In the case between the Works Council and the receiver of the chain of chemist’s shops DA, the Netherlands Supreme Court issued a judgement on 2 June 2017, in which in summary it ruled that the right to prior consultation of the Works Council, as incorporated in Article 25 of the Works Council Act (WOR) in principle also applies to the event in which a company has been declared bankrupt.
Herein, the Supreme Court has formulated three principles, namely:
- The right to prior consultation of the Works Council does not relate to the sale of goods and decisions concerning the dismissal of employees;
- If the sale of assets takes place in the context of a continuation or a relaunch of (a part of) the company by the same or a different entity, a decision thereto is indeed subject to the right to prior consultation;
- The receiver may, under circumstances, derogate from the formal requirements of Article 25 of the WOR if the circumstances so require. After all, the receiver has to make quick decisions.
What was the case?
On 29 December 2015, among others, DA Retailgroep (DA) was declared bankrupt. Subsequently, the receiver chose to accept a (slightly lower) bid from the Nederlandse Drogisterij Service (NDS), because it was prepared to take over most of the employees. Following a request thereto, the receiver informed the Works Council of the outlines of (the decision for) the transfer of the business activities to NDS. In its turn, the Works Council requested the receiver to confirm that he would consider the costs the Works Council was to make for legal assistance to be insolvency assets. The receiver rejected the Works Council’s request.
Enterprise Section
Next, the Works Council lodged an appeal on the basis of Article 26 of the WOR with the Enterprise Section against the decision to transfer assets by DA to NDS. In support of its appeal, the Works Council brought forward that:
- the contested decision is a decision as referred to in Article 25 paragraph 1 of the WOR;
- Article 25 of the WOR also applies in the event of a bankruptcy;
- the Works Council had not been notified of the contested decision; and
- there had been no consultation with the Works Council, let alone that its advice had been sought.
The Enterprise Section dismissed the appeal from the Works Council, as the right to prior consultation of the Works Council would in principle be incompatible with the role of the receiver aimed at the liquidation of the assets. Furthermore, in the opinion of the Enterprise Section, the right to prior consultation would be practically difficult to fit in a bankruptcy.
Appeal in cassation
Afterwards, the Works Council lodged an appeal in cassation. In part 1, the Works Council complains about the judgement that the right to prior consultation of the Works Council in principle does not apply in the situation in which the company is declared bankrupt. In part 2, the Works Council complains that the judgement of the Enterprise Section, that for the applicability of the right to prior consultation of the Works Council the receiver is at least required to continue the company, is also incorrect.
The WOR contains various obligations for entrepreneurs. In legal ground 3.3, the Supreme Court finds, in short, that the WOR in the event of a bankruptcy remains applicable. In addition, the Supreme Court finds that during the bankruptcy the receiver exercises the powers of the entrepreneur insofar this is entailed by the Faillissementswet (Bankruptcy Act). Here, there are two restrictions, as mentioned earlier under 1 and 3.
The complaints of the parts 1 and 2 therefore succeed. Therefore, the judgements of the Enterprise Section that the right to prior consultation of the Works Council does not apply in principle in the event of a bankruptcy as well as that for the applicability of the right to prior consultation of the Works Council the receiver is at least required to continue the company, are both incorrect.
Moreover, the Works Council complained in part 3 about the judgement of the Enterprise Section that the receiver was not required to pay the costs of these proceedings (based on Article 22 of the WOR) from DA’s insolvency assets. As parts 1 and 2 have succeeded, part 3 also succeeds. Accordingly, the Supreme Court has reversed the decision of the Enterprise Section.
Information
If you have any questions on the right to prior consultation or on works councils in general, please contact our office, 0031 10 209 2777 or by e-mail info@lvh-advocaten.nl.
