reason for termination. But each claimant received three months’ pay in lieu of notice.

The Industrial Court relied on the Supreme Court case of Hilda Musinguzi v Stanbic Bank Uganda to hold that reasons must be given before termination of an employee.

The Supreme Court stated in the Hilda Musinguzi decision “the right of an employer to terminate a contract cannot be fettered by the courts so long as the procedure for termination is followed to

TERMINATION OF AN EMPLOYMENT CONTRACT ON NOTICE OR PAYMENT IN LIEU OF NOTICE IS A HELPFUL OPTION FOR EMPLOYERS ensure that no employee’s contract is terminated at the whims of the employer and, if it were to happen, the employee would be entitled to compensation”.

The Industrial Court concluded the Court of Appeal in

the Kibuuka decision had ignored the Supreme Court decision, and therefore held that there was a requirement to give reasons before termination. The Industrial Court also stated that the Hilda Musinguzi decision resonated with article 4 of the International Labour Organisation (ILO) Termination of Employment Convention 1982, which requires reason be given before termination.

The award reignites the debate on whether reasons should or should not be given by the employer prior to termination of an employment contract. While we did not agree with the Kibuuka decision, it was expansive on reasons for not applying article 4 of the ILO convention.

The Court of Appeal reasoned that while Uganda domesticated the ILO convention, article 4, in particular, was not re-enacted in the Employment Act and is therefore not applicable in Uganda. The Industrial Court, in choosing to depart from the Kibuuka decision, should have explained why it thought article 4 still applied.

Perhaps the best approach is to focus on the modes of ending a contract of employment by dismissal and termination by notice.

An employer may dismiss an employee for misconduct after a hearing. The employee is informed of the reasons for disciplinary action, the right to representation and the right to face the accusers.

WHAT WORDS MEAN

/123RF — RUMMESS The Hilda Musinguzi case was a situation of dismissal.

The appellant had been accused of gross negligence leading to financial loss to the bank. She had been informed of her infractions, placed on investigative suspension and subjected to disciplinary hearings, which recommended her dismissal.

The Supreme Court observed that although the termination letter was titled “termination”, the nature and reasons for termination leaned more towards dismissal. This may explain why the Supreme Court emphasised the need to follow procedure before dismissing an employee to avoid the situation of an employee being terminated at the employer’s whims. On satisfaction that Hilda Musinguzi was given a fair hearing, the court held that the dismissal was lawful.

On the other hand, an employer’s right to terminate the contract of employment by notice or payment in lieu of notice does not relate to misconduct.

This was the kind of ter-

mination that the Court of Appeal dealt with in the Kibuuka decision and the Industrial Court in the Asiimwe Apollo matter. In both cases, the termination arose out of the need for restructuring by the employer.

It is therefore wrong for the Industrial Court to interpret the words “procedure” and “whims” from the Hilda Musinguzi decision as signifying the requirement to give reasons for dismissal and applying it to the Asiimwe Apollo matter which did not arise from a dismissal.

A dismissal requires procedures such as investigation and hearing to protect the employee from being discharged “at the whim” of the employer, Termination by notice, on the other hand, only requires giving the employee notice or payment in lieu of notice.

Both the Court of Appeal and Industrial Court referred to the Hilda Musinguzi decision in the Kibuuka and Asiimwe decisions, respectively, although each court arrived at its own conclusion

on the legal proposition of the Supreme Court. A careful reading of the Musinguzi decision shows the Supreme Court set out the law and procedure on the two different modes of termination albeit in a not-so-clear fashion. Perhaps this is where the confusion originates.

For instance, on citing its previous decision in Barclays Bank v Godfrey Mubiru, the Supreme Court concluded that an employer cannot be forced to keep an employee against their will and that the Employment Act permitted termination on notice. However, since the matter arose from a dismissal (not a termination), the Supreme Court added that procedure should always be followed so that no employee is dismissed at the whim of the employer.

By glossing over the distinction between “termination” and “dismissal” the Industrial Court misapplied the principles in the Hilda Musinguzi decision.

The Court of Appeal is now the final appellate court in employment matters.

There is no opportunity for the Supreme Court to clarify its decision in the Hilda Musinguzi matter.

The challenge now falls to the Court of Appeal to clarify its decision in the Joseph Kibuuka decision and perhaps also comment on the Hilda Musinguzi decision.

Hopefully, clarification from the Court of Appeal will put this issue to bed and probably settle a number of “reasons-based” claims from employees who have been terminated (not dismissed).

Case underscores priority of secured creditors Sheila Pacuto &Tracy Kakongi ENSafrica The High Court of Uganda recently passed a decision (Bank Of India (U) Limited vs NC Beverages Limited And Uganda Revenue Authority (Civil Suit 0009 of 2021) highlighting the priority of a secured creditor in the winding up or liquidation of a company.

The court further checked the actions by the Uganda Revenue Authority (URA) of seizing and disposing secured assets before they can be realised by a secured creditor on commencement of insolvency proceedings.

In this case, the Bank of India gave a loan to NC Bev-

erages, which was secured by debentures. The company filed a petition in court for liquidation and later defaulted on the loan. Before the bank could recover the loan, the URA seized and disposed of the charged assets including motor vehicles, a processing plant and machinery, raw materials, assorted equipment and office furniture to recover unpaid taxes. The issues before the court were whether the bank was entitled to the possession and sale of the charged property in priority to the URA. The court held that the bank, as a secured creditor, had a right to the charged assets over all other creditors of the company. The charged assets formed a “lender’s

fund” from which the bank could recover the unpaid debt owed.

According to the court, the URA’s action of seizing and disposing of the charged assets was unlawful and contrary to the Insolvency Act, which prohibits the levying of distress against a company upon commencement of insolvency. The URA was ordered to turn over the proceeds of the sale of the company assets to the bank.

