Insolvency Second Amendment Bill; Administration of Estates Amendment Bill: finalisation

NCOP Security and Justice

29 October 2002
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Meeting report

Select Committee on Security and Constitutional Affairs

SECURITY AND CONSTITUTIONAL AFFAIRS SELECT COMMITTEE
30 October 2002
INSOLVENCY SECOND AMENDMENT BILL; ADMINISTRATION OF ESTATES AMENDMENT BILL: FINALISATION

Chairperson:
Mr KL Mokoena (ANC)

Documents handed out:
Administration of Estates Amendment Bill, [B54 -2002]
Insolvency Second Amendment Bill [B53B-2002]
NCOP proposed amendments to Insolvency Amendment Bill (see Appendix)


SUMMARY
One of the effects of the Insolvency Second Amendment Bill is to enable workers to find out earlier when the business they are working for has gone insolvent. The Department noted that the NCOP proposed amendments had originally appeared in the draft of the Judicial Matters Amendment Bill. The Portfolio Committee had pointed out to the Department that it would be better to place these in the Insolvency Second Amendment Bill. This was now being effected. The Bill was passed with these amendments.

The Administration of Estates Amendment Bill was passed without amendment. The Department noted that the Black Administration Act was an embarrassment in the statutory history of South Africa and it would gladly have the entire Act removed from the books. Saving this, the Administration of Estates Amendment Bill goes some way to changing statutory law and removing many of the laws in South Africa that should not be in place in the new constitutional dispensation.

Insolvency Second Amendment Bill
Mr J. De Lange (Department of Justice drafter) noted that this was a short Bill, however he stressed that it should not be thought of as inconsequential as it directly affects the rights of workers in the case of an entity going insolvent.

Mr Cronje (Department of Justice) continued that in the past, workers simply arrived at work to find out that the business they were working for had gone insolvent. One of the effects of the Bill was to enable the workers to find out earlier in these circumstances, in order that they may make alternative arrangements. Workers rights to know about the financial difficulties of the businesses they work for were to be found at present in section 197(b) of the Labour Relations Act. However, the Insolvency Second Amendment Bill extends the protection of the Labour Relations Act afforded to workers. More specifically the parties that are targeted by the Bill under discussion are listed in section 189 of the Labour Relations Act.

Mr Cronje then described some particulars of the Insolvency Second Amendment Bill. The Bill states that, with regards to insolvent individuals, notice should be given to the South African Revenue Service if the individuals found themselves in a state of insolvency, as well as to the specific trade unions involved and the debtors affected by the insolvency. With regards to individual companies, it was necessary to put in a clause in the Bill pertaining to them. However, for specifically informal companies such as close corporations, no amendments were needed in the Bill. This is because provisions in the Company's Act apply to close corporations.

Discussion
Mr Mkhaliphi (ANC) questioned whether the salaries and wages for employees, not necessarily the executive members of an entity, were a priority in the dealings of an insolvent entity. He then referred to what he termed 'phoenix enterprises', namely enterprises that pleaded insolvency only to emerge as another organisation.

On the first issue of compensation for workers following a declaration of insolvency, Mr Cronje stated that section 98(a) of the Insolvency Act (which came into force in 2000) dealt with such issues. According to this section, all compensation to the workers would come out of the free residue left in the company after the sale of assets. However, before workers could be paid out, any outstanding debts would have to be settled, as well as outstanding liabilities. Mr Cronje stated that in taking this into account, priority is given to compensation to workers.

Mr Cronje agreed that 'phoenix enterprises' are a very serious problem. He questioned the attitude that there could ever be a 'successful liquidation'. He added that it is not an easy problem to solve, and that a major insolvency review is at the moment being conducted by the South African Law Commission that has not been completed yet. Some of the suggestions that have come out of this review is that a meeting would have to be held, between the entity declaring insolvency and their creditors, to discuss how to conduct the insolvency process in a way that would be beneficial to the creditors. However, he lamented the fact that no suggestions had yet been made on the subject of phoenix enterprises.

Mr J De Lange commented further on the topic, mentioning the issue of pyramid schemes. He referred to a recent judgement handed down by the Supreme Court of Appeal. The case detailed the matter of a joint estate, one part of which was insolvent and one was not. The court said that a person is not to have one estate that is solvent and another not. This represented the court's desire of eradicating instances where insolvency is used in an opportunistic manner.

Mr Mkhaliphi (ANC) then debated possible solutions to the problem of phoenix enterprises. He suggested that companies who went insolvent could be scrutinised. He went on to questions whether this scrutinising could not be used to blacklist companies who 'rose up from the ashes' of insolvency as other companies, effectively contributing to the end of phoenix enterprises.

Mr Cronje welcomed any suggestions that the Committee had, and assured them that he would convey the suggestions to the Department of Justice for consideration. He also assured them he would convey their opinion that the problem of phoenix enterprises was considered an urgent one by the committee.

Mr Maloyi (ANC) requested that the difference between the terms sequestration and liquidation be made clear, and questioned why the Department of Justice preferred to use the term sequestration rather than liquidation in the Bill. Mr Maloyi further requested that the definition of rule nisi be given to the committee.

