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Published online by Cambridge University Press: 03 December 2020
Until recently, Zimbabwean insolvency law was unconcerned with rights of employees on insolvency of the employer. The new Insolvency Act points in a different direction. It guarantees limited rights of workers in their capacity as creditors and as employees. There is a convergence of insolvency law and labour law. These are legal disciplines with contradictory philosophies. This contribution analyses the rights of employees on insolvency in Zimbabwe. The review is informed by international best practices. The article establishes that Zimbabwe follows the “model two: bankruptcy preference approach”. It brings to the fore fundamental weaknesses inherent with this approach in the Zimbabwean context. The article argues that the protection of employees’ rights on insolvency can be enhanced if Zimbabwe follows the “pro-employee approach” and the “bankruptcy priority-guarantee fund approach”. It concludes by advocating for the alignment of the Insolvency Act with international best practices, the constitution and labour legislation.
Lecturer, Department of Law, Faculty of Commerce and Law, Zimbabwe Open University, Harare.
Senior Lecturer, Department of Business Management, Faculty of Commerce and Law, Zimbabwe Open University, Harare, Zimbabwe.
1 L Madhuku “Insolvency and the corporate debtor: Some legal aspects of creditors rights under corporate insolvency” (1995) Zimbabwe Law Review 89 at 90.
2 Fletcher, IF The Law of Insolvency (5th ed, 2017, Sweet & Maxwell)Google Scholar at 1; Smith, C The Law of Insolvency (3rd ed, 1988, Butterworth)Google Scholar at 1.
3 M Brassey “The effect of supervening impossibility on a contract of employment” (1990) Acta Juridica 22 at 24; S Lombard and A Boraine “Insolvency and employees: An overview of statutory provisions” (1999) De Jure 300 at 301; Steenkamp, A and Warrassaly, D “The effect of insolvency on contracts of employment” (2002) 6/1 Law, Democracy and Development 151Google Scholar at 152; P Carolus et al “Effects on the employment relationship of the insolvency of the employer: A worker perspective” (2007) 11 Law, Democracy and Development 109.
4 Insolvency Act, sec 40(2).
5 Id, sec 40(3).
6 This intersection is described by Van Eck et al in the following words, “the juncture at which insolvency law and labour law meet is an area of legal regulation where the tension between commercial interests, on the one hand, and the general right of employees to social protection on the other, is arguably at its greatest.” See Van Eck, S et al. “Fair labour practices in South African insolvency law” (2004) 121 The South African Law Journal 902Google Scholar at 907.
7 As a result of this lack of consideration of employees’ rights, Finch refers to employees as “lost souls of insolvency law.” See Finch, FI Corporate Insolvency: Perspectives and Principles (3rd ed, 2017, Cambridge University Press) at 778CrossRefGoogle Scholar. Added to this are Smit's remarks to the following effect: “Company law regulates the actions of companies in the market. Unfortunately, very little attention is bestowed on the interests of the employees in company law, either nationally or internationally. As far as insolvency law is concerned, the position is not much different. There would thus seem to be a vacuum in research in this field, since it certainly cannot be argued that employees are not closely connected to the companies they work for and on which their livelihoods depend. Employees deserve to have more attention paid to their often precarious position.” See N Smit “Labour is not a commodity: Social perspectives on flexibility and market requirements within a global world” (2006) TSAR 152 at 153; Botha, MM “Responsibilities of companies towards employees” (2015) 18/2 Potchefstroom Electronic Law Journal 2044CrossRefGoogle Scholar at 2045.
8 Finch, FI “The measures of insolvency law” (1997) 17 Oxford Journal of Legal Studies 221CrossRefGoogle Scholar at 227.
9 Art 17 of the King IV Report on Corporate Governance for South Africa, 2016 defines the term “stakeholder” as follows: “Those groups of individuals that can reasonably be expected to be significantly affected by an organization's business activities, outputs or outcomes, or whose actions can reasonably be expected to significantly affect the ability of the organization to create value.”
10 Bramstein, AS “The protection of workers claims in the event of the insolvency of the employer: From civil law to social security” (1987) 126 International Labour Review 715Google Scholar at 717.
11 Bhadily, M and Husie, P “Australian employee entitlements in the event of insolvency: Is an insurance scheme an effective protective measure” (2016) 37 Adelaide Law Review 247Google Scholar.
12 Nyombi, C “The objectives of corporate insolvency law: Lessons for Uganda” (2018) 60/1 International Journal of Law and ManagementCrossRefGoogle Scholar 2 at 6; Olivier, MP and Potgieter, O “The legal regulation of employment claims in insolvency and rescue proceedings: A comparative inquiry” (1995) 16 Industrial Law Journal 1295Google Scholar at 1296; Sarra, JP “Widening the insolvency lens: The treatment of employees claims” in Omar, J (ed) International Insolvency Law: Themes and Perspectives (2008, Ashgate Publishing) at 295Google Scholar.
