Jennifer Helena Meerding
LL.M. INTERNATIONAL AND EUROPEAN LABOUR LAW – UNIVERSITY OF AMSTERDAM | JULY 2015 SUPERVISOR: PROF. DR. R.M. BELTZER
STUDENTNUMBER: 10590811
Restructuring of companies:
the ‘pre-packaged’-transfer of
undertaking
DOES THE EUROPEAN DIRECTIVE 2001/23/EC RELATING TO
THE SAFEGUARDING OF EMPLOYEES’RIGHTS IN THE EVENT
OF TRANSFERS OF UNDERTAKINGS APPLY TO THE DUTCH
PRE-PACK PROCEEDING?
2
ContentIntroduction ... 3
I What is pre-pack in the Netherlands? ... 6
1.1. What is pre-pack? ... 6
1.2. Legislative proposal: Act on the Continuity of Companies I ... 7
Aim of the pre-pack: continuation ... 9
Conditions for assignment by the court ... 9
Preparation phase: the role of the court and the silent trustee ... 10
The Court as ‘gatekeeper’ ... 10
Tasks and 'powers' of the silent trustee ... 11
Draft composition ... 12
Liquidation order ... 12
1.3. The influence of pre-pack on labour law ... 12
II Restructuring of insolvent enterprises under European labour law ... 15
2.1. Mitigating the social effects of restructurings ... 15
2.2. Directive on transfer of undertaking ... 17
Scope ... 17
Rights and obligations under the Directive ... 17
Transfer of insolvent undertakings ... 18
2.3. Economic and social upgrading ... 21
III Does Directive 2001/23/EC apply to the Dutch pre-pack? ... 22
3.1. Article 5 Directive in relation to 7:666 CC ... 22
Can the pre-pack insolvency be regarded as a liquidation proceeding? ... 23
‘Real’ time of transfer ... 25
3.2. Options for the Dutch legislator ... 26
IV Conclusion ... 28
3
Introduction
During the past years, the 'pre-packaged administration' (hereafter: pre-pack) has made the headlines many times in the Dutch news.1 The pre-pack is a relatively new restructuring tool, inspired on the Anglo-Saxon practice. In a pre-pack proceeding, the court can assign a 'silent trustee'2 on request of the financially distressed company. The silent trustee will prepare an assets transaction. This enables companies to make a quick restart immediately after the moment it has been declared bankrupt. The pre-pack is popular because it enables companies to sell their company going-concern. The company is restarted as part of the bankruptcy proceeding while it’s being relieved of obligations to creditors. The increasing use of pre-pack restructurings has, however, lead to commotion among competitors, trade unions and employees. In the beginning of 2014, childcare centre 'Estro3' and shrimp trader 'Heiploeg4' were restarted during the bankruptcy proceeding. The assets transaction was prepared in secrecy by a silent trustee. After the restart, a part of the workforce was re-employed, but was offered a new employment contract with worse labour conditions than before. The employer could simply select the employees he was willing to reemploy, because hardly any labour protection applies during insolvency. He can uphold the contracts with favourable terms and end the contracts with unfavourable terms, or choose the employees who have been performing well and are likely to continue to perform well.
The commotion caused by pre-pack restructurings essentially revolves around the (lack of) applicability of employment legislation, and unfair competition among competitors. The fact that competitors are left outside of the scheme and are therefore, incapable of bidding on the solvable/interesting parts of the bankrupt company is a matter of concern. Further, one could argue that it opens the possibility to easily circumvent employees' rights. On the other hand, supporters are arguing that the pre-pack provides an option to effectively re-launch the company without disrupting the economic activity, safeguarding the stakeholders interests and preserves employability.5 A fact is that the secret preparation phase limits the transparency of the proceeding and it arouses suspicion. From a labour law perspective many questions arise, the most important being: how are labour rights of employees guaranteed in a pre-pack restructuring? Does the works council have the right to be consulted about proposed reorganizations while they are in a preparation phase? Last year, trade
1 See for example: Het Financieele Dagblad 17 oktober 2013, p.15, 'Gedupeerden in actie'(Schoenenreus); Het
Financieele Dagblad 22 juli 2014, p. 12, 'Vakbonden dagen garnalenbedrijf Heiploeg vanwege flitsfaillissement', Het Financieele Dagblad 19 augustus 2014, p.2, 'Abvakabo FNV stapt naar de rechter over kinderopvangbedrijf Estro'.
2 A silent trustee is in Dutch called: 'beoogd curator' or 'stille bewindvoerder'.
3 See for example:
http://www.nrcq.nl/2014/07/24/eigenaar-failliet-kinderdagverblijf-estro-sloot-miljoenendeal-met-zichzelf, Het Financieele Dagblad 19 augustus 2014, p.2, 'Abvakabo FNV stapt naar de rechter over kinderopvangbedrijf Estro'.
4 Het Financieele Dagblad 22 juli 2014, p. 12, 'Vakbonden dagen garnalenbedrijf Heiploeg vanwege
flitsfaillissement'.
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4
unions expressed their discontent about pre-pack restructurings, arguing that employment rights are sidelined in such a proceeding. Some have started a legal proceeding before the court arguing that the legislation with regard to transfer of undertaking applies.6At a European level, the rights of employees in case of transfer of undertakings are safeguarded in the European Directive on Transfer of Undertaking (2001/23/EC) (hereinafter: The Directive). The Netherlands has implemented this Directive in 7:662-7:666 of the Dutch Civil Code.7 In accordance with the Directive, the articles 7:662 up to 7:665 CC aim to safeguard the employees' rights by reason of the transfer. Shortly after the implementation of the Directive the question was raised whether the employees were also protected during insolvency.8 Dutch legal scholars differ on the scope of the protection of employment rights of the respective regulation in a pre-pack restructuring. Some authors foresee that a pre-pack restructuring is covered by the application of the Directive9, other scholars look at the pre-pack from a different angle. They contend that the pre-pack does not fall under the scope of the Directive.10
As follows from the above, my research aims to explain the legal effect of the Dutch pre-pack proceeding on labour law. Which European obligations apply and have to be taken into account by the Dutch legislator? This will be done in order to answer the main question:
Does the European Directive on Transfer of Undertaking (2001/23/EC) apply to the Dutch pre-pack proceeding?
In order to answer the main questions the following sub questions need to be answered:
1) What is the ‘real’ time of transfer in a pre-pack proceeding? Is it a transfer during or before declared insolvency?
2) What is the aim of the pre-pack proceeding under the Draft Act Continuity of Companies I (WCO
6
See for example: http://nos.nl/artikel/677649-garnalenverwerker-voor-de-rechter.html , http://nos.nl/artikel/604504-fnv-betrek-ons-bij-faillissement.html, http://www.nrcq.nl/2014/07/18/waarom-de-bliksemdoorstart-omstreden-is, Het Financieele Dagblad 22 juli 2014, p. 12, 'Vakbonden dagen garnalenbedrijf Heiploeg vanwege flitsfaillissement'.NRC Handelsblad, 'Hoor eens, dit ís geen faillissement', 30 januari 2015.
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Wet van 15 mei 1981, Stb. 1981, 400. In 1981, the Dutch legislator implemented the European Directive 77/187 on the harmonization of workers' rights in case of transfer of undertakings in the Dutch Civil Code, nowadays Directive 2001/23/EC.
8 P.R.W. Schaink, Arbeidsovereenkomst en insolventierecht, Deventer: Kluwer, 2012.p. 117. 9
See for example: R.M. Beltzer, 'Overgang van onderneming en faillissement: over een blinde vlek van curatoren of wishful thinking onder arbeidsrechtjuristen', 13 december 2014 FIP 2014(8) 360, P. Hufman, J. van der Pijl, I. Zaal, Internetconsultatie Wetsvoorstel Continuïteit Onderneming I; 'Het wetsvoorstel Continuïteit Ondernemingen I vanuit Arbeidsrechtelijk perspectief' Universiteit van Amsterdam. P. Hufman en I. Zaal, 'De toepasselijkheid van de Richtlijn overgang van onderneming bij insolvente ondernemingen', TAP 2014, nr. 3, p. 167-173.