This decision shows that a secured creditor may enforce their security even though insolvency proceedings exist against a debtor. The debtor only has the right to redeem charged assets after the debt has been paid off. The funds not subject to the secured

assets are held in trust for unsecured creditors.

An exception to this rule is that where a debtor’s assets are insufficient to meet preferential debts (including remuneration and expenses of the liquidation, employees’ salaries accrued over a fourmonth period, payments due under the Workers Compensation Act (Cap 225), unpaid taxes and National Social Security Fund payments), these debts shall have priority over the claims of secured creditors. The court held that this exception did not apply to this case since the winding up petition crystallised the floating charge and it had not been shown that the assets were insufficient to settle the preferential debts.

This case is significant because it reaffirms the superior position of secured creditors and the protection accorded to them by the Insolvency Act. This decision shows an advancement of the court in understanding insolvency proceedings and their purpose in ensuring equitable distribution of proceeds from the sale of the company’s assets to a company’s creditors based on their ranking in priority under the Insolvency Act. Previously, insolvency proceedings were seen as a means by a company to evade payment of its debts, as was the case in the 2013 decision of Venture Communications Uganda Limited Company Cause 39 of 2011.

The creditors in the case, including the URA, filed an application to dismiss a company’s petition for winding up on the grounds the petition was brought in bad faith to avoid payment of outstanding debts. The court dismissed the petition for winding up on the basis the petitioner had not adduced sufficient evidence for the court to determine that it was not solvent.

The decision also tests enforcement and application of the provisions of the Security Interests in Moveable Property Act, 2019 which is a fairly recent legislation on taking security over chattels. ● Reviewed by Phillip Karugaba, Head of ENSafrica in Uganda

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BusinessDay www.businessday.co.za June 2022

BUSINESS LAW & TAX

Put energy into managing stakeholders

POWERING PARTNERS

Renewable energy projects need to prioritise •stakeholder management to avoid pitfalls later /123RF — RUMMESS Mihlali Sitefane ENSafrica

T

he management of key stakeholders is often placed as a low priority compared with the urgency and the need to operationalise renewable energy projects.

However, this approach is often short-sighted.

Failure to place stakeholder management at the forefront in the development of renewable energy projects may result in these projects being stalled and could introduce challenges, which may have a bearing on their success and longevity.

Foreseeing these chal-

lenges and meaningfully addressing them is important if SA is to realise the vision in the National Development Plan 2030 to have an energy sector that promotes “economic growth and development through adequate investment in energy infrastructure and the provision of quality energy services that are competitively priced, reliable and efficient”.

In the context of renewable energy projects, stakeholders include landowners, local communities, lawful occupiers, developers, neighbouring operations, municipalities, farmers and any person or group of persons who may affect or be affected by the development and opera-

tionalisation of the project.

Stakeholders are different and so it is crucial to ensure stakeholders are not only identified but are classified and prioritised appropriately.

For example, stakeholders who have rights to land are key and must be clearly identified. This is important for concluding certain agreements, such as sale of land agreements, servitudes or leases and in establishing what their terms of engagement are.

Depending on the location of the land and current use of the land, stakeholders who have rights to land may include individual owners, communities, farmers, associations and, in some

instances, municipalities and mining companies. Failure to properly engage these stakeholders will stall the project because the surface/land rights, for purposes of constructing the plant or other infrastructure would not have been secured.

Where the land is owned by a community (as defined in the Interim Protection of Informal Land Rights Act, 1996), the community would need to consent to the alienation of any of its rights in the land. Furthermore, and as was found in Maledu & Others v Itereleng Bakgatla Mineral Resources (Pty) Limited and Another, it is not sufficient to merely engage

and conclude surface-related agreements with the tribal authority without consulting and engaging the lawful occupiers or owners of the land concerned. This task may seem simple but, practically, it may involve extensive consultation with many people, and reaching a consensus may be arduous.

Similarly, the land identified may already be ringfenced for another purpose, such as mining activities, rehabilitation efforts in line with existing environmental approvals, township establishments and other commercial purposes. Timeous and effective engagement with these stakeholders

increases the chances of ensuring that mutually beneficial commercial terms are agreed upon by all parties.

From an environmental law perspective, it is imperative to determine whether any interested and affected parties in the area are likely to oppose or appeal the requisite environmental authorisations, which may lead to the suspension of these authorisations pending the outcome of the appeal. This determination requires a proactive approach, as opposed to a reactive approach where the project is delayed because of ineffective stakeholder engagement.

The approach to stakeholder management must not be a box-ticking exercise for the sole purpose of obtaining the requisite licences and authorisations, and securing land rights. Rather, stakeholders must be seen as fundamental to the success of the project. Developers must proactively plan for the management and engagement of stakeholders at inception, with a long-term view of maintaining relationships, and enjoying long-term operational success that has the full buy-in of the relevant stakeholders. ● Reviewed by Ntsiki Adonisi-Kgame, head of ENSafrica’s Natural Resources and Environment department.

Crucial to get right balance on localisation Heather Irvine Bowmans Complex and potentially unachievable localisation targets have been a key factor in the inability of renewable power producers to bring desperately needed new energy projects online in SA, despite SA suffering extensive power cuts yet again.

Late last year, Transnet complained that it is at a significant disadvantage relative to its competitors because it is compelled to procure rail products through local intermediaries who add no value and inflate prices. This, it said, has reduced its ability to lower the cost of logistics in SA. This despite the critical role rail has to play in SA, which is reeling from the pandemic, unrest and the recent KwaZulu-Natal floods.

The role which competition “policy markers” should play in promoting localisation was recognised by the department of trade, industry & competition in the Competition Policy for Jobs and Development it published in 2021. Apparently in support of this objective, in August last year the Competition Commission issued draft guidelines on collaborations between competitors in both

public and private sector localisation initiatives. It aims to provide companies with guidance on how they can engage in discussions with their rivals and reach agreements that enhance local production and decrease reliance on imports, without falling foul of the outright prohibitions on price-fixing and market allocation contained in section 4(1)(b) of the Competition Act. The final guidelines were issued in March.