13 In addition, insolvency law has other purposes, depending on the perspectives of the legal system involved, and these include the following: to prevent self-help for a collective process of creditors, maximizing returns to creditors, restoring the insolvent to stability or profitable trading, and to identify the causes of insolvency and impose appropriate sanctions. For a detailed discussion of the objectives of insolvency law, see Jackson, TH “Bankruptcy, non-bankruptcy entitlements and the creditors’ bargain” (1982) 91/5 Yale Law Journal 857CrossRefGoogle Scholar; Nyombi, C “The objectives of corporate insolvency law: Lessons for Uganda” (2018) 60/1 International Journal of Law and Management 2CrossRefGoogle Scholar; Hamish, A The Framework of Corporate Insolvency Law (1st ed, 2017, Oxford University Press)Google Scholar.
14 Sec 327(6) of the Constitution also requires courts to promote consistency with international treaties binding on Zimbabwe.
15 The Convention is supplemented by the ILO Protection of Workers’ Claims (Employer's Insolvency) Recommendation 180 of 1992.
16 The Convention, art 1.
17 Id, art 1 (1).
18 Id, art 5.
19 Id, art 6.
20 Id, art 9.
21 For a detailed discussion of C 173/92, see Omar, J (ed) International Insolvency Law: Themes and Perspectives (2008, Ashgate Publishing)Google Scholar; Bartolomei, B Employees Claims in the Event of Employer Insolvency in Romania: A Comparative Review of National and International Regulations (2011, ILO Publications)Google Scholar.
22 Model Law, art 15.
23 Principle C12.4.
24 OHADA Treaty, art 3.
25 Related regional instruments include the European Union Council Directives, the European Convention on Insolvency Proceedings, 2000 and the European Union Regulation on Insolvency Law, 2000. These legislative guidelines make provision for the protection of employees in the event of employers’ insolvency. For instance, they impose an obligation on employers to establish guarantee institutions to secure employees’ entitlements on insolvency. In addition, they authorize member states to set limits on the liability for outstanding claims and an obligation is imposed on employers to consult workers’ representatives before termination of employment on account of insolvency.
26 For a detailed discussion of the OHADA Insolvency Act, see ND Leno “Development of a uniform insolvency law in SADC: Lessons from OHADA” (2013) 57/2 Journal of African Law 259.
27 OHADA Insolvency Act, arts 95–96.
28 The Constitution sec 2(1).
29 CCZ 2/18.
30 Ibid.
31 Tsabora, J and Kasuso, TG “Reflections on constitutionalising of individual labour law and labour rights in Zimbabwe” (2017) 38 Industrial Law Journal 43Google Scholar at 45.
32 Madhuku, L Labour Law in Zimbabwe (2015, Weaver Press)CrossRefGoogle Scholar at 78.
33 (2003) 24 ILJ 2335 (LC) at 2339.
34 Van Eck et al “Fair labour practices”, above at note 6.
35 For example, whilst labour law seeks to protect the interests of employees by promoting job security and continuity of employment, insolvency law focuses on the closing down of business, its liquidation and the equitable distribution of liquidated assets amongst creditors. Id at 907.
36 B Jordaan “Transfer, closure and insolvency of undertakings” (1991) 12 Industrial Law Journal 935 at 935; EP Joubert “A comparative study of the effects of liquidation or business rescue proceedings on the rights of the employees of a company” (2018, unpublished LLD thesis, University of South Africa) at 15.
37 Act No 7 of 2018 gazetted in Government Gazette GN 413/18 on 25 June 2018.
38 See preamble to the Act.
39 M Brassey “The effect of supervening”, above at note 3, at 24.
40 See Nyamande & Another v Zuva Petroleum (Pvt) Ltd SC 43/15.
41 J Grogan Dismissal, Discrimination and Unfair Labour Practices (3rd ed, 2007, Juta & Co) at 180.
42 See Chirasasa & Others v Nhamo NO & Another 2003 (2) ZLR 206 (S); Colcom Foods v Kabasa SC 12/04; Samuriwo v Zimbabwe United Passenger Company 1999 (1) ZLR 385 (H); Diamond Mining Corporation v Tafa & Others SC 70/15.
43 Van Eck et al “Fair labour practices”, above at note 6 at 909.
44 For a commentary on the South African position see PM Meskin et al Insolvency Law (2015, LexisNexis) chap 18.
45 See Delport, PA et al. Henochsberg on the Companies Act 71 of 2008 (2012, LexisNexis)Google Scholar at 446; Evans, R “Preferential treatment of employee creditors in insolvency law” (2004) 16 South African Mercantile Law Journal 458Google Scholar at 465.
46 Insolvency Act, sec 52(1).
47 Joubert “A comparative study”, above at note 36 at 96–98.
48 Wages and benefits payable on termination of employment for whatever reason are prescribed in sec 13(1) of the Labour Act and include: wages and benefits due up to the time of termination, cash in lieu of vacation leave and notice period, medical aid, social security and any pension. Compensation for loss of employment is provided in sec 12C(2) of the Labour Act as amended.