10 See for example: L.G. Verburg, 'De doorstart in faillissement en het debiet van '662', 13 december 2014 FIP
2014(8) 361. N.W.A. Tollenaar, 'Faillissementsrechters van Nederland: geef ons de pre-pack!', Tvl 2011/23. M.R. van Zanten, 'Aan het werk met de pre-pack!', Arbeidsrecht 2013/47.
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I)?
3) Can a transfer of an insolvent undertaking imply a transfer of undertaking?
The first chapter (I) will discuss the pre-pack proceeding in the Netherlands. Paragraph 1.1 will give a definition of the pre-pack. Then, in paragraph 1.2, I will set out the Draft Act Continuity of Companies I (WCO I). Finally, paragraph 1.3 will discuss the relationship between insolvency law and labour law. The second chapter (II) will set out the European viewpoint towards transfers of insolvent undertakings. This will be done by discussing Directive 2001/23/EC and the respective case-law. The final chapter (III) will examine whether the Directive 2001/23/EC is applicable in a pre-pack restructuring.
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I What is pre-pack in the Netherlands?
'The Dutch competition position is under pressure' according to the headline of the ‘Dutch Financial
Times’: Het Financieele Dagblad. On 12th of November 2012, Het Financieele Dagblad published an article which stated that the Dutch Insolvency Act is deficient. It harms the competitive position of the Netherlands because the act does not provide the tools to restructure efficiently.11 Therefore, Dutch companies are unnecessarily put into liquidation. Due to a lack of sufficient restructuring tools, some companies moved their Centre of Main Interest (COMI) to the United Kingdom. In the UK, companies restructured their debts by making use of the pre-pack administration.12
The Dutch Insolvency Act stems from 1896. Efforts to revise the act by providing new restructuring tools, have not made it the finish line (yet).13 Therefore, legal practice has taken the lead to innovate the current insolvency practices by introducing the 'pre-pack'. In 2011, Tollenaar14 published an article in which he asked the current insolvency judges to start working with pre-pack. Although there is no legal basis for the practice yet, the majority of the Dutch courts are willing to assist in pre-pack proceedings. 9 of the 12 district courts are already assigning silent trustees to financially distressed companies.15 Examples of companies that made a re-start by means of a pre-pack are; Schoenenreus, Marlies Dekkers, Prime Champ, Ruwaard van Putten, Heiploeg, Neckermann, Harense Smid and Estro.16
At the moment Dutch districts courts have different attitudes towards the proceeding due to the lack of a legal basis. This has been an incentive for the government to enact a legal framework that coordinates pre-pack restructurings.17 Further, it will give parties certainty that the pre-pack is indeed a valid restructuring tool. The next paragraph will explain what pre-pack in the Netherlands entails; I will discuss the draft legislation on the subject. The final paragraph will discuss the relation between insolvency at labour law.
1.1. What is pre-pack?
The pre-packaged administration (hereafter: pre-pack) is an alternative restructuring tool for liquidating an insolvent company. The term pre-pack is used for the restructuring of a company through a business or assets transaction. The transaction is prepared in secrecy by a silent trustee before the formal insolvency proceeding starts. When the company is officially declared insolvent, the business or assets will be sold immediately, while the unprofitable parts are left behind and
11
Het Financieele Dagblad, 'Concurrentiepositie onder druk', 12 november 2012.
12 K. Beke & P. Wolterman, ‘Verslag seminar “De Nederlandse pre-pack - ready for take off?” d.d. 11 april te
Amsterdam’, TvI 2012/31.
13 Stcrt. 23 april 2003, nr. 80, p. 8, see: https://zoek.officielebekendmakingen.nl/ah-tk-20102011-1014.html. 14
N.W.A. Tollenaar, ‘Faillissementsrechters van Nederland: geef ons de pre-pack! TvI 2011/23.
15 Kamerstuk II 2014/15, 34218, nr. 3, p. 1.
16 See for example: J.H.M.Eeden-Van Harskamp, M.P. van Spanjaard, 'De pre-pack vanuit contractrechtelijk
perspectief', ORP 2014(5) 207.
17
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liquidated.18 The contract regarding the transfer of assets can be concluded between connected parties. So in that case, the company makes a comeback after the restart with the same management and board, while being relieved of all its liabilities. This kind of transfer, also called 'phoenixing', is strongly criticized because creditors and stakeholders are in this way side-lined.19What is new is the 'secret' preparation phase of the restart before the formal proceeding. The existing pre-insolvency proceedings, known as the suspension of payments (surseance van betaling)20 was meant to be used to prepare the assets transaction. This form, however, seems to be deficient because the publication harmed the reputation of the company and this lead to a loss of business value. In a pre-pack situation a stain on the business reputation is prevented, simply because nobody knows of the financial problems. An advantage of the 'pre-packaged sale' over the classic restart is that the company is transferred going-concern. Suppliers are not disappointed and the maximum business value is preserved. Just like other restarts in insolvency, in a pre-pack sale, all the assets are sold together in order to preserve the business value. The underlying idea here is that the transfer of the package of all assets generates a bigger profit than selling the assets separately. The overall aim of the pre-pack is to provide an effective re-start of the company without disrupting its economic activity.21
Further, the company’s employees benefit from efficient restructurings. If a company can be rescued from liquidation by making a restart, it provides that at least a part of the workforce remains employed. Some authors are surprised by the discussion around the applicability of employment legislation, because pre-pack as a restructuring tool would preserve employment.22
1.2. Legislative proposal: Act on the Continuity of Companies I
On 22 October 2013, the Minister of Justice announced a proposal called: Act on the Continuity of Companies I (in Dutch: Wet Continuïteit Ondernemingen I, hereafter WCO I) 23 The WCO I aims to provide a legal basis for the pre-pack restructuring. The proposal is part of a broader legislative program that consist of three pillars; i) combating fraud, ii) enhance the ability of companies to restructure and iii) to modernise insolvency proceedings.24 The WCO I falls under the second pillar together with the draft proposals that aims to enhance the continuity of companies by regulating
18
MvT WCO I, 22 oktober 2013, p. 2, 8. 19
MvT WCO I, 22 oktober 2013
,
p. 8, see also:http://www.nrcq.nl/2014/07/24/eigenaar-failliet-kinderdagverblijf-estro-sloot-miljoenendeal-met-zichzelf , R.R. Verkerk, M. Windt en T.L. Rozendal, ‘Prepacks: transparantie en verantwoording achteraf’,TvI 2014/40, Kamerstuk II 2014/15, 34218, nr. 3. p. 16.
20 Dutch Bankruptcy law 1893, Title 1: Insolvency & Title 2 Suspension of Payments. 21 MvT WCO I, 22 oktober 2013, p. 24.
22 Van Zanten, 'Doorstart is voor velen een zegen' Volkskrant 7 juli 2014. 23
http://www.rijksoverheid.nl/documenten-en-publicaties/kamerstukken/2013/10/22/wetsvoorstel-continuiteit-ondernemingen-i.html en
http://www.rijksoverheid.nl/documenten-en-publicaties/kamerstukken/2013/10/22/memorie-van-toelichting.html 24
See also: Brieven van 26 november 2012 (Kamerstukken II 2012/13, 29 911, nr. 74), 27 juni 2013 (Kamerstukken II 2012/13, 33 695, nr. 1), 15 november 2013 (Kamerstukken II 2013/14,
33 695 nr. 3), 15 juli 2014 (Kamerstukken II, 2013/14, 33 695, nr. 5), 9 december 2014 (Kamerstukken II, 2013/14, 33695 nr. 7).