Unfortunately, the guidelines take the stance that “localisation will stimulate economic growth and lead to greater economies of scale for local producers, greater investment locally and, ultimately, improved competitiveness in export markets in the longer term” without specifying any qualifying criteria for these programmes or referring to the Competition Act itself.

For example, the guidelines state that they are aimed at providing guidance to industry and the government on how industry players may collaborate in identifying opportunities for localisation and implementing commitments related to localisation initiatives in a manner that does not raise competition concerns, but don’t make it

clear that agreements by competitors to increase sourcing of locally made products should only be undertaken if they actually lead to efficiency, technological or pro-competitive gains which outweigh any lessening or prevention of competition they may cause in any relevant market. This is in line with section 4(1)(a) of the act.

Localisation agreements which shield local producers from competition without actually yielding any benefits should still be prosecuted by the competition authorities, particularly if these schemes merely protect existing inefficient local monopolies.

Localisation rules which harm competition without yielding these benefits should be permitted by the competition authorities only if they meet one of the criteria for exemption set out in section 10 of the Competition Act. Although these grounds for exemption were expanded when the Competition Act was amended in 2019 and now include “competitiveness and efficiency gains that promote employment and industrial expansion”, the exemption process envisaged by section 10 of the act at least requires the commission to conduct a proper

assessment of the claimed benefits of a localisation scheme, following a transparent and inclusive public comment process.

The commission’s guidelines are sadly silent on the role and responsibilities of the public sector when promoting localisation.

Clear guidance to regulators such as Nersa and Icasa, as well as government departments and stateowned entities such as Eskom would be helpful.

The commission could, for example, have highlighted that while increasing localisation is a key part of government’s strategy for growth and development, it should be pursued in a manner which does not substantially lessen or prevent competition, unless there are clear compensating pro-competitive, technological or efficiency benefits.

They should have suggested a proper assessment be undertaken of the impact of proposed localisation rules on competition in the markets they will impact on should be undertaken prior to implementing these rules, preferably only after the affected competitors and customers have had an opportunity to comment on

the design and proposed scheme for implementation of the rules.

Where local content rules which are less harmful to competition are available, they should be adopted ahead of those which are more harmful. Ideally, local content requirements should be phased in over time rather than implemented immediately, since this would allow local markets to build capacity and preserve competition.

Applying these principles, together with a basic regulatory impact assessment, would have avoided the current impasse in the renewables space, in which prescription of the minutiae of local manufacturing of key components has rendered these projects difficult, if not impossible, to implement.

The commission should apply similar principles when it imposes conditions in relation to localisation in mergers, or accepts agreements reached between merging parties and government departments in this context.

The recent merger in which IHS acquired MTN’s mobile tower portfolio is a good example. While IHS SA and MTN committed to a condition for the merger which required them to pro-

cure a substantial proportion of the goods and services required for the construction of tower sites and their management, maintenance and security from small and medium enterprises or historically disadvantaged persons based in SA, this condition was explicitly stated to be subject to them agreeing on commercial terms, including quality, service standards and most importantly, competitive pricing.

Localisation may be helpful to support SA’s economic recovery and may be in line with the president and Treasury’s joint efforts to urgently effect structural and economic reforms. However, this needs to be adequately balanced against the considerable benefits that competitive markets deliver to consumers.

Our competition authorities have an important role to play not only in protecting the ability of local suppliers to participate in the economy, but also in preserving and enhancing competition in key SA input markets, and providing local consumers with competitive prices and product choices, in line with the objectives of the Competition Act. Getting the balance right is crucial.

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BusinessDay www.businessday.co.za June 2022

BUSINESS LAW & TAX

Beware rogue rescue routes highlights that courts will •notRuling tolerate abuse of procedure Eric Levenstein Werksmans

I

n the recently published Deloitte Africa Restructuring Survey, it was stated that business rescue is experiencing a crisis of trust.

The survey highlighted that financial stakeholders often view the actions of business rescue practitioners with scepticism.

The recent judgment of the Pretoria high court in commissioner for the SA Revenue Services (Sars) v Louis Pasteur Investments (Pty) & others highlights issues relevant to the abuse of the business rescue procedure and where business rescue practitioners (BRPs) were taken to task for the manner in which the business rescue procedure had been conducted.

The applicant, Sars, approached the court for an order for the final winding up of Louis Pasteur Investments (Pty) Ltd (LPI). Notwithstanding the fact that LPI was both commercially and financially insolvent, the court also heard an application for rescission of the order converting the business rescue proceedings into liquidation proceedings, as well as an application for the discharge of the provisional winding-up order.

LPI had entered business rescue in June 2012, after which a Mr Naude was appointed as the business rescue practitioner (BRP).

A formal business rescue plan was adopted in November 2012. Sars obtained judgments in 2010 and 2011 against LPI to the value of about R13m, which were never challenged.

In 2013, Sars commenced an audit of LPI’s business, and revised its claim to an amount of about R200m.

After becoming aware that LPI had been placed into business rescue, Sars instituted proceedings in 2017 to convert the business rescue proceedings into liquidation proceedings.

In October 2018, Naude resigned as BRP. After a lengthy delay, a new BRP, Mr Prakke, was appointed in February 2019. In March 2021, an order was granted in terms of section 132(2)(a)(ii) of the 2008 Companies Act to convert the business rescue proceedings to liquidation proceedings.

The conversion of the business rescue to liquidation proceedings was opposed by Prakke and LPI on two main grounds. The first was that it was not competent for a creditor like Sars to bring an application for conversion of

IT WAS HELD THAT A CREDITOR LIKE SARS WAS ENTITLED TO APPLY TO CONVERT BUSINESS RESCUE PROCEEDINGS TO LIQUIDATION the business rescue proceedings into liquidation proceedings. The second ground of opposition was that, having regard to the report of Prakke, the business was in fact capable of being rescued — despite the fact the 10-year expiry period of the business rescue plan was in November 2022.

