HIGH COURT OF LESOTHO
TEXTILE WORKERS UNION APPLICANT
APPAREL (PTY) LTD.
LIQUIDATION) 1ST RESPONDENT
MATSAU N.O. (LIQUIDATORS) 2ND RESPONDENT
by the Honourable Mr. Justice W.C.M. Maqutu on the 14th day of
matter was brought as a matter of urgency by Applicant against the
Respondents ex parte. A Rule Nisi was issued by Molai J.
on the 6th
July, 1994 in terms of prayer 2 of the Notice of Motion in the
"1, The ordinary Rules pertaining to modes and periods of
services are dispensed.
Rule Nisi be and is hereby issued returnable on the 1st day of
upon the respondents to show cause (if any) why:-
members shall not be paid their wages for the period between 23rd
and 31st May, 1994.
members who were employed by first respondent shall not be paid
their notice money.
members who were employees of the first respondent and who have
completed more than one year of continuous service
with the first
respondent shall not be paid their severance pay.
second respondent shall not be interdicted from paying out any
claims and/or payments as contemplated under Section 101, 102
Insolvency Proclamation of 1957 and those thereafter following
matter was postponed.
26th September, 1994 the matter was argued after several extensions
of the Rule.
outset I was told that prayer l(a) of the Rule Nisi was not being
pursued because Second Respondent had settled the amount
on the 5th
July, 1994. This was before the application was made before Molai J.
on the 6th July, 1994.
question of the locus standi of the Applicant arose. The question
does not have to be decided in these proceedings for the following
correspondence including cheques were made in favour of Applicant.
page 2 of Applicant's annexure "B", Second Respondent
specifically requests applicant to represent non-union members
being the case I felt Second Respondent, who is in charge of First
Respondent, cannot be heard to challenge applicant's locus
the light of the aforegoing.
issues that are before me for determination are:
the employees were entitled to payment of money in lieu of notice.
although the First Respondent Company having been under liquidation
for more than ayear is obliged to pay the employees
represents severance pay because the employees were allowed to
continue working for that period.
employees are entitled to preferent treatment in respect of the
above, then Second Respondent has to restrained from paying
Applicant's annexure "C" Second Respondent says:
"In order to secure the interests of creditors and employees
alike, I obtained the permission
of the Master of the High Court and the general body of creditors to
continue the operation of the factory with the specific aim
selling it as a going concern to a prospective purchaser. Such a
purchaser was immediately identified as Goldmaster Investment
holding company of Lesotho Apparent (Pty) Ltd. Preliminary
discussions had been commenced with the said Goldmaster Investments
Ltd. and a tentative agreement in principle reached."
common cause that the employees have remained in the employment of
the company under liquidation for fifteen months. Therefore
faction 79(1) of the labour Code 1992 in isolation they have
"completed more than one year of continuous service with one
would entitle them to a severance payment equivalent to two weeks'
wages for each completed year of continuous service with
of Section 100(1) of the Insolvency
51 of 1957 employees are entitled to salary and wages not exceeding
two months prior to the date of sequestration of
the estate, due to
the employee who was engaged by the month. The employees on behalf of
whom Applicant is acting were paid monthly.
employee is also entitled to payment in lieu of leave not exceeding
14 days. An employee is entitled to salary and wages even
has not proved his claim so long as he submits an affidavit in
support of his claim for such salary and wages. Vide Section
and (3) of the Insolvency Proclamation 1957. The Insolvency
Proclamation in respect of the employees preferent treatment
wages has put the issue beyond doubt.
to be common cause that this claim has been met in full in respect of
the period that the employees continued work when
the company was
already under liquidation. Should the employees receive preference
over creditors in respect of other creditors
beyond what has been
provided by the Insolvency Proclamation?
seeking to answer this question, reference has to be made to Section
90 of the Labour Code 19 92 which
"Notwithstanding the provisions of any other law in force in
Lesotho, whenever any attachment in execution of a judgment,
proceeds realised in pursuance of such execution shall not be paid by
any court to the plaintiff until a debt owed by such
an employer in
respect of wages has been satisfied to the extent of the sum not
exceeding four months' wages of such employee.