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extrajudicial, binding debt restructuring compositions outside bankruptcy proceedings (WCO II)25 and taking measures for suppliers to continue to supply in bankruptcy (WCO III).26 The Minister of Justice has chosen to enact the WCO I in a framework which is added to the current Insolvency Act. This means that all regulations with regard to insolvency law will apply to a pre-pack proceeding. The framework leaves room for the legal practice to give form to the pre-pack.27In the consultation phase, several suggestions were made to amend the proposed legislation or the explanatory memorandum thereto.28 It focused on the specific role and the tasks and responsibilities of the silent trustee and prospective examining judge. The suggestions made aimed to prevent the abuse or misuse of the proceeding, to ensure greater transparency for the creditors and to reduce unfair competition. With regard to the (non-) applicability of labour legislation the focus lay on the powers of the Works Council29 and the (non-)applicability of Directive 2001/23/EC inter alia 7:666 CC in the pre-pack proceeding. 30 This was also widely discussed during the consultations.31 The draft proposal has also been brought before the Council of State (an advisory body). 32 In short, the Council of State questioned the proposal because of the potential risk of abuse or misuse of the pre-pack proceeding. According to the Council, the proposed guarantees seems deficient.33 For example, the Council of State questioned the position of the silent trustee. The silent trustee has, according to the Council, hardly any means to guard the interests of the creditors during the preparation of the restart.34 Further, the Council put question marks at the expectation mentioned in the draft proposal that the act will not lead to an increase of restarts for improper reasons. Especially, the obligations given in article 5(4) Directive 2001/23/EC should be taken into account, stating that member states should take appropriate measures with a view to preventing misuse of insolvency proceedings in such a way as to deprive employees of the rights provided for in the Directive.35
The Dutch legislator has taken the consultations and the Councils Advice into account and published a revised draft proposal WCO I36 and Explanatory Memorandum37 on the 4th of June 2015. Hereafter the original proposal and the relevant additions in the revised draft proposal will be discussed.
25 Act on the Continuity of Business II, (In Dutch: Wet Continuiteit Ondernemingen II betreffende de
totstandkoming van een dwangakkoord buiten faillissement) http://www.rijksoverheid.nl/documenten-en-publicaties/kamerstukken/2014/08/14/wetsvoorstel-wet-continuiteit-ondernemingen-ii.html
26 Act on the Continuity of Business III ( In Dutch: Wet Continuiteit Ondernemingen III) 27 MvT WCO I, 22 oktober 2013, p.5.
28www.internetconsultaties.nl. 29
Artikel 25 Wet op de ondernemingsraden.
30 Kamerstuk II 2014/15, 34218, nr. 3. p. 31. 31 Kamerstuk II 2014/15, 34218, nr. 3. p. 31.
32 Kamerstuk II 2014/15, 34218, nr. 4 ,Voortgangsbrief 9 december 2014, 33695, nr. 7. 33 Kamerstuk II 2014/15, 34218, nr. 4, p. 2. 34 Kamerstuk II 2014/15, 34218, nr. 4, p. 3, 4. 35 Kamerstuk II 2014/15, 34218, nr. 4, p. 6. 36 Kamerstuk II 2014/15, 34218, nr. 2. 37 Kamerstuk II 2014/15, 34218, nr. 3.
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Aim of the pre-pack: continuation
As can be derived from the title of the act, the aim of the pre-pack is to rescue companies by enhancing the ability to reorganize. The WCO I shows that the continuity of companies is a priority of the government. It aims to facilitate a restart of the profitable parts of a company after bankruptcy with the helping hand of a silent trustee. In other words; the pre-pack aims to prepare the restart during the bankruptcy proceeding. The ability to assign a silent trustee comprises a twofold aim; i) to facilitate a structured and effective settlement of insolvencies and ii) to speed up the re-launch of the company after bankruptcy by enabling the company to prepare the restart with the silent trustee prior to the bankruptcy.38
It needs to be emphasized that the pre-pack is not a new or an additional insolvency regime.39 The pre-pack only provides a preparation phase before the formal insolvency proceedings start in order to conclude the transfer directly on the moment when it is insolvent. By assigning a silent trustee, it aims to settle efficiently the restart, or as the case may be, liquidate the assets and settle the liabilities of the insolvent company. The pre-pack proceeding does not necessarily lead to a restart during bankruptcy. Parties can also reach a settlement outside the formal proceedings.
Conditions for assignment by the court
It starts with the submission of an application at the District Court of the company with the request for a silent trustee. The act enables companies – not being natural persons40- in a financially distressed situation to request for a silent trustee. The court will only grant such a request when the debtor can demonstrate that the preparation of the insolvency may limit the damage for the stakeholders during bankruptcy or will higher the chance to sell the assets at the highest possible price.41 The preparation of the bankruptcy should have added value in the sense that the preparation phase can limit the harm of the stakeholders during bankruptcy.42 The company needs to show its intentions and expectations of the pre-pack in a step-by-step plan in order to convince the court of the urgency of the assignment.43 Another condition is that the debtor must still be able to provide ongoing and new commitments, including the salary of the silent trustee and consulted third parties by him as well as tax payment.44 The court may also attach other conditions to the assignment, including a security for the payment of the salary of the silent trustee.45
38 MvT WCO I, 22 oktober 2013, p.1. 39 MvT WCO I, 22 oktober 2013, p.1. 40 MvT WCO I, 22 oktober 2013, p. 18. 41 Kamerstuk II 2014/15, 34218, nr. 3, p. 48, 49. 42 Kamerstuk II 2014/15, 34218, nr. 3, p. 49. 43 MvT WCO I, 22 oktober 2013, p. 17.
44 Art. 363 1, 2 FW(draft), Kamerstuk II 2014/15, 34218, nr. 3, p. 11. 45
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The court can decide to assign a silent trustee and the prospective examining judge without publishing these appointments. It will also give the term of the assignment and a brief service mission. As from that moment, the silent trustee will start researching the possibilities of making a restart. This will in general be done during a period of two weeks before the formal bankruptcy begins.46 If the elaboration of the plan requires more time, the court can extent the time if the debtor so request and is still able to meet its current and new commitments.Preparation phase: the role of the court and the silent trustee
The initial draft proposal of WCO I did not regulate or mention anything in the Explanatory Memorandum about the relationship between insolvency and labour law. However, the commotion around the recent pre-pack restructurings showed that the relationship between insolvency and labour law is unclear. Trade unions and legal scholars expressed their discontent, and some of them started a proceeding before the court.47 Also parliamentary questions were raised with regard to the protection of employment rights.48 In response to the comments made by the Council of State on the lack of independency of the silent trustee, the memorandum has been adapted and expanded considerably. The legislator has introduced additional checks and balances in its revised draft proposal of WCO I (d.d. 4th of June 2015). There is now more clarity about the powers of the silent trustee and how the court can support him during the preparation phase.
The Court as ‘gatekeeper’
The legislator has given the court the role of a ‘gatekeeper’ (in Dutch: Poortwachter) during the silent preparation phase.49 The Court delineates the preparation process by making an explicit notion of the ‘added value’ that the silent preparation has according to the debtor. Therefore it is from the beginning of proceeding clear for what reason the proceeding is set up.50 If the silent trustee notes, whether or not in consultation with the debtor, that another solution than the initial proposal by the debtor is better for the creditors, than it is within the responsibility of the silent trustee to adjust the preparation process. If necessary, the silent trustee or the prospective examining judge can request the court to test whether the silent preparation phase has still an ‘added value’. If that is not the case, this would mean that the silent preparation phase will be terminated.51
46 Art. 363 FW (draft), see also: Kamerstuk II 2014/15, 34218, nr. 3, p. 12.
47 NRC Handelsblad, 'Hoor eens, dit ís geen faillissement,' 30 januari 2015. See also: Dagvaarding Estro,
https://www.fnv.nl/site/alle-sectoren/943571/fnv-zorg-en-welzijn/883566/917919/dagvaarding__FNV-Smallsteps.pdf
48 Kamerstuk 31 322, nr. 260. See also: Brief van 9 december 2014 (Kamerstuk 33695, nr. 7). 49 Kamerstuk II 2014/15, 34218, nr. 4, p. 13.
