Hello Fatima Bhatti,
Where are you located--India OR Pakistan?
The appropriate Laws will then apply.
However, in general, it all depends on how the employees WERE treated while things were good. If they were treated well, then you can speak to them--as a group OR department-wise [suggest avoid individual meetings to begin with--else you will be SEEN to be playing politics] & explain the situation. How the employees take it depends A LOT on how much they 'CONNECT WITH THE ORGANIZATION'--which in-turn depends on how they were treated thus far [reason for my First line].
Coming to whether such practices exist formally, they do in many countries--including India--especially in the IT sector.
Legally speaking, I don't think [though I will stand corrected on this score] there would be anything to bar an organization to resort to half-pay when the financial condition is REALLY BAD & agreed-upon by most of the employees. However, such practices WILL have to be a part of OTHER STEPS by the organization. For eg, IF the employees are retained on half-pay & the Directors go on foreign junkets OR there's perceptable wastage of scarce resources within the other functions of the company--you know the end-result.
All the Best.
Rgds,
TS