July 2020 | Business, Website of the Month
Our law (in the form of the Protected Disclosures Act) encourages employees to disclose unlawful or irregular conduct in their workplaces without fear of reprisal.
Why encourage it?
“3 Reasons Why Whistleblowing is Important for Public and Private Companies” on the Compliance Line website here suggests that employers should actively encourage their employees to “whistleblow” because –
- “The majority of fraud is captured through Whistleblowing”. It should be one of your frontline protections against financial loss from criminal activity.
- “Whistleblowers are often close to the action and have the most important information”.
- “Whistleblowing helps align people so the organization can pursue its vision and mission”. You are in essence protecting your business from two serious risks – reputational damage and the negative consequences of corporate non-compliance.
Lockdown has subjected businesses and their employees to unusually high levels of stress – financially and generally. That is bound to expose companies to new and greater risks of unlawful conduct and loss, and with that comes an increased need to protect yourself and your business from those risks.
And how to encourage it?
“How to make whistleblowing work” on the Good Corporation’s website brings together multiple suggestions on how to create a successful whistleblowing system, whilst a whistleblowing platform like Code Red (“designed in accordance with the King IV code on corporate governance which encourages ethical business leadership and organizational culture”) or Whistle Blowers makes it easy to encourage effective and anonymous online reporting.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
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June 2020 | Business, Company / Corporate / Compliance
“A stitch in time saves nine” (wise old proverb)
The COVID-19 pandemic and the resultant lockdown have opened up new avenues of profit for some businesses, but they have also subjected many others to the spectre of business failure.
Unfortunately we can expect the level of bankruptcies to surge for some time to come, and the domino effect will multiply the numbers until our economy turns the corner.
If financial distress looms for your own company, bear in mind the very onerous duties imposed on directors by the Companies Act. One of those duties is to avoid any form of “reckless trading” or “trading in insolvent circumstances”, and if you drop the ball on that one you risk personal liability, claims for damages, and even criminal prosecution.
What action should you take? There is a lot at stake here so specific professional advice is indispensable, but it is essential to face realities and to take decisive action quickly. Your legal options are likely to be either liquidation or business rescue. Let’s compare them…
Business rescue v liquidation
Liquidation: If your company is terminally ill you will probably have no option but to put it out of its misery by applying for liquidation. In that event a liquidator is appointed to oversee the winding-up of the company, to sell its assets and to distribute the net proceeds to creditors. Liquidation’s big advantage is in providing an orderly winding up of the company’s affairs, but there will be few winners emerging from the process.
All stakeholders are likely to lose out in a liquidation scenario. Shares become worthless, you lose your directorship, employees lose their jobs and, although they have preferent claims for outstanding pay, leave etc, these could well be worthless. Creditors holding some form of security aside, other creditors (which would include you if you have a loan account) are left with concurrent claims – which are probably worthless too.
To top all that off, if you signed suretyship for any claims, you will be personally liable for them.
Business rescue: Business rescue on the other hand is designed to restructure the company’s affairs and business “in a manner that maximises the likelihood of the company continuing in existence on a solvent basis or, if it is not possible for the company to so continue in existence, results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of the company.”
Either way all stakeholders stand to benefit, including you as a director, shareholder and/or loan account creditor. Your staff have a better chance of keeping their jobs, suppliers have a better chance of retaining your company as an ongoing customer, and the economy benefits from avoiding another business failure (SARS in particular will be happy to retain your company as a taxpayer!).
The success rate for business rescues is not high, but even if it is partially successful it is likely to be better than liquidation.
There have also been concerns expressed about the costs of business rescue, and although these concerns have been disputed, cost is perhaps a factor to be put in the balance with all the other factors mentioned above when deciding between the two options.
How does it work?
In a nutshell (this is of necessity just a brief overview of what can be a very complex subject) –
- Normally you would voluntarily place the company into business rescue with a board resolution; alternatively an outside stakeholder can apply for a court order (which you could oppose).