50 Kamerstuk II 2014/15, 34218, nr. 4, p. 13. 51
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The court may attach conditions to the assignment of a silent trustee. Special attention is given to the interest of workers who are employed at the debtor (article 363(4) FW draft). The works council or the staff representation can be involved during the preparation phase as long as it remains confidential.52 If an request is made for a silent trustee, and at the time only one serious candidate is in the picture, the court could set the condition that the bidding process will be published after the declared bankruptcy.53 The legislator justifies such a condition, with the risk that publishing the state of insolvency has a negative influence on the success of the restart and therewith the value of the remaining profitable business. Yet such a condition can in some cases, especially when it comes to‘phoenixing’, help to increase the transparency of the restart of the insolvent business and reduce the
risk of unfair competition and misuse of the insolvency proceeding.54
Tasks and 'powers' of the silent trustee
The silent trustee will carry out its duties during the silent preparation phase in view of his future role as trustee. These are duties which the trustee normally, without the pre-pack, could only perform after the declaration of bankruptcy. This is done to act in the interests of the joined-creditors. In principle, there are no legal consequences attached to the assignment of the silent trustee. The silent trustee's main role is to observe and inform about the possibilities of making a restart. He should find solutions for the financial problems and prearrange the sale of assets to a third party or connected party. 55 The sole task of the silent trustee is to learn about the ‘ins and outs’ of the company, to research the possibilities of making a restart and to define any irregularities that might indicate that the proceeding is abused or misused. Of the silent trustee is expected that he is acting adequately upon discovery of such fraud signals.56 This means that the silent trustee will ensure the integrity of the process.
The role of the silent trustee has been marked in the literature as 'a fly on the wall' since he did not had any exclusive powers.57 It’s independent position was questioned since the salary was paid by the debtor. The legislator has therefore expanded the memorandum on the role of the silent trustee extensively. In order to prevent financial dependence of the silent trustee, the memorandum explains that the court is able to secure the payment of the silent trustee.58 The silent trustee has the right to information, so all parties should provide him with all the information at his request.59 However, there is no sanction if they do not provide him with all the necessary information. Further, it needs to be emphasised that the silent trustee is not an advisor of the undertaking or a supervisory body.
52
Kamerstuk II 2014/15, 34218, nr. 4, p. 14.
53 Kamerstuk II 2014/15, 34218, nr. 4, p. 14. 54 Kamerstuk II 2014/15, 34218, nr. 4, p. 14. 55 Mvt Wet Continuïteit Ondernemingen I, p. 2, 4. 56
Kamerstuk II 2014/15, 34218, nr. 3, p. 17,18.
57 Jongepier & Hoogenboezem, Wie is de stille bewindvoerder? p. 196, Eeden-van Harskamp en Spanjaard, 'De
pre-pack vanuit contractenrechtelijk perspectief', ORP 2014(5) 207.
58 Artikel 363(5) FW, Kamerstuk II 2014/15, 34 218, nr. 3, p. 21. 59
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The company board retains control. This means that the silent trustee is not able to conclude a contract of sale with a third party without confirmation of the board. The board will retain exclusive power until formal bankruptcy has been declared.60 The exclusive powers are transferred from the company owner to the trustee at the moment the company is declared bankrupt. In general, the silent trustee will become the trustee after the bankruptcy and can sell the assets as he had prearranged. Therefore an indication is given in advance to the stakeholders about the prepared transaction.Draft composition
In the preparation phase the potential buyer(s) can make a binding offer for the transfer of assets and liabilities. The offer is binding in the sense that it remains valid during bankruptcy. The trustee only has to accept the offer when the company becomes insolvent.
The silent trustee can already give his view on how the trustee, during bankruptcy, is likely to act. The silent trustee can, for example, declare under which conditions the assets will be sold.61 In this way the loss of business value is minimalized. This declaration - which is in fact a draft composition - provides the stakeholders with a form of certainty and comfort, because they already know how the trustee is likely to act. However, the trustee retains the right to act differently in case the declaration was based on insufficient information. So it remains the choice of the trustee to accept the offer or not.62
Liquidation order
At the moment the company is declared insolvent, the silent trustee and the prospective examining judge will, in principle, become the trustee and examining judge. From that point on, the trustee and the examining judge have the power to sell and to dispose. The prearranged transfer of assets and liabilities can be formalised by assignment by the respective parties. In other words: the draft composition is finalised.
The trustee is relieved from his position if he has made a final report based on his findings during the preparation phase. This report will only be published when the company is declared insolvent. If the company reaches a settlement agreement outside the formal proceedings, the report remains secret.63
1.3. The influence of pre-pack on labour law
As we have seen in paragraph 1.2, the draft ‘Act On Continuity of Companies I’ will become part of Dutch Insolvency Act. This means that the general rules applicable to insolvency will also apply during a pre-pack. Insolvency law has a special place in Community law. The law intends to balance all the interest involved, with special interest for creditors. The law consists of specific rules which
60 Art. 365 FW (draft), MvT WCO I, 22 oktober 2013, p. 20, 21. 61 MvT WCO I, 22 oktober 2013, p. 24.
62 MvT WCO I, 22 oktober 2013, p. 27. 63
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make it possible to derogate from other provisions, such as those in labour law.64 An interesting question is what the relationship is between the pre-pack proceeding and protective employment legislation.When a company is declared bankrupt in the Netherlands, hardly any protection with regard to labour rights applies. The idea behind this is that the insolvent employer needs to act in the interest of his joined-creditors in order to pay its debts as soon as possible. Labour protection slows down this process. Therefore, during the state of insolvency, many labour rights are restricted or are not applicable. For example: in case of a transfer of an insolvent company, employees are not automatically transferred.65 Further, the trustee can easily terminate employment contracts with a short notice period with a maximum of six weeks66 and without the obligatory permission of the public labour office (UWV). Although employees are hardly protected during a transfer of insolvent undertakings, some protective regulation still apply. For example, the chain-rule (ketenregeling) which allows the employer to renew a temporary employment contract before entering a contract for an indefinite period of time, is still applicable to an insolvent undertaking. That is what the Dutch Supreme Court has ruled in the Boekenvoordeel/Isik case.The new employer who takes over the insolvent undertaking must be regarded as a ‘subsequent employer’. 67 This means that the new employer has to take into account the acquired rights of the employees of the insolvent employees if it reemploy these employees. The previously spent years for the calculation for the severance payment (in Dutch: ‘transitievergoeding’) are for example taken into account in case of termination of the contract. 1 July 2015, an amendment to the maximum period of the chain rule entered into force. The employer and employee can in general only conclude a maximum of three temporary employment contracts in a period of 2 years.68
Due to the lack of labour protection in case of insolvency, the insolvency proceeding is an attractive way for employers to reorganize their company in a cheap way. Especially the non-application of transfer of undertaking rules makes it attractive for employers to ‘obtain’ the status of insolvency. This can be an incentive for employers to request their own insolvency in order to save significant labour costs. As mentioned in the previous paragraph, several authors have expressed their concern about the (non-)applicability of Directive 2001/23/EC. Although the revised version has built in some safeguards with regard the misuse of the proceeding and clarified the position of the court and the silent trustee, the striking question remains whether the pre-pack proceeding should be regarded the same as ‘classic’ insolvency under Directive 2001/23/EC. Can a transfer of an insolvent undertaking
64 C. Barnard, EC Employment Law, Oxford: Oxford University Press 2012, fourth edition, p. 619, 620. 65
Article 7:666 BW, HvJ EG 7 februari 1985, NJ 1985, 900 (Abels).
