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Transfer of undertaking: Also in pre-packs!

Publication date: 26 June 2017
Employees’ protection against dismissal also in pre-packs! What does this mean in practice?

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According to a recent ruling of the European Court of Justice, the rules applying to transfer of undertaking shall also apply to pre-pack regimes. By this, the Court follows the conclusion of the Advocate General we discussed earlier.

Prohibition of dismissal in transfer of undertaking

In the event of a transfer of undertaking all rights and duties of the employees arising from the employment contracts with the disposing company will be transferred automatically to the acquiring company. Besides, it is prohibited to dismiss employees because of the transfer.

Prohibition of dismissal does not apply to bankruptcy

In case a company has been declared bankrupt, the employees do not enjoy protection against dismissal, also in case of a relaunch of the company. The relaunching party therefore does not have to take over the (rights of) employees.

Prohibition of dismissal in pre-pack?

In a pre-pack, the relaunch of a company will be prepared in detail even before bankruptcy proceedings start. That way, a quick relaunch can be made when the company is declared bankrupt. Due to the bankruptcy there is no transfer of undertaking and thus protection against dismissal will not apply.

Employee organisations are of the opinion however that pre-packs are misused as a quick and cheap way to reorganise companies without having to take into account employees’ rights and without having to rely on the permission for dismissal of the employees from the UWV (Employee Insurance Agency). Will employees now be protected because of transfer of undertaking in a pre-pack?

The European Court has recently decided that the rules for transfer of undertaking apply to pre-packs and that the exception regarding prohibition of dismissal due to bankruptcy does not apply. Why?

A pre-pack aims at het relaunch of the company, not its liquidation. Therefore, it is not subject to the exception in case of bankruptcy, even if the relaunch is aimed at paying as much as possible to the creditors.

The Court also attaches great importance to the absence of formal supervision in pre-pack, as opposed to bankruptcy. In practice, the pre-pack is realized with a trustee under supervision of a bankruptcy judge but officially they only have influence when bankruptcy has been pronounced.

The future of the pre-pack regime

What are the consequences of the ruling of the court in practice? The pre-pack regime and thus the take-over of an undertaking with a view to a re-launch will become less attractive. After all, the acquiring company will have to take over the entire personnel while maintaining the terms of the employment.

Therefore, the legislator will have to consider what will happen to the intended statutory basis of the pre-pack regime.

More information

Would you like to learn more about pre-packs and the consequences of the decision for this regime? Do you have any questions about the rules regarding transfer of undertaking? We will gladly answer your questions! Please contact us:

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