However nothing in
this Section contained shall be deemed to prevent an employee from
recovering any balance due on such judgment
by ordinary process of
already stated, wages have been met in full. Therefore the minimum
standard set by the labour Code has been exceeded if we take
agreed date in May 1994 as the cut-off date.
to me that even the Labour Code 1992 does not on the face of it give
severance pay priority over other claims. The Insolvency
does not refer to severance pay at all, During argument neither
Counsel attempted to fit severance pay within the
meaning of wages.
Section 3 of the Labour Code 1992 defines wages as meaning—
"remuneration or earnings, however designated
or calculated, capable of being expressed in terms of money, fixed by
law or by a mutual agreement made in accordance with the
payable by virtue of a written or unwritten contract of employment
for work done or to be done or for service rendered
or to be
definition does not quite clarify the issue. If we take Section 90 of
the Labour Code 1992 as protecting the employee's wages
up to four
months severance pay (which is a right that accrues after 12 months)
does not seem to be protected by the labour Code.
pay is not defined in the Labour Code. In Section 79 of the Labour
Code 1992 employees are given a right to severance
payments. We in
Lesotho do not know the history of severance payments. Rycroft and
Jordan in 4 Guide to South African Labour Law
at page 244 say:
English law position that a severance allowance is not unemployment
pay, but compensation for the loss of accrued rights
in a job, and is
payable even if the retrenthed worker gets another job immediately."
to Rycroft and Jordan age page 245 of their above-mentioned book, the
South African Industrial Court
called for legislation that would make payment of severance payments
compulsory. Lesotho has with Section 79 of the Labour Code
such severance payments compulsory. In South Africa they remain the
outcome of collective or individual bargaining not
Although in Lesotho severance payments are now legal rights of
employees, South African legal literature on the subject
is a useful
in Rikert's Basic Employment Law 2nd Edition at pages 116 to 117 sees
severance payments as part of the fair labour practices
terms of which the employer financially assists retrenthed employees
over and also gives such employee notice pay. Even
in the absence of
agreements the Industrial Court of South Africa has often ordered
severance on grounds that
"workers of long standing acquired a vested interest in their
jobs, that because they lost employment through no fault of
they were deserving of assistance to tide them over a period of
possible unemployment, and that the payment of severance
pay was the
norm in the industries concerned."
light of this history of severance pay, I conclude the English see it
as compensation for loss of accrued
the job, while the South Africans see it as financial assistance to
tidy employees who suddenly lost employment over the
possible unemployment. That being the case severance pay cannot be
deemed to be wages. Consequently severance payments
although they are
rights of employees are not specially protected rights of employees
in terms of Section 90 of the Labour Code
1992 or Section 100 of the
Insolvency Proclamation 1957.
with Mr. Mosito Counsel for Applicant that the contracts of
employment of employees terminate automatically in the event
liquidation. Their preferent claim in respect of salary and wages in
my view is governed by Section 100 of the Insolvency Proclamation
1957 read along with Section 90 of the labour Code, 1992 claims of
employees under this head have been met. The only problem that
Court has to decide is that of payments of money in lieu of notice.