66 Article 40 FW, see also: J. Polak en M. Pannevis, Insolventierecht, Deventer: Kluwer 2011, p. 106-107. 67 Article 7:668a lid 1, 2 BW., HR 14 juli 2006, JAR 2006/190 (Boekenvoordeel/Isik), Beltzer Overgang van
ondernemingen in de private en publieke sector, Deventer: Kluwer 2008. p. 218.
68
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nevertheless imply a transfer of undertaking, even though Dutch law explicitly excludes bankrupt companies from its scope? The struggle with the applicability of the Directive is also seen in a recent decision of the Dutch District Court in the Jan de Roos Transport case. Lemmer Transport requested the court for the third time in 3 years to be declared insolvent with the aim to restart the company and continue the activities. Although, the pre-pack was not used, Lemmer Transport was obviously good prepared to make a restart after insolvency. The court ruled that despite the declared insolvency the exception of article 7:666 DCC did not apply.69 This example shows that there are cases where 7:666 DCC does not apply while the state of insolvency has already been declared by the court. The next chapter aims to clarify the scope and application of Directive 2001/23/EC.69 Rb Leeuwarden, 22 augustus 2014, ECLI:NL:RBNNE:2014:4598, Jan de Roos Transport Lemmer, JAR
15
II Restructuring of insolvent enterprises under European
labour law
In current European policy, rescue of companies has high political priority. The EC aims to ensure efficient restructuring tools which have the objective to 'prevent insolvency and to give a second chance to honest entrepreneurs'.70 Through restructuring, companies can overcome their financial difficulties. Therefore the EC has promoted to provide a legal framework which enables financially distressed companies to restructure at an early stage in order to prevent insolvency.71 Proceedings such as the pre-pack fits in this European policy of business rescue. A preparation phase is facilitated in order to restructure at an early stage. This enables companies continue operating. However, this trend also blurs the boundaries between formal insolvency proceedings and pre-insolvency proceedings on the one hand, and the application of the Directive on Transfer of Undertaking on the other.
The question is whether it is likely that a prearranged insolvency, such as the pre-pack, will be excluded from the scope of the Directive. The ECJ has decided in Abels72,nowadays implemented in
article 5 of the Directive, that insolvency proceedings are excluded from the scope of the Directive. The Directive does, however, apply to pre-insolvency proceedings such as the suspension of payments proceeding. I will assess whether a transfer of an insolvent undertaking can nevertheless consist a transfer of undertaking under the Directive.
This chapter aims to clarify to what extent employees are protected during transfers of insolvent undertakings. Therefore, the rights and obligations under the European Directive (2001/23/EC) on transfer of undertaking will be discussed. In order to determine whether the pre-pack falls under the scope of the Directive, this chapter will provide building blocks to answer: 1) Whether the pre-pack falls under the scope of article 5 of the Directive and 2) Whether the pre-pack consist a transfer on insolvency or before insolvency. For the latter, the time of transfer is relevant. Therefore European case-law with regard to the time of transfer will be discussed.
2.1. Mitigating the social effects of restructurings
In a continuously changing market, enterprises need to be flexible to remain competitive. Efficient restructurings are necessary to help companies to continue trading and to preserve jobs. However, restructurings may also lead to adverse consequences for employees. The transfer of undertaking may
70
Commission recommendation of 12.3.2014 on a new approach to rescue business and give honest entrepreneurs a second chance, Brussel, C(2014) 1500 final.
71 Commission recommendation of 12.3.2014 on a new approach to rescue business and give honest
entrepreneurs a second chance, Brussel, C(2014) 1500 final.
72
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lead to redundancies or changes of employment conditions. Alternatively, it might happen that the new employer becomes insolvent, which may leave employees with their outstanding claims behind.73 In the beginning of European cooperation, the primary mission was to enhance the economic development throughout the community, and hardly any attention was paid to European social development. Slowly a new wind started to blow since more voices were raised to provide, beside an economic, also a social dimension for the common market. This was mainly due to the economic recession as a consequence of the oil-crises and major restructurings were taking place. A well-known example of restructuring is the AKZO-case.74 The multinational had several subsidiaries in different Members States and made a comparison among the Member States at which it was as easiest and cheapest to lay off 5000 redundant employees.As a consequence a Social Action Programme (SAP) was set up in the 1970's. The SAP promoted to take measures for the realization of a full and better employment in the Community.75 Further, in order to streamline the social consequences of restructurings, the EC enacted the Directives with regard to collective redundancies (1975)76, transfer of undertaking (1977)77 and insolvency of the employer (1980)78. These Directives all aim to make enterprises more efficient and competitive while the managerial prerogative is maintained.79 They provide employees with a minimum degree of protection under Union law. In fact, the respective Directives with regard to restructuring all have a market-correcting purpose in the sense that labour standards are protected, without interfering with the employer’s decision to dismiss or to restructure. 80
Although, the three respective Directives are all relevant from a labour law perspective for restructurings, my thesis will only focus on the legal effect of the Directive on transfer of undertaking on the pre-pack proceeding. The next paragraph will stress to what extent rights and obligations under the Directive are applicable to transfers during insolvency.
73 See for example: Directive 2008/94/EC on the protection of employees in the event of the insolvency of their
employer, OJ [1980] L283/23.
74 R. Blanpain, European Labour Law, Deventer: Kluwer 2014, p. 827. 75 R. Blanpain, European Labour Law, Deventer: Kluwer 2014, p. 238. 76
Directive No. 75/129 on the approximation of laws of the Member States relating to collective redundancies, O.J. L 48, 22 February 1975.
77 Directive No. 77/187 on the approximation of the laws of the Member States relating to the safeguarding of
employees' rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses. O.J. L 61, 5 March 1977.
78 Directive 2008/94/EC on the protection of employees in the event of the insolvency of their employer, OJ
[1980] L283/23.
79 C. Barnard, EC Employment Law, Oxford: Oxford University Press 2012, fourth edition. p. 577. 80
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2.2. Directive on transfer of undertaking
On 5 March 1977, Directive No. 77/8781 was adopted by the EC to safeguard employees' rights in the event of transfers of undertaking, enabling them to continue to work for the new employer after the transfer under the same terms and conditions as those agreed with the transferor. The Directive has been substantially amended by Directive 98/50 EC of June 199882 and has been updated and codified by Directive 2001/23/EC of March 2001.83 According to the Preamble 'necessary to provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded.'84 The protection provided by the Directive aims to ensure that employees are not placed in a less favourable position solely as a result of the transfer.85
Scope
In order to determine whether the European Directive (2001/23/EC) on transfer of undertaking is applicable to the Dutch pre-pack, the scope of the Directive needs to be defined. The Directive applies to 'any transfer of an undertaking, business or part of an undertaking or business to another employer as a result of a legal transfer or merger'.86 So the Directive is applicable if it is established that there is 1) a legal transfer and 2) a transfer on undertaking within the meaning of the Directive. One can speak of a transfer of undertaking within the meaning of the Directive, 'where there is a transfer of an economic entity which retains its identity, meaning an organized grouping of resources which has the objective of pursuing an economic activity.'87 There is extensive case-law on how to interpret these terms, it falls however beyond the scope of my thesis to discuss them here in detail.
