Pre-pack does not always protect employees
A prepared liquidation will not protect employees if it is regulated by national laws or regulations.
This is according to a judgment of the Court of Justice of the EU (TSUE). The case concerned employees from the Netherlands. They were employed by a holding company operating in the commercial sector. The company, because of large losses and the penalty imposed on it by the European Commission, decided to use the pre-pack procedure, i.e. prepared liquidation. This involves the sale of the indebted company or part of it. As a result, two buyers took over the vast majority of the holding together with its employees. However, the staff received less favourable working conditions.
The trade union appealed against the judgment declaring the former group bankrupt. However, the court found that bankruptcy was inevitable. It also found that the transferee was not bound by the employment conditions in force prior to the transfer, since the conditions of Article 5(1) of the Directive on the protection of employees’ rights in the event of transfers of undertakings or parts of undertakings were fulfilled.
The trade union brought an appeal in cassation before the Dutch Supreme Court. But the latter suspended the proceedings and put the question to the TSUE. The Court held that under the aforementioned Article 5, employees are not entitled to protection if three conditions are jointly met. First, there must be bankruptcy or similar proceedings against the transferor. In addition, it must have been opened with a view to liquidating the assets and should be supervised by a competent public authority. The TSUE found that these requirements were met. Employees are not protected as long as the pre-pack is regulated by national laws or regulations.