In terms of section 132(2) of the act, business rescue

/123RF — ANAWAT

BUSINESSES IN TROUBLE

/123RF — SEMMICKPHOTO proceedings may come to an end in three ways. First, where a court sets aside the board resolution or court order that commenced business rescue proceedings, or orders the conversion of business rescue to liquidation proceedings. Second, where the BRP files for the termination of business rescue proceedings. Third, where the business rescue plan falls away, either because it was not adopted or, alternatively, because it was substantially implemented.

Millar J held that a plain reading of section 132(2) confirmed these were the separate and distinct routes to terminate business rescue proceedings.

The BRP and LPI argued that only a BRP can convert business rescue proceedings to liquidation proceedings.

Millar J pointed out that while courts have previously said BRPs may be best suited to apply for the conversion of proceedings to liquidation, that does not mean only BRPs can make such an application. Indeed, section 132(2)(a) is silent on who should bring the application.

As such, it was held that a creditor like Sars was entitled to apply to convert business rescue proceedings to liquidation.

Furthermore, the BRP and LPI argued that the Sars debt arose prior to the adoption of the business rescue plan. As such, in terms of section 152(2) read with section 152(4) of the act, the claims could not be enforced except to the extent envisaged in the business rescue plan.

Millar J disagreed with this contention, pointing out that both those provisions deal with the enforcement of debt — which is distinguishable from a conversion application.

Another argument for the discharge of the winding-up order was that LPI was still capable of being rescued.

This was despite LPI being factually and commercially insolvent.

To evaluate LPI’s argument, the court examined the business rescue plan, which had two notable features. The first was that holders of LPI’s

WHILE IT IS TRUE MOST BUSINESS RESCUES TAKE LONGER THAN THE STATUTORY TIME FRAME, IT IS FAIR TO SAY 10 YEARS IS UNUSUAL debentures (with a liability value of about R50m) had converted their claims against LPI into equity. Second, the plan envisaged it would take 10 years to rescue the company. The court pointed out that this was anomalous in the sense that section 132(3) of the act sets the default duration of business rescue proceedings at three months.

While it is true most business rescues take longer than the statutory time frame, it is fair to say 10 years is unusual, to say the least.

Prakke argued that the

plan set out a roadmap to solvency, mainly through the liquidation of fixed assets and the litigation of claims against other entities, most notably Louis Pasteur Holdings (Pty) Ltd (LPH) — LPI’s holding company. Millar J disagreed, saying the BRP was effectively winding up the company and not restoring it to an entity that could continue trading, an outcome envisaged by the act.

As the plan did not make provision for the settlement of the tax liabilities, as well as the fact LPH was itself in business rescue, the court held that the extension of business rescue proceedings would effectively allow payment to some creditors to the detriment of others. Such transactions would not be consonant with the concept of business rescue.

The court examined the underlying philosophy of business rescue, as set out in section 128(1)(b) of the act. In this regard, Millar J pointed out that business rescue is for the “temporary supervision” of a company. In dismissing the BRP and LPI’s attempt to extend business rescue proceedings, Millar J referred to Dr Eric Levenstein in SA Business Rescue Procedure (Lexis Nexis), who emphasises a drawn-out business rescue plan that is aimed at delaying an inevitable liquidation is undesirable, and ought to be discouraged.

Ultimately, Millar J came to the conclusion there was no commercial or rational basis to allow the business rescue to continue. As the court rightly pointed out,

business rescue proceedings are designed to provide a shield for a company to protect it and enable it to trade out of financial distress. Business rescue proceedings cannot and should not be used by companies or BRPs as a sword to keep creditors at bay, without regard to whether or not there is a realistic prospect of success.

Illustrating its displeasure with the manner in which the business rescue proceeded, as well as the inappropriate opposition to the liquidation application, the court mulcted the BRP (Prakke) with a personal costs order. The judgment lambasted the BRP’s approach to this litigation, implying it amounted not only to an abuse of business rescue procedure, but also to an abuse of the court.

This should be a warning to all BRPs who conduct litigation in a dilatory manner.

More importantly, it is a clear indication courts will not hesitate to punish BRPs who act contrary to the purpose and objectives of business rescue.

Judgments like this will go some way to restoring public trust in business rescue and will provide support to counter the proposition of there being a “crisis of trust” in SA’s rescue procedure.

THERE WAS NO COMMERCIAL OR RATIONAL BASIS TO ALLOW THE BUSINESS RESCUE TO CONTINUE

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BusinessDay www.businessday.co.za June 2022

BUSINESS LAW & TAX

Change in definition for ETI purposes

ADDING UP THE BENEFITS

‘Monthly remuneration’ rethink may potentially •increase the number of qualifying employees EY South Africa

T

he Employment Tax Incentive (ETI) continues to play a role in the government policy of creating employment opportunities for the youth of SA. The 2022 South African budget highlights included a 50% increase in the maximum monthly value of the ETI claimed by employers, which was effective from March 1 2022.

The 2021 Taxation Laws Amendment Act also included a late change in the definition of “monthly remuneration” for ETI purposes effective from March 1 2022. The change may potentially increase the number of qualifying employees and encourage employers to introduce more candidates to their programmes.

The ETI is a government initiative to address the rate of youth unemployment in SA by providing them with an

opportunity to obtain work experience and skills.

The ETI was introduced in January 2014 and will be available to employers until February 28 2029.

The programme encourages employers to accept young unskilled labour by reducing the employer’s cost of hiring through the costsharing mechanism with government funding. The ETI amount is claimed by decreasing the monthly PAYE payable to the South African Revenue Services (Sars), by the incentive amount calculated for each qualifying employee. The incentive claimed is available over a 24-month qualifying period of employment.

