Thoughts on Business Rescue of a marginal mine

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The Marikana tragedy highlights the need for improvement in the social and economic lives of mineworkers.  Continual pressure through the mining Charter and through the Minerals and Petroleum Resources Development Act ("MPRDA") are continually being exerted.

This pressure is to ensure employment equity, proper procurement and utilisation as well as sound community development.

The mining sector is in a depressed state at the moment and these challenges must be seen in the context of there being many marginal mines that are on the brink of insolvency.

The focus of the article is to reflect how best to deal with these challenges.  I am of the view that the involvement of the union and a well-developed and properly implemented business rescue plan can go a long way to moving that particular mine away from the inevitable liquidation into a business rescue scenario.

A business rescue plan can be fairly easily prepared and while it may look impressive the fundamental test is whether it has been implemented in accordance with the objectives set out in the mining Charter and the relevant legislation.

Every person in the mining industry knows that if there is a liquidation then that effectively means the end of the mining right through the operation of Section 56(d) of the MPRDA.

The business rescue plan is the fundamental document through which the process of attempting to rescue the marginal mine must be driven.  Accordingly, the preparer of the business rescue plan must be fully and completely aware of the challenges set out in the mining Charter (published in September 2010) and these principles must be the cornerstone of how the business rescue practitioner develops and implements the business rescue plan.

It is my view that any business rescue plan that does not have as its cornerstones the 3 essential principles of employment equity, local procurement and community development will most definitely fail.

The DMR (Department of Mineral Resources) is an essential player in the business rescue environment simply because the DMR, through its inspection procedures, will be fully aware of the distressed mine.  Business rescue does not as a matter of course suspend the mine's obligations under its approved social and labour plan or its mine works programme.  Timeous engagement with the DMR will prevent a stand -off with the DMR and in my view, a prudent and sensible business rescue practitioner will consult with the DMR on an informal basis.  An example of this is that the business rescue practitioner would need to ascertain whether the DMR would be in support of any transaction that may be concluded during the business rescue process.  To meet these challenges it is my view that the business rescue practitioner must ensure that there has been a proper pre-assessment or analysis of the marginal mine after its finances became distressed.  The business rescue practitioner can work in isolation and attempt to take steps to rescue the business once he obtains the appointment.  In my view there is little or no chance of this succeeding and what must happen is that the potential business rescue practitioner must be in possession of a comprehensive set of technical, financial and legal information in relation to the marginal mine.  This information must be properly communicated by the business rescue practitioner to all the affected parties and the business rescue practitioner should try and work towards achieving a "pre-packaged deal".

The "pre-packaged deal" will have identified all the fundamental problems and will have addressed them.  For example, the most important issue is the obtaining of post commencement finance and a post commencement financier will only consider advancing the finance if there are assets available in order to obtain security and accurate information is available as to the technical, financial and legal aspects of the marginal mine.

An example of this is the pressing need to involve the community in the pre-planning for the business rescue.  The reason is that the community have rights (in some cases real rights through leases) and without the buy in from the community there is no hope whatsoever of a marginal mine being rescued.

Another example of the work that must be done prior to the business rescue is to ensure that off take agreements are in place assuming the marginal mine has been successfully rescued.  The business rescue practitioner can negotiate some form of commitment towards these off take agreements prior to the publication of the plan.

The business rescue practitioner must accurately ascertain what secured rights are enjoyed by various creditors.  By way of an example certain creditors may allege a lien or another right of retention eg. a claim of ownership by way of accessio.  The investigations preceding the business rescue plan must drill down into all these challenges because it is pointless for the business rescue plan to refer to a creditor's right.  The business rescue plan must refer to the creditor's right and then propose and set out what solution the business rescue practitioner has negotiated or what solution seems to be appropriate under the circumstances.

The investigations must obviously concentrate specifically on the history of wildcat and unprotected strikes.  The business rescue practitioner should be well prepared and understand the cause of the strikes and once these have been identified they must then be analysed and solutions as opposed to issues in respect of the strike history must be set out in the business rescue plan.

The obtaining of post commencement finance has on previous occasions failed and this has been partly due to the lack of proper technical, financial and legal information and if the organisation contemplating advancing post commencement finance thinks that there is a possibility of incorrect information the finance will never be forthcoming.

Section 128(1)(a)(ii) of Act 71 of 2008 defines an affected person as any registered trade union representing employees of the company and Section 128(1)(a)(iii) defines an affected person as any employee that is not represented by a trade union or that employee's representative.

Accordingly, in terms of Section 131 of Act 71 of 2008 a trade union (in its capacity as an affected person) may apply to a court for an order placing the company under supervision and commencing business rescue proceedings.

I am of the view that unions have not been properly advised and need to be reminded on the ramifications and the ambit of Section 144 of Act 71 of 2008 namely that correctly structured and organised a union should be able, through the committee of employees' representatives, to consult with the business rescue practitioner during the development of the business rescue plan and the union is, in terms of the legislation, afforded an opportunity to review the business rescue plan and to prepare a submission in terms of Section 152(1)(c) of Act 71 of 2008.  In terms of this section the union is given the opportunity for the employees' representatives to address the meeting where the business rescue plan is being considered.
This is an opportunity where the unions can become involved and the business rescue practitioner must be asked by the union whether the business rescue plan as it has been developed will be implemented in order to take the mining Charter into account.  As an example, the mining Charter requires that by 2014 mining employers must complete the conversion of all hostels to family units with an occupancy rate of 1 person per room.  A further example is that the Charter has, as one of its goals, the acquisition of ownership by previously disadvantaged persons of at least 26% in companies and/or corporations that hold mining rights.  In addition, obligations under the approved social and labour plan must be complied with as a condition of the mining right.

A prudent and wise business rescue practitioner will most certainly take into account the views of the unions and/or the individual employees when dealing with the plan.

In the case of the employees of Solar Spectrum Trading 83 (Pty) Ltd (applicant) and Afgri Operations Ltd (respondent) the Honourable Kollapen J indicated in the judgment, where the employees were the applicants (for business rescue) that the employees, in their capacity as applicants, sketched out the various stages of the business operations of the respondent and the employees identified individual problems that were being experienced (in this case adequate irrigation, proper crop choice, proper fertilisation and effective management production).  The Judge also commented that the employees contended that the replacement of previous management with new management started yielding positive financial results.  The Honourable Kollapen J made the following important statement when balancing the competing interests :-

"(a) The applicants (employees) have been working and living on the farm for periods of long duration : the permanent employees from 2 years to 11 years.  The large majority of them have dependents.  They appear committed to using their skills to contribute to the rescue of the business".

The trade unions have access to the records of the distressed company in terms of Section 26 of Act 71 of 2008.  The obtaining of the financial records by the union must be encouraged and the business rescue practitioner or the person doing the pre-assessment must have genuine and meaningful consultations with the union for the reasons given namely that the union can bring an application as an affected person and the unions are afforded proper consultative and participation mechanisms which in my opinion are being very poorly dealt with at present and this has drastically affected the possibility of a rescue.

If the implementation of the plan takes these suggested factors into account I think there is a far greater chance of a meaningful rescue and to adhere to the broad principles of the Charter will mean that the successful rescue will be achievable.  This of course will result in the saving of the inherent value of the marginal mine as well as numerous jobs ultimately to the benefit of the entire community.

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