Mr Cronje responded that one word for liquidation or sequestration must be used. It was simply a matter of picking one and using it. Both words have different origins in law. Liquidation has its roots in law of persons, from the Dutch source of South African law. That gives it a meaning applicable to people, as distinguished from sequestration that has a more commercial meaning. So sequestration was picked as opposed to liquidation.

Regarding rule nisi, Mr Cronje explained that the rule refers to a court order. The second word nisi translates into "If not, what". Rule nisi is the term in law used to describe an order that a court issues which is open to the challenge by the people the order affects.

The Chairperson asked how the parties affected by insolvency, specifically the workers, would be told about the insolvency and how it affected them. He queried the usefulness of a past system of sticking notices to their doors to let them know.

Mr Cronje responded by noting that in insolvency dealings, a liquidator is placed in charge to oversee the outcome of the procedure. It is his job to alert the workers of the situation. Mr Cronje observed that it is a practical problem in the hands of the liquidator. However, he mentioned section 197(b) of the Labour Relations Act that states that the owner himself must inform the workers and the employee organisations.

Voting
The Chairperson then asked for the committee's opinion on whether the Bill was to be closed for comment and if they were satisified with it in its present condition. Following the committee's agreement, he read the long title of the Bill and asked for the agreement of the committee on all the clauses. Seeing no disagreement to any of the clauses, the Bill was passed by the committee.

Administration of Estate Amendment Bill
Mr Cronje stated that this Bill removes many hurtful provisions from the Black Administration Act. It is also called the Moseneke Bill, since it takes account of the Moseneke case. The Bill does not deal with customary law of succession. It deals only with succession according to the common law. According to the Bill, the Master of the High Court will conduct all administration of estates. The Bill affords some of the benefits as are found under the common law.

Mr Cronje listed the example of the opportunity that a person has under the common law of going to a magistrate to have their estates dealt with, however the magistrate would be working as an agent for the Master of the High Court. He mentioned Clause 2 of the Bill that keeps this sort of grass roots interaction intact. This clause also includes provisions stating that the Master of the High Court cannot deal with cases that are controlled by customary law.

The Chairperson paraphrased the purpose of the Bill as he saw it: if someone dies without a will, it should be the Master of the High Court that must deal with the estate. He asked the committee for their consensus on the clauses of the Bill. After reading the long title of the Bill and seeing no disagreements, the Bill was passed by the committee without amendment.

Mr De Lange noted that the Black Administration Act was an embarrassment in the statutory history of South Africa. He admitted that he would gladly have the entire Act removed from the books. Saving this, the Administration of Estates Amendment Bill goes some way to changing statutory law and removing many of the laws in South Africa that should not be in place in the new constitutional dispensation.

Meeting adjourned.

Appendix:
The Select Committee on Security and Constitutional Affairs, having considered the subject of the Insolvency Second Amendment Bill [B 53B-2002] (National Assembly-sec 75), referred to it, reports the Bill with proposed amendments, as follows:

NEW CLAUSES
I. That the following be new Clauses:

Amendment of section 49 of Act 24 of 1936, as amended by section
21 of Act 6 of 1963, section 12 of Act 99 of 1965 and section 1 of Act
49 of 1996

5. Section 49 of the Insolvency Act, 1936, is amended by the substitution for subsection (2) of the following subsection:
" (2) Nothing in this section shall be construed as preventing the [Secretary for Inland Revenue] Commissioner for the South African Revenue Service from proving in the manner provided in this Act a claim against the estate of a partnership in respect of any sum referred to in paragraph (h) of section one hundred and one, or any interest due on such sum."

Amendment of section 99 of Act 24 of 1936, as substituted by section 5 of Act 6 of 1972 and amended by section 6 of Act 62 of 1973, section 9 of Act 29 of 1974, section 69 of Act 85 of 1974, section 50 of Act 103 of 1978, section 3 of Act 139 of 1992 and section 3 of Act 122 of 1998

6. Section 99 of the Insolvency Act, 1936. is amended-
(a) by the substitution in subsection( 1 )(b) for subparagraph (v) of the
following subparagraph:

" (v) has under the provisions of the Sixth Schedule to the said Act deducted or withheld from any insurance benefit under any insurance policy. in respect of the liability of any person for normal tax, but did not pay to the [Secretary for Inland Revenue ] Commissioner for the South African Revenue Service prior to the sequestration of the estate. and any interest payable under that Act in respect of such amount in respect of any period prior to the date of sequestration of the estate;"; 'and
(b) by the substitution for paragraph (e) of subsection (I) of the following paragraph:
(e) any amount which in terms of the Unemployment Insurance Contributions Act, [1966 (Act No.30 of 1966)] 2002 (Act No.4 of 2002). was, immediately prior to the sequestration of the estate, due to the Unemployment Insurance Fund by the insolvent in his capacity as an employer, in respect of any contribution, penalty or other payment; and".

LONG TITLE
1. On page 2, in the fifth line. to omit the second "and".
2. On page 2, in the sixth line, after "compensation;" to insert:
and so as to effect certain textual corrections


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