Rights and obligations under the Directive
When a transfer can be qualified as a 'transfer of undertaking' within the meaning of the Directive, there are several legal consequences which the transferee has to take into account. The Directive provides three main principals of protection. The first principle is the automatic transfer of the employment relationship of the transferor to the transferee. The second principal is that employees are protected against dismissal in the sense that the transfer could not in itself constitute a ground for dismissal.88 Every dismissal because of the transfer is automatically regarded as an unfair dismissal and must be regarded as still employed on the date of transfer.89 However, this does not 'stand in the
way of dismissals that may take place for economic, technical or organisational reasons'.90 Thirdly, employees representatives are protected (article 6 Directive). Also the transferor and the transferee are
81 O.J. L 61, 5 March 1977. 82
O.J. L 201/88, 17 July 1998.
83 O.J. 22 March 2001.
84 Preamble (3) Directive 2001/23/EC
85 HvJ EG 17 december 1987, C-287/86, NJ 1989/674 (Ny Molle Kro),para. 25. 86
Article 1(1)(a) Directive 2001/23/EC.
87 Article 1(1)(b) Directive 2001/23/EC. 88 Article 4 Directive 2001/23/EC.
89 HvJ EG 15 juni 1988, NJ 1990, 247 (Bork) C-101/87, para 18,19. 90
18
required to inform the representatives of their respective employees about the transfer (article 7 Directive). Inter alia the date and reason of the transfer, the legal- economic- and social implications of the transfer, and the proposed measures.91Transfer of insolvent undertakings
The ‘pre-packaged’-transfer is not an ordinary transfer of undertaking. The transfer is formalized during insolvency. The status of insolvency raises particular issues with regard to the applicability of the Directive. Insolvency law enjoys in all Member States a special status in community law. It consists of specific rules which may derogate from other provisions of a general nature, including provisions of labour law. Insolvency law intends to strike a balance between all stakeholders involved.92
Article 5 Directive 2001/23/EC
Article 5 of the Directive 2001/23/EC states that article 3 and 4 of the Directive do not apply, unless otherwise provided by the Member States, to any transfer where the transferor is the subject of 'bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a
view to the liquidation of the assets of the transferor and are under the supervision of the competent authority'. Article 5 Directive provides the possibility for the Member States to still apply the
Directive to a transfer of an insolvent undertaking. In that case, the articles 3 and 4 of the Directive with regard to the automatic transfer of the employment contract and dismissal protection are applicable to a transfer of an insolvent undertaking. Art. 5 (4) provides that Member States should take appropriate measures with a view to preventing misuse of insolvency proceedings which could lead to depriving employees of the rights provided for in this Directive.
Limitations
If the Member State chooses to apply the Directive to a transfer during insolvency proceedings which have been opened by the transferor, the Member State can, according article 5(2) Directive 2001/23/EC provide that the transferor’s debts with regard to the employment contracts before or at the moment of transfer, will not be transferred to the transferee. Another option is that the transferee, transferor or persons exercising the transferor's function agree with the employees’ representative upon alterations with regard to the employees’ terms and conditions with the view to safeguard employment opportunities by ensuring survival of the undertaking.93 This means that the parties can modify terms and conditions of the employment contract collectively.
Abels 1985
The text of article 5 Directive 2001/23/EC implements previous case-law of the European Court of Justice in Abels in 1985 and other published case law in this regard. The Abels-ruling has been
91 Article 7(1) Directive 2001/23/EC.
92 HvJ EG 7 februari 1985, NJ 1985, 900 (Abels), para. 15. 93
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codified by Directive 98/50/EC94 in article 4bis (nowadays article 5) and has been updated in Directive 2001/23/EC.95Since the endorsement of the Directive in 1977, the legal practice was uncertain about the application of the directive to insolvency or similar proceedings.96 The first version of the Directive did not include an express provision with regard to the transfer of an insolvent undertaking. This lead to uncertainty or purchasers of insolvent undertakings whether the assets and liabilities, including existing employment contracts were automatically transferred. 97 In the Abels case98, the question was raised whether the scope of the Directive embraces the transfer of undertakings which are subject to an insolvency proceeding or which are granted a surseance van betaling (suspension of payments) under the Netherlands legislation. The determining factor for the ECJ was that the application of the Directive on transfers during insolvencies could pose a serious risk of deterioration in working and living conditions of workers, which would result in an effect contrary to the aim of the Directive.99 Therefore the ECJ decided that it could not oblige Member States to apply the Directive to 'transfer of
undertakings taking place in the context of insolvency proceedings instituted with a view to the liquidation of the assets of the transferor under the supervision of the competent judicial authority'.100
Nevertheless, the ECJ left the choice for Member States to apply the Directive to transfers of insolvent undertakings, if they desire to do so.101
In addition, the ECJ was called to decide whether the Directive applies to suspension of payments proceedings. In this regard, the ECJ distinguishes two different stages, namely insolvency and pre-insolvency proceedings.102 The ECJ argued that although the suspension of payments and insolvency proceedings are both initiated by judicial authority, the proceedings are very different in nature. The difference is the objective of the procedure. The ECJ considered that the suspension of payments proceeding provided a temporary relief to pay their debts. The proceeding is initiated with the view to continue the business in the future and to prevent insolvency.103 On the contrary, the insolvency proceeding is initiated with the view to liquidate the assets in favor of the joined-creditors. The ECJ decided that the reasons for not applying the Directive are not valid for proceedings which take place
94 O.J., [1998] L201/88. 95 O.J., 22 March 2001.
96 P.R.W. Schaink, 'Arbeidsovereenkomst en Insolventierecht', Arbeidsovereenkomst en insolventierecht,
Kluwer: Deventer, 2012, p. 117.
97 P.R.W. Schaink, 'Arbeidsovereenkomst en Insolventierecht', Arbeidsovereenkomst en insolventierecht,
Kluwer: Deventer, 2012, p. 117.
98 HvJ EG 7 februari 1985, NJ 1985, 900, C-135/83 (Abels). 99
HvJ EG 7 februari 1985, NJ 1985, 900 (Abels), para. 23.
100 HvJ EG 7 februari 1985, NJ 1985, 900 (Abels), para. 23. 101 HvJ EG 7 februari 1985, NJ 1985, 900 (Abels), para. 24. 102 HvJ EG 7 februari 1985, NJ 1985, 900 (Abels), para. 29. 103
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at an earlier stage.104 Therefore the directive does apply where an undertaking is transferred during a suspensions of payments proceeding.105Post-Abels: different kind of insolvencies
After Abels, it remained unclear in what kind of insolvency proceedings the Directive is applicable. In tow subsequent rulings D'Urso106 (1991) and Spano107 (1995), the ECJ was asked for advice. In
D'Urso (1991) the ECJ made a distinction of two types of 'special administration' proceedings under
Italian Law with different effects; liquidation versus continuation. The ECJ decided in line with the Abels case that the Directive did not apply to transfers of undertakings in which the transferor had been declared insolvent. However, if the aim of the procedure is to continue trading, similar to the suspension of payments proceeding in Abels, the Directive applies. In certain circumstances it cannot be justified that employees are not protected under the Directive.108 Four years later, the ECJ decided in a similar Italian case Spano109 that the Directive applied to a transfer of undertaking which had been declared to be in critical difficulties under Italian law. The determining factor was that the proceeding aimed continuation of the business and to preserve jobs. 110
It can be concluded from the above discussed cases D'Urso and Spano that the decisive factor whether the transfer of an undertaking falls within the scope of the Directive is the purpose of the proceeding in question.111 This vision is confirmed in the Belgian case Dethier.112 In addition, the ECJ provided an additional criteria by stating that it is necessary to consider the proceeding in question in detail if the sole purpose of the proceeding appears not to be conclusive. 113 The Court acknowledged that although the purpose of a proceeding could be the same as in an insolvency proceeding, this does not have to be the case. Therefore account should be taken to the form of the procedure in question, whether the undertaking concerned continues or ceases trading, and in addition objectives of the Directive should be taken into consideration.114 In this particular case, the ECJ found that the Belgian winding up proceeding differed considerably from that of an insolvency proceeding. In the proceeding concerned, it aims to continue trading when the undertaking is transferred. Therefore the ECJ found no reason to rule out the application of the Directive, although the purpose of the proceeding was similar
104 HvJ EG 7 februari 1985, NJ 1985, 900 (Abels), para. 28. 105 HvJ EG 7 februari 1985, NJ 1985, 900 (Abels), para. 28. 106 HvJ EG 25 juli 1991, NJ 1994, 168 (d’Urso).
