The Court of Justice has now ruled on the question whether or not a relaunch on the basis of a pre-pack constitutes a transfer of an undertaking. These proceedings were commenced by trade union FNV and the employees of childcare organisation Estro. On the same day Estro was declared insolvent, a relaunch was realised by means of a pre-pack. Over 2,600 employees were offered a new employment contract by the restarter, who continued the company under the name Smallsteps. Over 1,000 other employees lost their jobs; they were not offered a job by the restarter. This was the reason they went to court.
Opinion of Advocate General
In a previous article on this knowledge page, we already wrote about the opinion of the Advocate General on this question. At the end of March 2017, the Advocate General concluded that the pre-pack, which is aimed at saving the company or its remaining viable parts, does not fall under the Derogation from the Transfer of Undertakings Directive so that the protection of this Directive applies to the restart on the basis of a pre-pack. This means that the rights and obligations of the employees during a pre-pack transfer to the acquirer on the basis of article 7:663 Dutch Civil Code. In other words: during a pre-pack, the employees are protected under employment law, so says the Advocate General.
Ruling by the Court of Justice
In the meantime, the Court of Justice has ruled that the Transfer of Undertakings Directive, and in particular article 5(1), must be interpreted in such a way that the protection of employees as provided for in articles 3 and 4 of this directive is maintained in a situation such is as at play in the main action, where there is a transfer of an undertaking after a liquidation order in the context of a pre-pack that was prepared before the liquidation order and carried out immediately afterwards, in connection with which the ‘prospective insolvency administrator’ appointed by the District Court in particular investigates the possibilities of any continuation of the activities of such undertaking by a third party and prepares for the acts that must be carried out immediately after the liquidation order to be able to realise this continuation. In this context, it is not relevant that the pre-pack also aims to realise the maximization of the proceeds of the transfer for all creditors of the undertaking.
What does this mean for actual practice?
It is to be expected that as a result of this ruling the popularity of the pre-pack will diminish. Where previously the pre-pack was used as a successful reorganisation tool allowing for a simple way to cut the workforce, this tool will be much less appealing in the future now that it appears that employees will indeed be offered protection under employment law. Entrepreneurs will probably opt for a return to standard liquidation proceedings.
If you have any questions on pre-pack or reorganisation, please contact Maartje ter Horst.
T: + 31 (0)24 381 31 49