The right of the works council to be consulted does in principle apply in the situation where a company has been declared insolvent. In the event of a continuation or restart of a company, the liquidator shall in principle have to give the works council the opportunity to express itself on a proposed restart or continuation. The Supreme Court came to this conclusion last Friday in the case between the works council and the liquidator of chemist chain DA.
Decision of the Enterprise Division
Last year, the Enterprise Division ruled that the works council’s right to be consulted was in principle incompatible with the role of the liquidator which is aimed at the settlement of the liquidation assets. In addition, the right to be consulted would also be difficult to fit in practically in a liquidation situation.
The Enterprise Division did, however, not express itself further on the issue as to whether an exception can be made to this principle and which circumstances could give rise to this. As the liquidator of the DA chain would not have continued the undertakings, there would not be room for this in any event in that particular case. In an article previously published on this page, I focussed more extensively on the decision of the Enterprise Division and the case it was based on.
Findings of the Supreme Court
Last Friday, the Supreme Court came to a different decision from the Enterprise Division. The Supreme Court ruled that the bankruptcy of a natural person or legal person maintaining an undertaking in the meaning of the Works Councils Act (WOR) does not, in itself, lead to the undertaking ceasing to exist or no longer being maintained.
The consequences of the liquidation order and the objectives to be pursued with the liquidation, are also not such that the applicability of the WOR in a general sense is incompatible with the applicability of the Bankruptcy Act.
Insofar as bankruptcy law so provides, the liquidator carries out the powers of the entrepreneur. The liquidator can therefore be equated with the entrepreneur in the meaning of the WOR. The liquidator can also be viewed as director in the meaning of the WOR if, on the basis of his duties and powers pursuant to the Bankruptcy Act, he carries out, either alone or together with others in the undertaking, the highest direct control in relation to staff management, for example.
The principle is therefore that the works council’s right to be consulted does apply during bankruptcy. In its judgement, the Supreme Court formulated three ‘points of reference’ for this principle:
- Works council has no right to be consulted relating to sale and/or dismissal on the basis of the Bankruptcy Act. The works council has in principle no right to be consulted on the decision of the liquidator to publically or privately sell the assets of the insolvent company pursuant to Section 176 of the Bankruptcy Act. The works council also does not have to advise on the proposed decision by the liquidator to dismiss employees pursuant to Section 40 of the Bankruptcy Act.
It also does not matter if the sale or the dismissal results in the undertaking ceasing to exist. In such cases, the actions of the liquidator are after all focused on the liquidation of the (company) assets on the basis of the powers allocated to him by the Bankruptcy Act. The interests to be protected by the right to be consulted on the basis of article 25 of the WOR must in such case give way to the interests the creditors have in an expeditious and an as most advantageous settlement as possible, so said the Supreme Court.
- Continuation/restart? There is a right to be consulted! If assets are sold in the context of a continuation or a restart of (parts of) the undertaking by the same or a different entity and there is a prospect of the preservation of jobs, the decision relating to such sale is subject to the right to be consulted according to the Supreme Court. In that event, the actions of the liquidator are not only focused on the liquidation of the assets but also on the preservation of (a part of) the undertaking. The works council must then be able to express itself on the proposed continuation or restart.
- Possibilities of departing from the WOR provisions The Supreme Court further notes that the regulations laid down by or pursuant to the WOR are not in all cases compatible with the bankruptcy of the natural person or legal person maintaining the undertaking. In that case, those regulations cannot be applied, or not applied in full. The liquidator and the works council must then behave in such a way towards each other as is required by reasonableness and fairness.
This means that in certain circumstances the liquidator may depart from certain formal requirements in Section 25 of the WOR. Below is an example for illustration purposes. An entrepreneur must request advice for a proposed decision at such a time that this advice can have a material effect on the decision to be taken. This will not always be possible for a liquidator, because of the fact that in bankruptcies decisions must often be taken quickly, for example. The requirement of reasonableness and fairness could mean that a liquidator in a particular case does not have to satisfy this requirement.
A liquidation order does in principle not lead to changes for employee participation obligations on the basis of the Works Councils Act. The principle is that a works council also has the right to be consulted as referred to in Section 25 of the WOR during bankruptcy.
The Supreme Court has specified this principle in three cases:
- The right to be consulted does not relate to the sale of goods on the basis of Section 176 of the Bankruptcy Act or the dismissal of employees on the basis of Section 40 of the Bankruptcy Act, even if such sale or dismissal leads to the undertaking ceasing to exist.
- If the sale of the assets takes place in the context of a continuation or restart of (parts of) the undertaking by the same or a different entity, whereby there is a prospect of the preservation of jobs, the relevant decision to this end is subject to the right to be consulted.
- In certain circumstances, the liquidator may depart from the formal requirements of Section 25 of the WOR if the circumstances of the case so demand.
If you have any questions on the works council’s right to be consulted during bankruptcy, please contact myself or one of my colleagues on +31 (0)24 3813138.