Ensuring the monthly incentive is calculated accurately is critical in ensuring the employer remains compliant. If the employer incorrectly calculates the ETI, the employer may be subject to penalties and interest.

Remuneration for purpos-

es of calculating ETI: Before March 1 2022, monthly remuneration for ETI purposes was based on the definition of remuneration as defined in the Fourth Schedule of the Income Tax Act. Remuneration in the Fourth Schedule includes all cash amounts and taxable benefits.

Change in the definition of “monthly remuneration”: Effective March 1 2022, monthly remuneration is remuneration as defined in the Fourth Schedule of the Income Tax Act, less noncash benefits and less nonsection 34(1)(b) (BCEA) deductions.

The below list outlines the nonsection 34(1)(b) (BCEA) deductions that would reduce monthly remuneration: ● Repayment of an advance ● Loan repayment ● Staff purchases ● Training costs The common noncash benefits applicable to qualifying employees which would

/123RF — UTAH778 be excluded from monthly remuneration may include the following, but are not limited to: ● Housing ● Medical aid employer contributions ● Employer contributions to pension or provident fund The below list includes some of the deductions (among others) that will not reduce monthly remuneration as they qualify as section 34(1)(b) BCEA deductions: ● Garnishee order ● Income protection policy premiums ● Maintenance order The change in the monthly remuneration definition will broaden the number of qualifying employees, allowing employers to claim more ETI. Payroll software providers will have to amend their software and include a separate wage type that will

specifically accumulate the correct wage elements and exclude those that have been specifically identified as excluded. The wage types per employer may differ substantially and this will be difficult to standardise or monitor. There is no one standard formula for all payroll users, therefore creating uncertainties and further possible misstatements in the ETI claims.

MORE AUDITS

Previously it would have been possible for Sars to determine if the ETI amount claimed was correct and whether the employee was a qualifying employee, from the taxable remuneration reported. The change may result in more Sars audits, and further administration for employers who consider introducing this incentive.

The cost of administration

may outweigh the benefit, especially if penalties for noncompliance become a norm. We believe this may not have been the intention of the legislated amendment.

Specific reference to the ETI abuse in the 2022 South African budget speech highlighted that government proposes the Employment Tax Incentive Act of 2013 be amended to include understatement penalties on ETI reimbursements that are improperly claimed.

It is worthwhile to note Sars audits in respect of ETI claims continue to be a focus area and taxpayers should be aware of the high penalties and interest they may be exposed to where noncompliance is identified. The responsibility of accurately calculating the payment due to Sars remains that of the employer/company.

CONSUMER BILLS

The many roads to access justice

A

ccess to courts and the right to just administrative action provided for in sections 33 and 34 of the Bill of Rights are essential rights in our constitutional democracy.

Without the ability to enforce the democratic values of human dignity, equality and freedom, they mean very little. The courts have done a fine job in upholding those values but formal court process all the way to the Constitutional Court is slow and expensive.

Fortunately, many other bodies provide efficient and inexpensive access to justice.

The Lower Courts Bill published in April 2022 proposes to add municipal courts to the list. Municipal courts will be established at the request of a municipal council for the adjudication of the by-laws of the municipality concerned.

By-laws are local laws that deal with all sorts of day-

PATRICK BRACHER to-day issues such as services and traffic that need quick resolution and a special court is a good idea.

There are two concerns.

The national government can assign powers to municipalities to provide the facilities, and to designate judicial officers, prosecutors and officials for the courts which is not all something they should be doing in relation to the adjudication of their own laws.

It carries the risk of loss of respect for the process. It has been known since Roman times that nemo judex in causa sua — nobody should be judge in their own case.

The provision of facilities has also not been the strength of municipal governance nor necessarily within their tight budgets.

Second, municipal courts are unlikely to flourish in smaller municipalities where access to justice is most remote from the residents in those areas. We will have to keep a close eye on its implementation.

If the government’s other promise to improve the rental housing laws to create well-functioning tribunals to address disputes between owners and tenants is also realised, local dispute resolution will get a boost.

Let me get back to the bigger point about access to justice. There are many successful tribunals resolving disputes cheaply and quickly. Financial services issues are being resolved by the successful Financial Services Tribunal backed by banking,

insurance and intermediary ombuds who quickly and fairly resolve consumer issues.

The pension laws are upheld by the pension fund adjudicator with recourse to the tribunal for the dissatisfied. The success of the CCMA in dealing quickly with employment law disputes has been recognised for decades.

Two things work particularly well. The tribunals and ombuds are staffed by experienced lawyers who have a close understanding of the laws and the particular issues they deal with. This is not to say you always need lawyers, but a working knowledge of just processes is a bonus.

Second, behind every tribunal is the right of a party aggrieved by a decision to approach the courts to review any procedural or factual outcome. A review is not a rehearing, and the

courts are limited to setting aside unfair procedures and irrational decisions. While reviews leads to slow and expensive court challenges, it has an effect on the entire process. Any adjudicating body knows the importance of a fair hearing and a reasonable approach to the facts in any dispute.

The importance of administrative law is often forgotten. Most of the actions of government that affect our daily lives stem from administrative decisions that can be challenged.

Administrative law, overlapping with constitutional law and values,

THERE ARE MANY SUCCESSFUL TRIBUNALS RESOLVING DISPUTES CHEAPLY AND QUICKLY

governs our legal relations with all public authorities exercising public powers and functions which, ultimately, the courts regulate and control. The administrative bodies may deal with technical and budgetary issues where they have more experience and expertise than a court.

That is why the decision is challenged not according to whether it is the same decision the court would have reached on the facts, but rather whether it is reasonable and rational in relation to the reasons given.

That avoids too may disgruntled losers rushing to court in the hope of a better throw of their dice.

Let’s hope all these good values are built into the hearings of the municipal courts when they appear. ● Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.