107
HvJ EG 7 december 1995, NJ 1996, 743 (Spano/Fiat) C-472/93.
108 HvJ EG 25 juli 1991, NJ 1994, 168 (d’Urso) para. 32.
109 HvJ EG 7 december 1995, NJ 1996, 743 (Spano/Fiat) C-472/93. 110 Spano C-472/93, para. 26, 28, 29.
111
D'Urso, para. 26. Spano C-472/93, para. 24.
112 HvJ EG 12 november 1998, JAR 1998/100, C-319/94 (Dethier/Dessy).
113 R.M. Beltzer, 'Vereffenen is niet liquideren: het formele doel van de insolventieprocedure en Richtlijn
77/187', TvL 1998-8, p. 189.
114
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to the insolvency proceeding.115 In Europièces/Sanders116 the ECJ confirmed the case law in Dethier/Dassy.Pursuant to the above, the ECJ has permitted an exclusion of the protection of the Directive if the proceeding is instituted with the view of liquidation of the company. A distinction is drawn between different kind of proceedings which have been instituted with the view to liquidate and to continue operating (part of) the undertaking. In order to determine the application of the Directive the purpose of the proceeding is decisive. If the purpose is not conclusive, the proceeding in question should be considered in detail in order to determine the application of the Directive. Thus, the Directive can only be excluded if the proceeding is instituted with the view on liquidation.
2.3. Economic and social upgrading
Current European policies focus on creating an enabling environment in which business rescue is promoted in order to maintain employability.117 However, this has raised the question whether the EC elevated business rescue to an absolute target, disregarding fundamental social rights.118 I welcome the efforts of the EC to encourage Member States to enact legislation which provides financially distressed companies a second chance. However, the implementation should not disregard existing European social policy. In the literature the viewpoint is defended that an undertaking should only be rescued if it got profitable parts, and the going-concern value exceeds the liquidation value. Insolvency law is not designed to maintain employability. Maintaining employability should not be the absolute target of an insolvency proceeding. Instead, the interests of joined-creditors should prevail.119 As discussed Directive 2001/23/EC is enacted to mitigate the social consequences of restructurings. It aims to safeguard the rights of employees in the event of transfer of undertaking, and only in exceptional situations the European Court of Justice allows Member States to deviate from the protection provided by the Directive. The next chapter aims to define the leeway of the pre-pack proceeding under European (case-) law.
115
HvJ EG 12 november 1998, JAR 1998/100, C-319/94 (Dethier/Dessy), para. 30,31.
116 HvJ EG 12 november 1998, JAR 1999/15, C-399/96 (Europièces/Sanders). 117 Akte voor de interne markt II, Samen voor groei, p.3.
118 P.M. Veder, ’Europese ontwikkelingen in het insolventierecht’,Tvl 2013/32. 119
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III Does Directive 2001/23/EC apply to the Dutch
pre-pack?
In the previous chapters it has been stressed that insolvency proceedings enjoy a special status under Directive 2001/23/EC. This chapter aims to provide an answer to the main question of my thesis: Does
the European Directive on Transfer of Undertaking (2001/23/EC) apply to the Dutch pre-pack proceeding? Are there any European obligations with regard to the protection of employees which the
Dutch legislator should take into account in its draft proposal on the Act on the Continuity of Business I and is the Dutch interpretation of the Directive in the Dutch Civil Code in conformity with European law?
3.1. Article 5 Directive in relation to 7:666 CC
Directive 2001/23/EC is implemented in section 7:662-7:666 of the Dutch Civil Code. As discussed in the previous chapter, it followed from the Abels-case that the ECJ did not oblige Member States to apply the Directive in the context of insolvency proceedings, but left the choice to do so for Member States. The Dutch Supreme Court decided in a subsequent ruling Happé/Scheepstra120 that the automatic transfer of acquired rights does not apply during insolvency. The Dutch legislator implemented article 5 Directive in article 7:666 of the Dutch Civil Code. Article 7:666 CC provides that ‘articles 7:662 up to 7:665 and 7:670(8) CC do not apply to the transfer of an undertaking if the
employer is declared bankrupt and the undertaking belongs to the bankrupt estate’. This means that
the protective regulations with regard to employments rights are explicitly excluded in transfers during insolvency.
One could wonder why there is still a discussion with regard to the application during a pre-pack restructuring as the Dutch code clearly states that 7:662 up to 7:665 and 7:670(8) do not apply to any transfer of undertaking which have been declared insolvent. Yet, it follows from the Abels-case that the Directive are necessarily applicable to proceedings which have been instituted with the view to the
liquidation of the assets. In the Netherlands, article 7:666 CC excludes transfers during insolvency
without mentioning the reason why the proceeding is instituted, it simply states that the employer is insolvent. On the contrary, Article 5 Directive explicitly refers to insolvencies which have been instituted with a view to liquidation. In that sense, the Dutch interpretation of the Directive leaves room for insolvency proceedings which have been instituted for other reasons than liquidation. Does this imply that insolvency proceedings that are instituted with the aim to continue operating also falls under the application of 7:666 CC?
While comparing the Dutch implementation of the Directive with other jurisdictions among the union, one can conclude that the Dutch approach to insolvencies is unique. The difference between the level
120
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of protection of employees appears to differ significantly compared to other countries among the Union. In the Netherlands the level of employment protection differ significantly within and outside the state of insolvency.121 Furthermore, the Netherlands is the only member state who has excluded all transfers during insolvency of the protection granted under the Directive.122 At least, this is what the current practice tend to assume, namely that the pre-pack insolvency falls under the scope of article 7:666 CC. The question is whether the exclusive approach in 7:666 CC towards insolvencies is in conformity with the Directive and related European Case law given the fact that article 5 Directive explicitly refers to liquidation proceedings which are under the supervision of a competent public authority. The next paragraph will stress whether the pre-pack insolvency can be regarded as a liquidation proceeding under the umbrella of 7:666 CC since only liquidation proceedings are excluded from the scope of the Directive.Can the pre-pack insolvency be regarded as a liquidation proceeding?
Traditionally, the classic aim of the Dutch Insolvency Act is the liquidation of the assets and to ensure an equal distributing among the creditors.123 Beltzer,124Zaal & Hufman125 argue that the Dutch Supreme Court has developed a broader perception towards the aim of insolvency proceedings over the years. In Sigmacon II126 and Leidsche Wolspinnerij127the court considered other interests, as continuity of business and employability of the employees, also important. These interests could even prevail above the classical interest of the trustee to obtain an as highest possible gain for the joined-creditors. Also in Mobell/Interplan128 the Supreme Court justifies that the trustee prevail the general interest above the interests of individual creditors. Therefore they argue that if the aim of the Dutch insolvency proceeding is broader than only liquidation, this can have consequences for the application of 7:666 DCC. Since the Directive with regard to transfer of undertaking can only be set aside when it aims to liquidate the assets.129Other scholars do not endorse this interpretation of the Sigmacon II, Maclou & Mobell/Interplan case-law.130 They contend that it can be derived from these cases that the
121 R.M. Beltzer, Overgang van ondernemingen in de private en publieke sector, Deventer: Kluwer 2008, p.
198-206. R.M. Beltzer, ‘Continuïteit van ondernemingen en pre-pack – Hoe een idee een Europese richtlijn mist’, Onderneming & Financiering 2015 (23)1, p. 32-43., A.T.J.M Jacobs e.a., Werknemersrechten in faillissement – een rechtsvergelijkende beschouwing, Den Haag: Boom Juridische Uitgevers 2000.
