On 26 May 2016, the Enterprise Division of the Amsterdam Court of Appeal (OK) ruled that the liquidator in the bankruptcy of the DA Retailgroep drugstore chain (DA) was not required to consult with the works council concerning the relaunch of the business following its bankruptcy. But on Friday, 2 June 2017, the Supreme Court gave short shrift to this judgement.

What was involved?

The DA Retailgroep is in poor financial straits. In the autumn of 2015 it enters discussions with Holland Pharma about a possible takeover of its business operations. On 29 December 2015, DA is declared bankrupt. Immediately following the bankruptcy declaration, DA’s assets are sold to Holland Pharma. Approximately a third of personnel are sacked. In mid-January 2016, DA’s liquidator informs the works council about the relaunch and its consequences to personnel. The works council feels it has been bypassed and invokes its consultation rights under Art. 25 of the Works Councils Act (WOR).

The works council takes its case to the Enterprise Division of the Amsterdam Court of Appeal (OK), which lets it down: in the view of the OK, a works council’s consultation rights are not particularly compatible with the role of the liquidator in a bankruptcy, whose sole concern is the liquidation of company assets. The works council in turn takes the matter to the Supreme Court.

The Supreme Court rules that the consultation rights of a works council do not apply to the sale of property by the liquidator in a bankruptcy, nor do they apply to the dismissal by the liquidator of employees of the bankrupt company in question, as these tasks concern the winding up of the business. The consultation rights of the works council must, in this situation, must be subordinated to a speedy liquidation of the assets and a liquidation that is as advantageous as possible.

The Supreme Court however also ruled that, in the event that the sale of assets takes place for the purpose of continuing (a portion of) the bankrupt business, and if the retention of jobs can be envisaged, the works council is indeed entitled to be consulted pursuant to Art. 25 of the Works Councils Act (WOR).

The Court also found that the liquidator is not in every case obliged fully to apply the formal requirements of Art. 25; amongst other things, the Supreme Court was here alluding to the moment when the advice of the works council is requested, the information provided to it and the obligation minimally to hold a consultative meeting, in which regard, the liquidator and the works council are obliged to act reasonably and fairly towards one another.

Concluding note

The message to the liquidator is clear: in connection with a relaunch, you can’t get around consulting with the works council. You have a degree of freedom in arranging the consultative process with a view to the rapidity of the (envisaged) relaunch, but if this is not done correctly, you may subsequently have to face the consequences, and depending on the circumstances, this could be via the OK. The right of appeal pursuant to Art. 26 WOR in any case applies.

If one also considers that there is a reasonable chance that the European Court of Justice will soon rule that, in the case of a pre-pack, a transfer of undertaking is involved (please find our previous blog post on pre-packs here), the role of the liquidator will have become somewhat more complicated, and the chances for successful relaunches correspondingly more limited. We shall see!