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BusinessDay www.businessday.co.za June 2022

BUSINESS LAW & TAX

When does a resignation take effect?

TIME TO SAY GOODBYE

Labour court ponders whether resignation can be •unilaterally withdrawn, and the employer relationship Fiona Leppan, Kgodisho Phashe & Liso Zenani CDH

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hat happens when an employee tenders — and then unilaterally seeks to withdraw — a resignation? This was the question before the labour court (LC) in Mohlwaadibona v Dr JS Moroka Municipality (Case No J718/21) (March 18 2022).

At the beginning of April 2021, Mr Mohlwaadibona, the applicant, resigned from the employ of Dr JS Moroka Municipality due to ill health.

On April 15 2021, he attempted to withdraw his resignation and indicated he was prepared to resume his duties four days later.

As the municipality had been under administration since January 2020, Mr Mhlanga dealt with the matter in his capacity as the appointed administrator. He informed the applicant the municipality did not accept the withdrawal, but the appli-

cant claimed he only received this communication on April 23 2021, after having reported for duty on April 19 2021, by which time he had already received his April salary.

Despite Mhlanga’s earlier communication to the applicant, on May 10 2021 Mr Monkoe, who was the acting municipal manager, advised Mohlwaadibona he had accepted the withdrawal of his resignation.

The questions before the Labour Court were threefold: what is the effect of a resignation on the employment relationship? When does a resignation actually take effect?

Can a resignation be unilaterally withdrawn and, if not, what would be required to

THE ONLY WAY TO REVIVE THE CONTRACT OF EMPLOYMENT WOULD BE THROUGH A FRESH OFFER AND ACCEPTANCE

revive the employment relationship?

The court held that resignation is by definition a voluntary and unilateral act that puts an end to the employment relationship. Moreover, it takes effect the moment it is communicated to the employer, and it is incapable of being withdrawn unless the employer consents to it.

That is true even where an employee is contractually obliged to serve a notice period and fails to honour that obligation.

The court indicated that once the resignation has taken effect, the employer’s consent to withdraw it is equivalent to a re-employment or a rehiring of the employee, but it is not tantamount to a reinstatement.

The court maintained that since the applicant had communicated his resignation to his employer on April 1 2021, the resignation took effect immediately. When he communicated his intention to withdraw the resignation on April 15, he was in effect seeking re-employment.

/123RF — WIROJSID Mhlanga’s communication on April 15 was a sufficient rejection of the applicant’s withdrawal and neither the latter’s decision to report for duty on April 19 nor the payment of his salary on April 25 altered that fact. What’s more, because the acting municipal manager had no authority to effect re-employment, the court found his later acceptance of the applicant’s withdrawal to be invalid and of no force and effect.

In essence, the court gave

credence to the fact that when an employee voluntarily elects to communicate their intention to terminate the employment relationship, that election cannot be unilaterally withdrawn once it has been communicated to the employer.

Where the employee was bound to serve a notice period, their failure to serve that period will not negate the effect of the resignation, as the employment contract will still have reached an end.

The only way to revive the contract of employment would be through a fresh offer and acceptance — which amounts to rehiring or reemployment. This can occur if the employer opts to consent to the withdrawal of a resignation, but the employer’s representative who consents to the withdrawal must be a person authorised to rehire or re-employ; anything to the contrary would be invalid and of no force and effect.

Time is of the essence in tax disputes Angelique Stronkhorst & Bobby Wessels AJM Disputes with the commissioner of the SA Revenue Service (Sars) recently relate more to the process than the substantive nature of the matter in dispute. In particular, the past two years have seen a sharp rise in disputes that centre on administrative issues.

The actions performed by Sars, an organ of state in public administration, are governed by the provisions of the Tax Administration Act No 28 of 2011 (TAA). In the alternative, should the TAA not provide adequate remedies or should those internal remedies be exhausted, a taxpayer can turn to the provisions of the Promotion of Administrative Justice Act No 3 of 2000 (Paja) to provide relief from prejudicial action

on the part of Sars. Paja mandates fairness in tax administration where administrative action adversely affects the rights of a taxpayer.

In March, the Supreme Court of Appeal (SCA) handed down a judgment in which it upheld a decision of the high court in favour of Sars. The issue before the SCA was whether the decision by Sars not to allow Sasol Chevron Holdings Ltd (the taxpayer) to submit an application to the VAT Refund Authority is a decision that can be reviewed in terms of Paja.

More specifically, the court was confronted with the question of whether the taxpayer met the requirements in terms of section 7(1)(b) of Paja. Section 7(1)(b) requires a taxpayer to institute review proceedings within 180 days after the taxpayer was informed of administrative action. This

requirement yields two pertinent questions. The first is when a decision is regarded as taken or deemed to be taken for purposes of section 7(1)(b) of Paja and, furthermore, whether an application for review can be entertained where a taxpayer failed to institute a review application timeously and subsequently erred in submitting an application for extension in terms of section 9(2) of Paja.

The dispute in this case solely relates to timing, being whether the taxpayer filed its review application within the prescribed 180-day period.

The proverbial clock starts to tick as soon as the reason for the administrative action becomes known or when it reasonably ought to have become known to a taxpayer. In terms of the judgment, it is clear a respondent is only involved or implicated in a lawsuit once

service has been effected. An application for review in section 6(1) of Paja will only fulfil the prescripts of section 7(1) should it both be issued and served on the affected party.

Where a taxpayer fails to submit its review application in time and an application for extension is absent, the issue of unreasonableness becomes predetermined.

The taxpayer is considered unreasonable per se or unreasonable from the outset. The absence of an application for extension bars the court from considering the substantive merits of the judicial review. Whether the decision is unlawful becomes irrelevant as the unreasonable delay on the taxpayer’s side validates the unlawful impugned decision.

