Daycare company Estro was declared bankrupt in July 2014, but the undertaking was relaunched immediately, as the relaunch was prepared in a ‘pre-pack’ insolvency. All 3600 employees of the bankrupt company were dismissed by the administrator. About 2600 employees were immediately employed again by the relaunched company, which company was a so called ‘connected party’ as the shareholder also held a substantial part of the shares of Estro.
The Dutch trade unions highly criticize the ‘controlled bankruptcies’ and take the position that, in case of a pre-packaged bankruptcy, the relaunch of the activities should be qualified as a transfer of undertaking in which case all employees maintain their rights and obligations towards their ‘new’ employer. As a result of that:
- the termination of the employment agreement by the trustee would be subject to nullification;
- the terms and conditions of employment would remain the same.
This position of the trade unions is based on the European Council Directive 2001/23/EC on the protection of employees in the event of a change of employer following a transfer of undertaking. The directive is implemented in the Dutch Civil Code. In accordance with the European Directive, the provisions on the protection of employees are excluded from application in case of a transfer of an undertaking that is part of a bankruptcy estate (art. 7:666 DCC).
In 2015, the trade unions initiated a legal case in the pre-packaged administration of Heiploeg. In that case, the administrator and the corporate entity that relaunched the company reached broad agreement on the transfer of the undertaking before Heiploeg was declared bankrupt. All employees were offered a new employment agreement, with deviating employment conditions.
The trade unions took the position that the relaunch should be qualified as a transfer of undertaking, as a result of which the employees maintained equal rights and obligations. The Dutch district court considered the takeover of the companies a result of the bankruptcy proceedings, which situation is excluded from application of the provisions on the protection of employees in case of a transfer of undertaking: see our earlier article.
In the Estro case, the trade unions took the position that the exclusion stipulated in art. 7:666 DCC is not applicable, or would be incompatible with the European Directive, since:
- the goal of a ‘pre-pack’ was to maintain the undertaking instead of a liquidation of the assets;
- the parties in fact agreed on the sale and relaunch of the company ahead of the formal bankruptcy, as a result of which the transfer of undertaking should be deemed to have taken place before the bankruptcy proceedings were opened.
Both arguments are based on previous rulings of the European Court of Justice, that an exclusion of the provisions to protect the employees is only allowed if the transaction is (i) a result of an insolvency proceeding, (ii) whose purpose is the collective and compulsory liquidation of the debtors assets.
The Court considered that, although the formal purpose of a Dutch bankruptcy is the collective and compulsory liquidation of the debtors assets, the bankruptcy proceedings combined with a relaunch of the company are commonly applied for a reorganization. The court doubts whether a general exclusion of protection of employees in case insolvency proceedings are applicable (as stipulated in art. 7:666 DCC) is in accordance with the European Directive.
The Court therefore decided to request the European Court of Justice for preliminary rulings on the scope and interpretation of the exclusion of a transfer of undertaking as a result of insolvency proceedings under the European Council Directive 2001/23/EC.
Until the preliminary rulings will be given, all further decisions in this case will be adjourned.