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Following a request for a preliminary ruling from the District Court Central Netherlands, in essence, whether or not, in the context of a pre-pack as has been developed in the Netherlands, the scheme for the protection of employees in the event of a transfer of undertakings, initiated by Directive 2011/23/EC is to be applied, advocate general Mengozzi delivered his opinion on 29 March 2017. The pre-packaged insolvency sale, or pre-pack, is part of a growing trend in modern insolvency law in which the objective is to turn around the undertaking and save its still viable units by restarting the business without any interruption, immediately after the declaration of insolvency. But what about the fate of workers subject to a pre-pack.

Background

Until its declaration of insolvency on 5 July 2014, Estro Groep B.V. was the largest childcare company in the Netherlands. It employed around 3.600 workers. Still on 5 July 2014, a contract of sale (the pre-pack) was signed by the insolvency administrator and Smallsteps B.V., the restart undertaking on behalf of H.I.G. Capital, a sister company of its principal shareholder Bayside Capital, by which Smallsteps purchased the viable units, and undertook to offer employment to nearly 2.600 Estro Groep employees. On 7 July 2014, the insolvency administrator dismissed all Estro Groep employees. Smallsteps offered new contracts of employment to nearly 2.600 staff employed by Estro Groep, and in the end more than a thousand were dismissed. Union FNV, and four Estro Groep workers who were not offered new contracts, claimed protection before the referring court on the basis of Directive 2011/23/EC and provisions under national law.

Opinion advocate general MENGOZZI

  • The advocate general is of the opinion that in view of the objective and the form of the procedure such as that developed in the Netherlands leading to the conclusion of a pre-pack can not be regarded as a bankruptcy procedure or any analogous insolvency proceedings which aim to liquidate the assets of the transferor under the supervision of a competent public authority under the express exception of paragraph 1 of Article 5 of the Directive 2001/23. Accordingly, this pre-pack procedure does not come under the exception so that the protection scheme laid down in Articles 3 and 4 of Directive 2001/23 applies to a transfer of an undertaking, or its still viable parts, as part of such a pre-pack.
  • In the event of a transfer of an undertaking as part of a pre-pack, and inasmuch as the Netherlands insolvency procedure as applies by some courts in the Netherlands, does not provide for the protection scheme laid down in Directive 2011/23 for the benefit of the employees of the assigned parts of the undertaking, that procedure is not consistent with that directive. The advocate general indicates that the referring court should ensure that following the principal that national law must be interpreted in conformity with EU law that the protection scheme laid down in Directive 2001/23 is applied for the benefit of the employees of the assigned still viable parts.
  • In view of the fact that the procedure leading to the conclusion of a pre-pack is aimed at the continuation of the undertaking’s business (or its still viable parts which are being assigned), the fact that the application of that procedure may also maximise the payment of the creditors’ claims does not mean that the protection scheme laid down by Directive 2001/23 for the benefit of the employees does not apply in the event of a transfer of an undertaking as part of a pre-pack.

The Netherlands Government

The Netherlands Government submitted its observations and attended the hearing on 18 January 2017. The Netherlands Government maintained that the pre-pack procedure as took place in the case of Estro Groep, does indeed come under the express exception under Article 5(1) of Directive 2001/23, because the conclusion of a pre-pack is aimed at liquidating the transferor’s assets. The advocate general does not share this view of the Netherlands Government. The argument appeared odd to the advocate general. Accordingly, the advocate general touched upon the actual title of the draft bill being debated in the Netherlands Parliament and which is intended to govern pre-packs practice in the Netherlands, quite politely, being: ‘Law on the continuation of undertakings’ ('Wet continuïteit ondernemingen I (WCO I)'). On 28 March 2017 the parliamentary committee of the Senate advised and proposed to pass the draft bill on 4 April 2017. Due to the Opinion of the advocate general Mengozzi the committee on 4 April 2017 decided to remove the draft bill from the agenda in order for the members of the Senate to ask additional questions to the Minister of Security and Justice Stef Blok. This may be considered a temporary setback in the legislative process only. To the House of Representatives Stef Blok responded that at this stage a ruling from the EU Court of Justice confirming the opinion of the advocate general Mengozzi would not affect the WCO I. But we at Adriaanse van der Weel believe that should the EU Court of Justice indeed follow the opinion of the advocate general this would complicate the pre-pack procedure as developed in practice in the Netherlands drastically for sure. In the case of Estro Groep such ruling of the EU Court of Justice would also mean that the referring court will probably decide in favour of Union FNV and the former Estro Groep workers.

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