Transfer of undertaking: Do the rules also apply in case of bankruptcy?

Publication date: 21 June 2016
Planning a merger, acquisition or division of (part of) a business in the Netherlands or any other EU country? Be aware of the EU law which sets out the strong position of employees in case of a transfer of undertaking (Directive 2001/23/EC). This time: Do the rules regarding transfer of undertaking also apply in case of bankruptcy?

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No transfer of undertaking in case of bankruptcy

The EU-law determines that member states may decide for themselves whether the law regarding transfer of undertaking also applies in case of bankruptcy. The Netherlands determined that this law does not apply in case the employer has been declared bankrupt. This means that in case the company of a bankrupt employer will be transferred, the employees will not automatically be transferred to the transferee (as is the case with transfer of undertaking).

What about pre-pack proceedings?

There is discussion about whether the exception from the law regarding transfer of undertaking in case of bankruptcy also applies for the so-called ‘pre-pack’ proceedings. In pre-pack proceedings a silent trustee is appointed before the formal bankruptcy proceedings in order to prepare a possible (speedy) restart once the company has formally been declared bankrupt. This often enlarges the chances of a successful restart, since more of the company’s value can be preserved. In most pre-pack proceedings part of the employees will be offered a job with the restarting company, but others will lose their job. However, some – in particular unions – are of the opinion that all employees automatically transfer to the restarting company in case of pre-pack proceedings, since these proceedings do not aim at liquidation, but at a restart of the company as soon as possible.

There have been several lawsuits in the Netherlands regarding the question whether the law regarding transfer of undertaking applies in case of a pre-pack proceedings. Most often judges rule that this is not the case. However, in a recent lawsuit regarding the pre-pack of a large Dutch childcare provider the court decided to ask the European Court of Justice for guidance on this subject. Most probably this will lead to more clarity on the scope of the law regarding transfer of undertaking.

Advise

For the time being it will still be uncertain whether or not employees will automatically transfer to the restarting company in case of pre-pack proceedings. Therefore, in case you are involved in the transfer of a bankrupt company or in a pre-pack proceeding, it is highly recommended to be well informed on how to handle and minimalize the potential risks.

More information

Would you like to receive more information about the EU law on transfer of undertaking and the consequences thereof? Or do you have any other questions on employment law? Please contact us:

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