Penzhorn for the Respondents submitted that from February 1993 when
the company became insolvent the employees were not employed
of a definite contract but rather on an ad hoc basis. The Labour Code
does not provide for employment on an ad noc basis.
difficulty with this definition of the status of the employees after
never be a comprehensive definition of a contract of employment. In
South African common law which is Lesotho's common
law, a contract of
employment developed from the locatio conductio operarum which, Roman
law was available only for so-called "operae
menial tasks". Riekert's Basic Employment Law Second Edition
page 1. The Romanistic principles being antiquated
our present common
law is in fact an amalgam Roman-Dutch and English law. A development
which should be expected as the English
became the rulers of the Cape
of Good Hope for at least a century.
historical perspective, it is clear that in general contracts of
employment for monthly and weekly wages are so to speak
ad hoc. This
is precisely because entrepreneurs most of whom are the employers
take a risk when they open a factory or any business
Therefore it is logical and fair to conclude that there is no such a
thing as an ad hoc contract of employment to which
standards set by the old Employment Act of 1967 and the present
Labour Code of 1992 do not apply.
the Second Respondent as the liquidator of the company was operating
within the parameters of the Insolvency Proclamation
he and the
creditors retained the employees in order to increase their return or
dividend in the Rand of Loti from the proceeds
of the insolvent
estate if they sold the business as a going concern.
the notional freedom to contract that the law expects of an employer
and employee, in reality the dice is heavily loaded
employee. Riekert's Basic Emplyment Law 2nd Edition page 4 concludes
"The master and servant laws clearly gave primacy to the
interest of employers over employees and this may have induced the
early courts to adopt a view of employment relationship which has
today become anachronistic,"
I have to interpret the position of employees and their right of
notice in the light of the labour Code 1992 and the principles
fairness it introduces, I think I should also base my judgment on the
particular facts of the case. The right to notice of termination
employment is statutory.
determination of this matter should revolve around Second
Respondent's letter annexure "C" to Applicant dated 29th
June, 1994 read along with the first letter annexure "A" of
27th May, 1994. Second Respondent says he "obtained
of the Master and the general body of creditors to continue the
operations of the factory with the specific aim of selling
it as a
going concern to a prospective purchaser". I take this to mean
that the creditors could have taken their money immediately
getting the factory sold as it stood in February, 1993, As the
purchaser at a public auction might have bought it at a rock
price, the creditors decided to invest their stake in the factory in
collaboration with Goldmaster Investment Ltd. by keeping
a going concern so that it could fetch a good market price. This, in
the reckoning of the Second Respondent and the
creditors, would give
the creditors a good return for their money. It probably has, there
was probably some profit that accrued
from business operations
between February 1993 and May 1994. Second Respondent is silent about
this. Even if there was no profit
employees gave value for money,
they are entitled to their rights.
failure to disclose material facts cannot be
against the employees. The prospective purchaser who ploughed more
money into the factory is Goldmaster Investment Ltd.,
company of Lesotho Apparel (Pty) Ltd. which is the First Respondent.
By this holding company is meant a parent company.
In Zangeberg Koop
v Inverdorn Farming & Trading Co. 1965 (2) SA 597 the
relationship between a parent company and a subsidiary
courts a great deal of problems. The question being whether
dispositions inter as were for value or not. There is always
suspicion such transactions raise in the minds of those who have to
be tossed about by a parent company and a subsidiary hiding
the veil of incorporation, In Incorporated Industries Ltd v standard
finance Corporation Ltd. 1961 (4) SA 254 at 255 Kuper
J. was seized
with a case in which a subsidiary sought to acquire shares of a
parent or holding company, he pointed out the danger
of a company
trafficking in its own shares by indirect means. In other words the
employees cannot be prejudiced by the games the
parent or holding
company may be playing with its subsidiary by offering to acquire it
one minute and abandoning it to sink the
no need to attempt to lift the veil of incorporation to realise that
Goldmaster Investments Ltd.
running circles around everybody. At one time their subsidiary is
under liquidation, they offer to buy its factory. According
Respondent fifteen months later—
"Much (the surprise of Second Respondent) and with any warning
Goldmaster unilaterally decided to repudiate the agreement,
no longer prepared to purchase the factory and they withdrew all
support they had hitherto given to the factory and halted
They instead authorised their subsidiary Qwa-Qwa Apparel to offer to
purchase the equipment and assets of the factory
at a negotiated
Goldmaster Investments Ltd. was running its subsidiary, the First
Respondent (Lesotho Apparel under Liquidation) during
these 15 months
without any complaint, its sudden change of stance is unconscionable.
