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Court of Appeal rules that ‘pre-pack is a transfer of a company’

donderdag 27 juli 2017


In case of a pre-pack, also called a pre-packaged insolvency, an intended receiver is working on a relaunch some time prior to the declaration of the bankruptcy, so a relaunch may be realised shortly after the declaration of the bankruptcy, possibly even the same day. The aim of the pre-pack is continuation of the company with the highest possible yield.

In case of a relaunch after bankruptcy, the buyer is not required to take over the entire staff, which is different in case of a transfer of a company. In case of a transfer of a company, the employees retain their rights based on the European Directive 2001/23/EC, which has been incorporated in Sections 7:662 – 7:666 of the Dutch Civil Code. As shown in Section 7:666 of the Dutch Civil Code, this does not apply if the employer is declared bankrupt, as the aim of a bankruptcy is to liquidate the assets of the company with the highest possible yield for the joint creditors.

The European Court of Justice has now ruled that employees in case of a pre-pack are protected by the rules that apply to the transfer of a company, that is to say, that the employees in case of a pre-packaged insolvency are transferred to the buyer with retention of their rights. In the procedure that led to this ruling, the so-called Estro case, there was a relaunch after bankruptcy, in which many employees lost their jobs, now that they were not transferred to the buying party. Dutch labour union FNV argued on behalf of a number of employees that this was actually a transfer of a company, which resulted in the entire staff being transferred to the buying party. The buyer however, argued that, based on Section 7:666 of the Dutch Civil Code, the stipulations of transfer did not apply to the circumstances under which the employer had been declared bankrupt. In short, the European Court ruled that the pre-pack is not aimed at the liquidation of the assets of the company, but at continuation of the activities after bankruptcy. Therefore, the pre-pack is not covered by the exclusion of the Directive.

It goes without saying that this ruling has consequences of the application of the pre-pack. It has become a lot less interesting for the buying party, given the fact that it is obliged to take over all employees. It is therefore to be expected that the pre-pack will be used a lot less.

Information

If you would like more information on this subject, please contact Peter de Graaf.

Peter de Graaf

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+31 (0)10 209 27 52
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