There is no doubt that section 7(1) of Paja acts as a time limitation provision, the noncompliance of which

produces inevitable results for taxpayers. A taxpayer cannot, in this regard, be oblivious of the prescribed rules and consequences in terms of the provisions of Paja and must at all times manage their affairs in pursuance of a just and reasonable outcome. The SCA ruled strong judgment against the taxpayer for not bringing the application within the prescribed time and along with its late application failing to submit an application for condonation.

Dispute proceedings,

IT IS CLEAR A RESPONDENT IS ONLY INVOLVED OR IMPLICATED IN A LAWSUIT ONCE SERVICE HAS BEEN EFFECTED

whether in terms of Paja or the TAA, are subject to onerous time limitations, the procedures and underlying requirements of which are often complex. A failure on the side of a taxpayer to meet the prescribed timing provisions can often, on that basis alone, be the reason the outcome of a dispute is unfavourable for a taxpayer. It is paramount for all taxpayers to obtain useful and proper tax advice and appreciate the pertinent role of dispute and review proceedings.

While taxpayers are offered the necessary protections either in terms of Paja or the TAA to ensure they are not subject to unfair administrative action, it is important for taxpayers to remain loyal to the timelines prescribed in terms of the legislation if they wish for their case to be successful. As they say, time really is of the essence.

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BusinessDay www.businessday.co.za June 2022

BUSINESS LAW & TAX

Supply chain failure clauses

Recent •events and the

GOODS IN TRANSIT

disruptions to logistics show contractors need legal protection Tyron Theessen & Megan Jarvis Webber Wentzel

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urrent logistical bottlenecks present high risks for contractors in completing capital projects, for miners and other industries, and they need to protect themselves against penalties.

Supply chain disruptions, which emerged as a result of Covid-19 lockdowns in 2020, and were joined by rising inflation towards the end of 2021, have intensified in the first part of 2022. With the Russian invasion of Ukraine and the Covid-19 shutdown in Shanghai, it looks as if disruptions may worsen.

The other side of logistical disruption and the war in Ukraine is that it is causing a spike in the prices of certain commodities, and therefore mining companies are more anxious than ever to accelerate expansion projects even as their contractors are battling to secure the necessary inputs.

For example, the shortage of microchips, which are used in a vast range of consumer products, including cellphones and automotive vehicles, stemmed not only from the closure of factories but also rising demand for technology, when more employees had to work from home. Three-quarters of microchip production is located in East Asia, accord-

/123RF — ENANUCHIT ing to the New York Times.

Another area of acute shortage over the past two years has been steel, as not only were mills shut during Covid-19 but, when they restarted, they underestimated the extent of the economic recovery. This has caused a spike in the cost of certain steel products.

The costs and timelines for importing goods have

COVID-19 CASES CONTINUE TO AFFECT THE OUTPUT OF SUPPLIERS, MANUFACTURERS AND CONTRACTORS AT VARIOUS LEVELS

increased dramatically, with a 500% increase in the freight costs of using a 12m container to send goods by sea from China to SA. Additionally, Covid-19 cases continue to affect the output of suppliers, manufacturers and contractors at various levels of the supply chain. An outbreak of Covid19 at a supplier or subsupplier compromises its capacity to complete production timeously, which in turn delays delivery to manufacturers and contractors.

These delays and heightened costs are causing contractors and original equipment manufacturer (OEMs) to seek ways to manage risks and disclaim responsibility for time and cost overruns on

large capital projects. Material adverse event or force majeure clauses may not help, as the materiality threshold may not be met in respect of the former and supply chain disruption is unlikely to be construed as an unforeseen or unavoidable event in relation to the latter.

With no immediate prospect of this problem being resolved, contractors that need to procure critical capital items reliant on inputs such as steel, microchips or the logistics chain are having to consider including additional clauses in their contracts to protect themselves from the ramifications of failing to deliver within expected timelines. Contractors need to acknowledge that there are

THE KNOCK-ON EFFECT OF RISK TO CORPORATE REPUTATION SHOULD BE CONSIDERED WHEN SELECTING A SUPPLIER higher levels of commercial risk and manage these in different ways.

Where there are concerns that a potential delay in the supply chain will have an unintentional knock-on effect on the construction period, the time for completion and the defects date (and these delays are not

attributable to the contractor), the contractor may consider including back-to-back provisions in contracts with suppliers to mitigate these risks.

In addition to providing for contractual relief, contractors should reduce their reliance on a single critical source of supply and look for alternatives. Sourcing products closer to home or using local products may also alleviate risk.

The knock-on effect of risk to corporate reputation should be considered when selecting a supplier and the relevant geopolitical risk ought to form part of this evaluation. Sustainability of supply may form an important part of environment, social and governance (ESG) reporting for contractors too.

Digital Sars dispute process less taxing Joon Chong Webber Wentzel The SA Revenue Service (Sars) has enabled its current dispute process on eFiling to employers requesting a remission or objecting and appealing against administrative penalties on late or nonsubmission of EMP501 Employer Reconciliation Declarations From April 23 2022, Sars will no longer accept manually filed disputes against the EMP 501 administrative penalties, according to a note

issued to employers.

Since Sars instituted administrative penalties on the late or nonsubmission of EMP501 Employer Reconciliation Declarations in 2021, employers have been using the manual ADR1 for objections and ADR2 for appeals, because the electronic dispute process was not available on eFiling.

Sars has imposed the administrative penalty for late or nonsubmission of the EMP 501 returns for 2021/2022 which was due by May 31 2021. The penalty will be 1%

/123RF — IQONCEPT for each month the EMP 501 return is outstanding up to

10% of the total amount of employees’ tax for that rec-

onciliation period (that is, for that year of assessment).

The Sars eFiling system has now been updated to allow the request for remission of the administrative penalties imposed in terms of the EMP301 assessment issued to the employer, and further from that the objection and appeal process of the disputes.

We believe this is a positive step that will assist employers and Sars to manage their dispute process more efficiently.