- A business rescue practitioner (often referred to as a “BRP”) is then appointed to take full management control of the company in substitution for the existing board and management, and to investigate the company’s affairs in order to “consider whether there is any reasonable prospect of the company being rescued”. The company is in the interim protected from legal action by creditors via a moratorium.
- As a director you “must continue to exercise the functions of director, subject to the authority of the practitioner”, plus you have “a duty to the company to exercise any management function within the company in accordance with the express instructions or direction of the practitioner, to the extent that it is reasonable to do so”. In other words, you must assist and cooperate with the BRP as required.
- The BRP convenes a first meeting of creditors to advise whether there is a reasonable prospect of rescuing the company.
- If rescue seems feasible the BRP will then formulate a business rescue plan and present it to another meeting of creditors for consideration and voting.
- If the business rescue plan is adopted and successfully implemented, the company is returned to the marketplace as a viable business.
- If it turns out that there is no prospect of rescue or if the business rescue plan is rejected without any extension of the business rescue proceedings, the court can convert the rescue proceedings into a full liquidation. It can also in some circumstances set aside the business rescue resolution or court order.
Timing is everything!
“A stitch in time” really does make sense here. Your chances of rescuing the business are statistically (and logically) much greater if you take action as quickly as possible after the threat of financial distress first rears its ugly head.
As to the legal position, our courts have put it this way: “… it is clear that the business rescue procedure is intended to be used at the earliest possible moment, i.e. when a company is showing signs of pending insolvency, but where it has not yet reached the stage of actual insolvency.”
Moreover the longer you leave it, the more likely you are to find yourself personally in trouble with the law and the higher the chance of all stakeholders losing everything.
Bear in mind that access to financing will be critical here, as will active support from major creditors both during the business rescue proceedings and in the longer term.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
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June 2020 | Business, Information Technology Law / Cyberlaw
At long last the main provisions of POPIA (the Protection of Personal Information Act) have been gazetted, and they will commence on 1 July 2020. That means that the one year transitional period will expire on 30 June 2021.
Don’t panic just yet, and ignore the many “fake headlines” in the media implying that you are at immediate risk of non-compliance, but at the same time don’t leave this to the last minute! Preparing for compliance is going to be a time-consuming affair, almost all South African businesses will need to comply, and the penalties for not doing so will be very severe indeed –
- You risk administrative fines of up to R10m;
- You could face criminal prosecution (with up to 10 years’ imprisonment);
- You could be sued for millions by anyone whose data has been compromised, and this is an instance of strict liability” in that no “intent or negligence” on your part need be proved;
- The loss of trust and the adverse publicity resulting if your data breach goes public could be devastating.
In future issues we’ll let you have a lot more practical advice on how POPIA will affect your business, and on the steps you will have to take to protect yourself from the dangers of non-compliance, but for now get started with this first planning step: Ask yourself what personal information you hold, where you hold it, who has access to it, and how secure it is.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
© LawDotNews
June 2020 | Business, Website of the Month
“This Too Shall Pass. It might pass like a kidney stone, but it will pass” (Unknown)
Entrepreneurs and the small businesses they run are bearing much of the brunt of our deepening economic woes. Some SMEs have prospered, others have sunk – most of us have just battled on, preparing for and dreaming of happier times to come.
In “The mental battle of running a small business” on Daily Maverick Nic Haralambous shares his thoughts on how to stay mentally fit in these trying times with these wise words: “Your emotional wellbeing is an imperative part of your success and the survival of your business”.
P.S. There may just be some light at the end of the tunnel here – keep an eye on the New York Times “Coronavirus Vaccine Tracker” here. Hold thumbs!
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
© LawDotNews
April 2020 | Business, Website of the Month
“The scale of the national COVID-19 lockdown is unprecedented in living memory. The repercussions – personal, professional, national and international – will reverberate for years to come. As entrepreneurs, we need to be making the right decisions for right now to ensure that our businesses and our people’s livelihoods do not become another casualty of the virus.”
