What happens to my UIF and provident fund if the company I work for is liquidated?

What happens to my UIF and provident fund if the company I work for is liquidated?

The short answer

Your UIF and provident fund money should be unaffected. How you left the company affects whether you can claim your money now.

The whole question

Dear Athalie

The company I worked for was liquidated and the owner is nowhere to be found. How does this affect my UIF and provident fund?

The long answer

I have bolded certain points in my reply to emphasize them.

To take the question of the company owner who has disappeared, first:

Once a company goes into liquidation, the owner loses their power to say what should go on. The liquidator steps into their shoes, and the company’s suppliers and service providers have to deal with the liquidator, not with the owner. All outstanding payments and deliveries must be taken up with the liquidator. So the fact that the owner of your company is nowhere to be found will not affect what happens to the company and to the workers.

Bowman’s Law said in 2019 that there is often an application for provisional liquidation, which must be confirmed after six weeks. Before the date of the hearing for the application for liquidation, the company, the company’s employees, the trade union that represents them and SARs must all be informed and proof of this must be given to the court. The sheriff of the court must deliver the court order granting the liquidation order to all the parties mentioned above.

It’s the liquidator’s job to track all the company’s assets which have to be sold to pay off the creditors. No assets can be sold without the liquidator’s permission. The liquidator has to open a new bank account, called an estate bank account, and all the company’s cash must be put into that account, which the liquidator will manage.

The law firm Cliffe Dekker Hofmeyr Inc. reported that the Supreme Court of Appeal had emphasized in 2021 that only the assets that belonged to the company were under the control of the liquidator. Assets belonging to third parties would not vest in the liquidator.

As your UIF and provident funds do not belong to the company, but to the employees, they cannot be touched by the liquidator. 

Du Plessis Myburg Verbeek Inc. says that from the moment a liquidator is appointed, all existing employment contracts are suspended for 45 days. For this 45-day period, the employees are not required to work, and are not entitled to wages, annual leave or sick leave. But they can apply for UIF in this period.

The liquidator has to wind up all the assets and settle all the debts with creditors as far as possible. The liquidator can decide to end the employment contracts or to continue with them, but before any employment contract is ended, there must be consultations with the workers and their trade union, or, if there is no union, a person representing an existing collective agreement. This is according to section 38(5) of the Insolvency Act, which is the law that applies to liquidation, along with the Companies Act.

The aim of the consultations is to reach an agreement or consensus about the best way to save all or part of the business. Employees and trade unions and representatives of collective agreements can make suggestions in writing within 21 days after the liquidator is appointed. On this basis the liquidator may decide to continue employing the workers, often on fixed-term contracts. For example, workers may agree to work for lower wages for a period of time. If there is no agreement between the workers and the liquidators about what is possible, the suspended contracts of the workers will be terminated automatically 45 days after the liquidator was appointed.

A worker whose employment contract has been terminated is entitled to claim severance pay, as if they were dismissed for operational reasons, from the insolvent estate: this is one week’s pay for every year worked, according to Section 41(2) of the Basic Conditions of Employment Act (BCEA).

The Labour Appeal Court (LAC) has noted that section 41(2) of the BCEA clearly provides that if employees are dismissed for operational reasons, they are entitled to severance pay equal to one week’s remuneration for each completed year of service with the same employer.

Bear in mind that if you sign a Voluntary Severance Package (VSP), which should pay more than the one week’s pay for each completed year of service, you will have resigned of your own free will and therefore you will not qualify for UIF. A VSP is not the same as being dismissed for operational reasons or retrenched.

You can only claim UIF if you have been dismissed or retrenched or if the contract has expired.

Bowman’s Law says that the liquidators must sell all the assets in order to pay the creditors in an agreed order of preference as set out in the Insolvency Act: First, secured creditors (like a landlord or a bond; second, preferent creditors (which include employees’ remuneration (up to a prescribed amount) and SARS; and third, concurrent creditors (which are any creditors who will be paid after the preferent creditors).

Your benefits will only be paid out once the liquidation process has been finalised, which could take between six months and two years.

In terms of your provident fund: you are entitled to it, but you should ask for a copy of the Provident Funds rules. Perhaps also ask for an appointment with the Provident Fund Administrator to ask for clarity on how and when the provident fund will be paid out.

Wishing you the best,
Athalie

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