We note, however, that

the dispute process for employment tax incentive (ETI) adjustments is not always available on eFiling.

Many employers have been subject to rigorous audits by Sars on their ETI claimed. In certain instances, employers have had to submit their ETI objections and appeals for every period that has an additional assessment at a Sars branch.

We hope the electronic dispute process for ETI will also consistently be available on eFiling for all employers for their ETI disputes.

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BusinessDay www.businessday.co.za June 2022

BUSINESS LAW & TAX

Creditors and self-interest

When is it inappropriate for creditors to vote •against the adoption of a business rescue plan?

Phylicia Naidoo & Christopher Holfeld Webber Wentzel

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reditors who vote against the adoption of a business rescue plan out of self-interest, without considering the rights of other affected parties, may risk having their votes deemed inappropriate by a court.

A creditor of a company undergoing business rescue proceedings is entitled to vote on the proposed business rescue plan. However, for some creditors, voting for the approval of the business rescue plan would not achieve their objectives.

If you decide to vote against the plan in the hope of a better one being proposed or the company being liquidated instead, could your vote be deemed inappropriate, and the resultant rejection of the business rescue plan be at risk of being set aside?

In terms of section 153(1)(a) of the Companies Act, if a business rescue plan is rejected, the business rescue practitioner is entitled to advise, at the meeting called for consideration of the plan, that the company will apply to court to set aside the result of the vote by the holders of voting interests or shareholders, on the grounds that it was inappropriate. (Alternatively, the business rescue practitioner may ask the holders of voting interests to vote for approval to prepare and publish a revised plan.)

If the business rescue practitioner takes neither of

discover more

these steps, any “affected person” in terms of section 153(1)(b)(i)(bb) who is present at the meeting may apply to a court to set aside the result of the vote by the holders of voting interests or shareholders, on the grounds that it was inappropriate.

“Affected person” is defined in section 128 of the Companies Act and includes shareholders, creditors of the company, registered trade unions representing the company’s employees and individual employees or their representatives who are not represented by a registered trade union.

If an application is made to set aside the result of a vote on the grounds that it was inappropriate, in terms of section 153(7) of the Companies Act, a court may grant the order if it is satisfied that it

CREDITORS HAVE TO TAKE INTO ACCOUNT THE IMPACT ON OTHERS … IT IS VITAL TO LOOK AT THE BIGGER PICTURE is reasonable and just to do so, having regard to: ● The interests represented by the person/s who voted against the proposed business rescue plan; ● Provision, if any, made in the proposed rescue plan with respect to the interests of that person/s; and ● A fair and reasonable estimate of the return to that person or those persons if the

company were to be liquidated.

In the case of Ferrostaal GmbH and Another v Transnet SOC Ltd t/a Transnet National Ports Authority and Another (the Ferrostaal case) the Supreme Court of Appeal had to deal with whether votes were inappropriate and accordingly whether they should be set aside after a business rescue plan was rejected.

The approach taken by the court was formulated in the case of FirstRand Bank Ltd v KJ Foods CC (the FirstRand Bank case). The court needs to determine whether it is reasonable and just to set aside the relevant vote against the business rescue plan by taking into account the factors set out above in terms of section 153(7) of the Companies Act and all circumstances relevant to the case, including the purpose of business rescue.

The interpretation of the term “inappropriate” needs to take place within the wider context of the objects of business rescue, including the provision of the efficient rescue and recovery of financially distressed companies, in a way which balances the rights and interests of all the relevant stakeholders, including all creditors and employees.

In determining whether a vote against the adoption of a business rescue plan is inappropriate or not, a court needs to consider all the facts and circumstances and make a value judgment.

In the Ferrostaal case, the appeal was instituted by Ferrostaal GmbH and Atlantis

FINDING DIRECTION

/123RF — CATALBY Marine Projects Proprietary Limited, the shareholders of the company in business rescue, Ferromarine Africa (Pty) Ltd (FMA).

FMA did not have any employees, business or assets, aside from its lease agreement with Transnet SOC Ltd t/a Transnet National Ports Authority (Transnet), which it sublet. Transnet voted against the business rescue plan as it was commercially unviable and failed to adequately protect the interests of Transnet, the major creditor of FMA. Transnet also reasoned that the implementation of the business rescue plan could not achieve the legislated objective of facilitating the efficient rescue and recovery of financially distressed companies in a way that balances the rights and interests of all stakeholders.

Also, it reasoned that the liquidation of FMA would be advantageous to Transnet.

The court did not set aside Transnet’s votes rejecting the

business rescue plan. The court found the arrangement set out in the business rescue plan encroached on the ability of Transnet to exercise its contractual rights with FMA in future and was heavily skewed against Transnet.

There were no other affected persons whose interests needed to be protected.

Accordingly, Transnet’s opposition to the business rescue plan could not be considered as unreasonable and its vote against the adoption of the business rescue plan was not inappropriate.

In contrast, in the FirstRand Bank case, the company in business rescue, KJ Foods CC (KJF), had more than 200 employees, who would be able to continue working for KJF if the business rescue plan was adopted. If KJF was liquidated, they would lose their employment. If the proposed business rescue plan was approved, FirstRand Bank’s claim would be settled in full by way of payments made

over a period of time. Other creditors of KJF would also benefit if the business rescue plan was approved.

Another aspect that the court considered was that, if the business rescue plan was approved, concurrent creditors of KJF would receive 100c in the rand instead of the 51c in the rand they would receive upon liquidation of KJF. Taking into consideration all the facts and circumstances, the court held that FirstRand Bank’s vote to reject the business rescue plan was due to self-interest and was inappropriate.

Creditors have to take into account the impact on others when determining whether to vote against the adoption of a business rescue plan, not only how the decision will affect them or their companies directly. It is vital to look at the bigger picture before casting a vote, or risk it being deemed inappropriate, if selfinterest is the motivation and other stakeholders involved are not being considered.