49 Insolvency Act, sec 88(1)(a)–(i). Zimbabwe follows the “model two: bankruptcy approach” in that it provides a general preference for employee-related entitlements that rank below costs of administering the liquidation. See G Johnson “Insolvency systems in South Africa: Comparative review of employee claims treatment” (2011, Financial Sector Program, USAID). A similar position obtains in South Africa. Sec 98A of the South African Insolvency Act as amended provides for a general preference for employee-related entitlements that rank below a company's secured creditors and administration costs.
50 See Insolvency Act, sec 89(3)(a).
51 See id, sec 89(3)(b).
52 See id, sec 89(3)(a).
53 See id, sec 89(6).
54 South African Insolvency Act, sec 98A(1)(a)(i) puts a cap of ZAR12,000 on this entitlement.
55 Id, sec 98A(1)(a)(ii) prescribes a maximum amount of ZAR4,000.
56 Id, sec 98A(1)(a)(iii) limits this claim to a maximum amount of ZAR4,000.
57 Id, sec 98A(1)(a)(iv) caps this claim at ZAR12,000.
58 This preference is capped at ZAR12,000. See id, sec 98A(1)(b).
59 Joubert “A comparative study”, above at note 36 at 45.
60 Insolvency Act, sec 89(5).
61 This is a common characteristic of a jurisdiction which follows the “model two: bankruptcy reference approach”. A similar situation obtains in South Africa. There is no guarantee fund for employee entitlements.
62 In Australia, the Fair Entitlements Guarantee Act, 2012 establishes a public fund that is used to pay out employee entitlements in the event of insolvency.
63 In terms of sec 182 of the Employment Rights Act, 1996, the secretary of state pays employees’ entitlements from the National Insurance Fund.
64 Labour Act, sec 3(1).
65 Id, sec 3(2)–(3).
66 See Mombeshora v Institute of Administration and Commerce SC 72/17; City of Gweru v Masinire SC 56/18.
67 Gwisai, M Labour and Employment Law in Zimbabwe: Relations of Work under Neo-Colonial Capitalism (2006, Zimbabwe Labour Centre)Google Scholar at 182.
68 L Madhuku Labour Law in Zimbabwe (2015, Weaver Press) at 204; Merlin Ex-Workers v Merlin Ltd SC 4/01.
69 Chidziva & Others v ZISCO 1997 (2) ZLR 368 (S); Kadir & Sons (Pvt) Ltd v Panganai 1996 (1) ZLR 593 (S); Stanbic v Charamba 2006 (1) ZLR 96(S).
70 For further reading, see L Madhuku Labour Law in Zimbabwe above at note 68 at 231–73.
71 See also Labour Act, sec 2A(1)(e).
72 Chemco Holdings (Pvt) Ltd v Tenderere & 24 Others SC 14/17.
73 The Labour Court has no jurisdiction to grant interdicts in terms of sec 89 of the Labour Act. See Agribank v Machingaifa & Another 2008 (1) ZLR 244 (S); Mushoriwa v Zimbank 2008 (1) ZLR 125 (H); Mazarire v Old Mutual Shared Services (Pvt) Ltd HH 187/14.
74 Van Eck et al “Fair labour practices”, above at note 6 at 914.
75 Consulting parties such as workplace forums, trade unions and employees must be advised when a company is experiencing financial distress. See Labour Relations Act, sec 189(1).
76 Labour Act, sec 13.
77 Insolvency Act, sec 89(3).
78 Labour Act, sec 13(1). See also Nyanzara v Mbada Diamonds (Pvt) Ltd HH 63/15.
79 See Insolvency Act, sec 89(2)(b).
80 Labour Act, sec 12C(3), as amended by Labour (Amendment) Act 5 of 2015.
81 Rycroft, A and Jordaan, B A Guide to South African Labour Law (2nd ed, 1992, Juta & Co)Google Scholar at 240.
82 TG Kasuso “Transfer of undertaking under section 16 of the Zimbabwean Labour Act (Chapter 28:01)” (2014) 1 Midlands State University Law Review 20 at 21.
83 Mutare RDC v Chikwena 2000 (1) ZLR 534 (S).
84 Flessner, A “Philosophies of business bankruptcy law: An international overview” in Ziegel, J (ed) Current Development in International and Comparative Insolvency Law (1994, Oxford University Press)Google Scholar at 19.
85 Van Eck et al “Fair labour practices”, above at note 6 at 922.
86 Companies Act, sec 244(2).
87 See id, sec 244(2)(b)(iv).
88 A van Niekerk et al Law@Work (2nd ed, 2012, LexisNexis) at 23.
89 Insolvency Act of South Africa, sec 38(1).
90 JL Westbrook et al A Global View of Business Insolvency Systems (2010, Martinus Nijhoff Publishers) at 187.
91 To the contrary, others argue that guarantee funds are expensive to run, and also that they punish successful companies and benefit a limited class of employees. With due respect, these allegations are difficult to substantiate as guarantee institutions have been successful in Western jurisdictions and parts of Asia. See GW Johnson “Insolvency and social protection: Employee entitlements in the event of employer insolvency” (paper presented at the Fifth Forum for Asian Insolvency Reform, Beijing, China, 27–28 April 2006) at 7.