Could it not be that Goldmaster Investments'
Limited makes a profit
out of the process of liquidation and insolvency of subsidiaries?
Qwa-Qwa Apparel is also a subsidiary of
Goldmaster Investment Ltd.
Now after putting the Second Respondent in a corner where there seems
to be no escape,
Investments Ltd. cancels the deal and pushes him to sell equipment
and assets from the Lesotho subsidiary to the Qwa-Qwa
subsidiary. This strikes me as a disposition for only nominal value
of assets within a group of companies for which Goldmaster
Investments Limited is the parent company.
juggling around of assets within the Goldmaster Investment family of
companies strikes me as prejudicial to creditors. Creditors
are not a
party in these proceedings, and I am sure they can look after
themselves. The employees are through this application
own interests. They cannot just be dropped like a hot potato merely
because attempts of creditors to increase their
returns from their
share of the bankrupt estate have gone wrong. The employees should
not lose their right to notice because the
group is running circles around Second Respondent.
already said employees have given work for value in terms of the
contract of employment such as it was in the circumstances,
took the risk and nothing in the papers suggests that creditors lost
heavily, reading between the lines (because Respondents
communicative) the factory must have made a profit and as a going
concern is worth more. Other purchasers could probably
found. I see no reason why the employees should be denied what they
are entitled to by law and as matter of fairness.
of Section 61 of the Labour Code 1992, Part V of the Code applies to
all contracts as their bottom line. Therefore the
employees are in
terms of Section 63(1) of the Labour Code 1992 entitled to a month's
notice pay in addition to what has already
been paid to them because
"been continuously employed for one year or more"
First Respondent as represented by the Second Respondent.
reaching this conclusion I am guided by the spirit of the Labour Code
1992, This is because a new owner of the factory had been
the employees and their continued employment seemed assured. They
therefore stopped looking for alternate employment.
creditors wanted to keep the employees for their purposes and did
indeed do so. Riekert's Basic Employment Law 2nd Edition
at page 116
with whom I agree says,
"Once the individual employees have ben accepted for
retrenchment and finally consulted, the employer should give them as
much notice as possible to enable them to make plans for alternative
Respondent says in annexure "C" he decided to retain the
"in order to secure the interests of the creditors and employees
Respondent says per agreement Goldmaster Investment Ltd. supported
operations of the factory and it was business as usual.
words the position changed from what it was in February, 1993 when
the provisional order of sequestration which was later
that Goldmaster Investment has reneged on the agreements according to
"We were therefore back to the beginning where workers
employment were terminated by operation
of the state of liquidation."
this may be so, because of the agreement with Goldmaster Investment
Ltd, the right to one month's notice that has accrued
to the workers
cannot be lost. The creditors and their representative gambled and
lost on the deal with Goldmaster Investment Ltd
with the consent of
the Master. Among the consequences of this gamble is that the
employees have by operation of the law become
entitled to Notice of
termination of their employment, I have already said the operation of
the factory must have brought some
gain to creditors. The Second
Respondent has not alleged or suggested the contrary.
that I Make is as follows:
Rule Nisi is confirmed in respect of prayer 2(b) of the Rule Nisi
and consequently Second Respondent is directed to pay to
Applicants Members in respect of whom this application has been
brought one month's pay in lieu of notice.
2(c) of the Rule Nisi is discharged
because the employees in respect of whom Applicant has brought this
application are not entitled to severance pay.
2(c) of the Rule Nisi is confirmed and Second Respondent is directed
not to make payment to creditors in terms of Sections
101 and 102 of
the Insolvency Proclamation 1957 until claims authorised by this
order have been satisfied.
have substantially succeeded consequently they are awarded two thirds
of the taxed costs.
Applicant : Mr. Mosito
Respondents : Mr. Penzhorn
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