122 P. Hufman en I. Zaal, ‘De toepasselijkheid van de Richtlijn overgang van onderneming’, TAP 2014, 3/98. 123
S.C.J.J. Kortmann & N.E.D. Faber, Geschiedenis van de Faillissementswet; Heruitgave Geschiedenis van de Wet op het Faillissement en de Surséance van Betaling, deel I. See also: P. Hufman en I. Zaal, ‘De toepasselijkheid van de Richtlijn overgang van onderneming bij insolvente ondernemingen’, TAP 2014, 3/98.
124 R.M. Beltzer, ‘Continuïteit van ondernemingen en pre-pack – Hoe een idee een Europese richtlijn mist’,
Onderneming & Financiering 2015 (23)1, p. 32-43.
125 P. Hufman en I. Zaal, ‘De toepasselijkheid van de Richtlijn overgang van onderneming bij insolvente
ondernemingen’, TAP 2014, 3/98.
126 HR 24 februari 1995, NJ 1996, 472. 127
HR 19 april 1996, NJ 1996, 727.
128 HR 19 december 2003, NJ 2004, 293.
129 P. Hufman en I. Zaal, ‘De toepasselijkheid van de Richtlijn overgang van onderneming bij insolvente
ondernemingen’, TAP 2014, 3/98.
130 P.R.W. Schaink, Arbeidsovereenkomst en insolventierecht, Deventer: Kluwer, 2012, p. 122. See also:
24
interest of the debtor or the public interest such as employability and environment, could under circumstances prevail above the interest of individual debtors, but they cannot prevail above the interest of the joined-creditors.131 Therefore they do not see a risk to exclude the application of 7:666 CC because the main aim is liquidation.The Dutch legislator has stressed in the explanatory memorandum that it endorses the latter interpretation meaning that the trustee can take into account the public interest but in case of conflicting interests, priority should be given to the interests of the joint creditors.132 It is the job of the silent trustee to ensure that public interests will not prevail over the interest of the creditors.133 If the public interest plays a significant role in the proceeding, there is a likely chance that the judge will regard the application of article 7:666 CC in a pre-pack not in conformity with the Directive. By emphasizing that the public interest would not prevail over the interests of the joined-creditors, it seems that the legislator tries to prevent non-conformity with the Directive. Such a conclusion would have major implications for the state since individuals can under certain conditions held the state liable for breaches of Community law for which they can be held responsible. If the state does not implement the Directive in a correct manner and 1) the individual acquires rights by the Directive 2) it contains a serious breach and 3) a direct causal link exist between the loss and the breach, the state can be held liable for the damage.134
Despite the fact that the legislator emphasized that the interest of creditors have priority in a pre-pack proceeding, I still see a risk that the application of 7:666 CC in a pre-pack proceeding will not be in line with Directive 2001/23/EC an its respective case-law. The insolvency proceeding used in a pre-pack proceeding is clearly initiated with the aim to continue the company. The sale of assets and liabilities is carefully prepared and the parties involved already know how the trustee is likely to act. The state of insolvency seems only a formality in order to continue the company. In fact, the insolvency proceeding in a pre-pack is in general used as a mean to restart the company, while leaving the unprofitable parts behind. In that sense the pre-pack is very different in nature from liquidation proceedings. This brings me to the conclusion that a pre-pack proceeding can, in my point of view, not be regarded as a liquidation proceeding since the aim is continuation. If the insolvency proceeding is used as an instrument to restart the company, it would not be surprising that the ECJ is willing to ‘pierce the corporate veil’ to see what de facto happens. In the Albron-case135 the ECJ already showed
131 P.R.W. Schaink, Arbeidsovereenkomst en insolventierecht, Deventer: Kluwer, 2012, p. 122. See also:
Kortman/Faber, Voorontwerp Insolventiewet (2007), p. 137. 132
Kamerstuk II 2014/15, 34218, nr. 3, 81. See also: HR 24 februari 1995, NJ 1996,472 (Sigmacon II); HR 19 april 1996, NJ 1996,727 (Maclou); HR 19 december 2003, NJ 2004/293 (Mobell/Interplan) en HR 19 december 2011, NJ 2012,515 (Prakke/Gips).
133 Kamerstuk II 2014/15, 34218, nr. 3, p. 81
134
HvJ EG 19 november 1991, gevoegde zaken C-6/90 & C-9/90, (Francovich) & (Bonifaci/Italië), HvJ 5 maart 1996 (Brasserie du Pêcheur); HvJ 8 oktober 1996 (Dillenkorfer).
135
25
that it was able to look behind the paper construction and interpret the case in light of the legal history and the aim of the Directive. The legislator should be aware of the possibility that the ECJ will do the same with the pre-pack if a case is brought before the court.136 In such a scenario the state can be held responsible since the Directive obliges Member States to transpose the rights and obligations that can be derived from the Directive in a correct manner. Than the Netherlands has the duty to ensure that the employee’s rights are safeguarded in case of transfers during a pre-pack insolvency.‘Real’ time of transfer
All the employees, unless the undertaking has been declared insolvent, who are employed at the 'date of transfer' are automatically transferred to the transferee.137 Art. 7:666 DCC states that the regulations with regard to transfer of undertaking does not apply when the employer is declared insolvent. This entails that all employees during transfers before the official bankruptcy of the employer enjoy protection. Therefore, it is of importance, especially in pre-pack transaction, to determine the date of transfer.
The ECJ decided in Celtec138 that the 'date of transfer' refers to the date on which the responsibility over the business is transferred, regardless of what has been agreed between parties.139 The date of transfer cannot be chosen by the parties since this would provide the possibility to derogate form the mandatory provisions of the Directive.140 Further, it has been decided in the Happé/Scheeptra case that the transfer takes places when the potential buyer receives the possession over the assets and means to continue the company.141 Again, not the construction on paper is the decisive factor for the transfer, but what de facto happens. The time of contract closure is not decisive. Instead, the moment of actual possession over the assets which enable the transferee to continue the business is decisive for the determination of the moment of transfer.142
The Dutch Advisory Bar Association (in Dutch: NOVA) has argued that it is conceivable that the judge will come to the conclusion that the Directive applies if the transaction is so well prepared and monitored before the insolvency proceeding starts. 143 The reasoning is that the entire negotiation process takes place before the declared bankruptcy. The parties have already reached consensus about the sale of assets and liabilities and the silent trustee already give an indication whether he is likely to
136 Beltzer, ‘Continuïteit van ondernemingen en pre-pack: Hoe een idee en Europese richtlijn mist’,
Onderneming & Financiering 2015 (23)1, p. 32-43.
137
HvJ EG 7 februari 1985, NJ 1985, 901, C-19/83 (Wendelboe), see also article 3 Directive 2001/23/EC.
138 HvJ EG 26 mei 2005, JAR 2005/205, C-478/03(Celtec). 139 Celtec C-478/03 para. 36, 37.
140 Celtec C-478/03, para. 25,27. 141
HR 30 oktober 1987, NJ 1988,191 (Happé Scheepstra).
142 HR 20 februari 1987, NJ 1987,504.
143 Adviescommissie insolventierecht, Advies van de Nederlandse Orde van Advocaten met betrekking tot
ambachtelijk voorontwerp wetsvoorstel continuïteit ondernemingen I (‘pre-pack’), 21 januari 2014. p. 8, HR 30 oktober 1987, NJ 1988,191 (Happé Scheepstra).
