On Thursday 22 June, the European Court of Justice decided that (C-126/16) the protection of workers stipulated in directive 2001/23/EC on the transfer of undertakings could be maintained during a “pre-pack”.
The operation of a pre-pack aims to prepare the transfer of undertakings immediately after the bankruptcy of the company in question in order to enable a swift relaunch of the undertaking’s viable units.
The Central Court of the Netherlands asked the Court of Justice to interpret the above-mentioned directive in connection to the Estro Groep, a Dutch company taken over after its insolvency by the Smallsteps company, following a pre-pack operation that led to redundancies for around 1,000 of the company’s employees out of its 3,600 workforce.
The Dutch court was requested by trade union organisations and the employees made redundant to look at the directive and the question of workers protection having to be maintained during the transfer of an undertaking following the declaration of insolvency in the context of a pre-pack prepared before insolvency and immediately implemented after the declaration of the insolvency.
The court responded in the affirmative and concluded that the pre-pack operation implemented in this case cannot satisfy the conditions contained in the directive for an exemption to the protection regime and stipulated for the workers.
The directive stipulates that in the event of a transfer, the obligations resulting from the work contracts are transferred from the undertaking ceding the business to the company taking over (Article 3 of the directive) and the transfer cannot be the motive for redundancy in itself (Article 4).
These conditions do not apply when the company transferring is the subject of insolvency or bankruptcy procedures or the equivalent leading to the liquidation of goods (Article 5). Nevertheless, this procedure is present in the control exercised by a competent public authority and that the procedure, according to national legislation, leads to at least equivalent protection of the directive or the protection of employed workers in the event of insolvency of the employer (80/987/EEC).
Moreover, in the case in point, although the prepack operation does, according to the Court, relate to the notion of “Bankruptcy procedures” under the terms of the directive, it does not have any basis in Dutch legislation. In this case, contrary to the requirements of the directive, it is managed and not under the control of the Dutch court but by the board of the company itself which, “carries out the negotiations and adopts decisions preparing the sale of the insolvent company”. The curator and Judge Commissioner in this regard do not officially have any power.
The Court also indicates that the fact that immediately after the opening of bankruptcy proceedings, the curator demands and obtains the authorisation of the judge Commissioner for the transfer of the undertaking, leads to the understanding that the latter has been informed and has not voiced opposition to this transfer before the declaration of bankruptcy.
This manner of proceeding, according to the Court can remove any possible control from the content on bankruptcy proceedings on behalf of the public authority responsible and therefore does not comply with the Control condition (and therefore, the derogation to articles 3 and 4) contained in article 5 of the directive
In these conditions, the Court concludes that the prepack operation in question cannot be exempt from the conditions protecting workers as stipulated in the directive. (Original version in French by Francesco Gariazzo)