At date of writing it is still unclear to what extent the Lockdown will be relaxed in each Province, but regardless of timelines the COVID-19 pandemic and the crisis it has landed us all in are not going anywhere in a hurry.
Businesses and perhaps SMEs in particular face both enormous challenges and many new opportunities. Some good solid advice on how they can navigate these stormy seas comes from Allon Raiz of Raizcorp in the form of a series of articles under the heading “Lockdown advice for entrepreneurs” here. To date six articles are available –
- “Get to rational quickly”
- “Building an opportunity matrix”
- “Scenario planning as a vital tool”
- “Building an exploded resources list”
- “Creating a small list of big questions”
- “Embrace your X”.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
© LawDotNews
March 2020 | Business, Employment and Labour Law
“The secret of crisis management is not good vs. bad, it’s preventing the bad from getting worse” (Andy Gilman)
We can only guess at how the COVID-19 coronavirus outbreak will end, but let’s all take whatever concrete steps we can right now to lessen its impact on our personal lives, on our businesses, and on our country.
One of those steps is for businesses to find ways of continuing to operate as normally as possible, given of course the exceptional times we are living through. And as employers, many businesses will find themselves facing some novel challenges, particularly during the National Lockdown…
Small businesses – the new relief programs
A whole raft of support and relief programs has been announced. Some still need to be finalised and the situation is changing daily, so keep an eye on the media and incorporate into your business survival plan all relief channels you think may be open to you. At date of writing, these are the main ones –
- The DSBD (Department of Small Business Development) will provide relief to businesses in several categories. Call the DSBD on its 0860 663 7867 hotline or email info@dsbd.gov.za to see if you quality. Apply at https://smmesa.gov.za/.
- The DTI (Department of Trade and Industry) is set to provide relief for large businesses as well as small. Keep an eye on the DTI’s website for developments.
- The Solidarity Fund has been set up with R150 million from the government to, amongst other things, assist and support those affected (contact details here).
- Employer and employee relief: Access the “Easy Guide for employers on COVID19” here and read up on the “Temporary Employer/Employee Relief Scheme” and UIF benefits from a special R30bn National Disaster Benefit Fund. Confirmation that employees who fall victim to the virus will be paid through the Compensation Fund – details here.
- Other funds and relief measures: The Rupert and Oppenheimer families have pledged R1 billion each to help struggling small businesses and employees – the details are not available at date of writing. Read the President’s speech here for more on planned or implemented measures involving tax relief, changes to the Competition Act, a fund to support the tourism sector, and more.
Employers – comply with the law!
From a legal perspective, employers in particular need to have a solid action plan in place to ensure that they comply with all our many employment laws, which will continue to apply as is, unless and until government announces any new measures to the contrary.
Detailed planning will not be easy. With the situation changing daily, keep informed of developments and keep all your plans flexible.
In any event there is unfortunately no “one size fits all” answer to questions like “Can I dismiss an employee who tests positive for COVID-19?”, “Can my employees insist on working from home?”, “Can I start retrenching?”, “Can I prohibit employees from travelling abroad for personal reasons?”, “What steps must I take to ensure a safe working environment and what rules can I put in place to underpin them?”.
The list is endless and the answers to these questions will depend upon your Lockdown exemption status, your particular employment contracts, business circumstances, operational needs, and so on.
Your employee action plan
We need to get used to constant change and uncertainty, but there are steps you can take now to plan for as many eventualities as possible –
- As a start, incorporate into your “COVID-19 Business Plan” all the possible scenarios you can think of, both during the National Lockdown and after it ends.
- Then brainstorm – with your employees where you can – a list of all the employment-related problems you and they might face. Use that in turn to make a list of questions you will need the answers to under each scenario.
- Then, make sure you are fully prepared to deal with whatever may come your way by taking specific legal advice on each and every one of those questions.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
© LawDotNews
