The European Court of Justice’s (“ECJ”) Plessers judgment seemed to cause a serious threat for the applicability of the Belgian reorganisation procedure by transfer under judicial supervision, and the right of the interested buyer of the debtor’s activities to choose which particular employees it would take over (see here and here). But, in the end, it has turned out to be “much ado about nothing”.
In spring 2022, the ECJ again had to rule on the question whether the interested buyer can choose which employees to take over in a Dutch pre pack-scenario. Surprisingly, it decided that the conditions under EU law were met this time and, consequently, retained the option right for the interested buyer.
The new ECJ-jurisprudence can ‘open the door’ for more successful transfers of assets under judicial supervision, provided that the legislator pays attention to the scenario of a partial transfer of assets.
1. Recap: the Plessers-saga
In its so-called Plessers-ruling of 16 May 2019, the ECJ considered that the Belgian insolvency framework, in which assets are transferred under court supervision while a company is protected against its creditors, infringes the EU Council Directive 2001/23/EC regarding the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts thereof (afterwards Directive 2001/23).
In particular, the ECJ considered that the transferor:
- (i) is not subject to a bankruptcy proceeding or any analogous insolvency proceeding in or-der to eventually liquidate the transferor’s assets, and
- (ii) is not supervised by a public authority.
In a similar case (Estro/Smallsteps), the ECJ concluded that the Dutch pre-pack provisions, which allow preparing the sale of a business facing financial difficulties to satisfy the creditors’ claims before the debtor’s liquidation or bankruptcy, infringed EU law regarding employment law.
As a result of the Plessers ruling, the interested buyer must justify dismissals during a transfer of assets with economic, technical or organisational reasons entailing changes in the workforce; with it being understood that the transfer will not in itself constitute grounds for dismissal. In other words, to comply with Directive 2001/23, the interested buyer may not simply choose the employ-ees it wishes to keep after the transfer, it must provide economic, technical or organisational rea-sons.
On 24 March 2021, the Antwerp Labour Court of Appeal ruled that, even if Directive 2001/23 had been correctly transposed, this did not imply that the interested buyer would have been obliged to take over all the employees. After all, the Directive does provide for a right of choice for the inter-ested buyer, although there are safeguards for dismissed employees The Labour Court of Appeal upheld retained that Mrs. Plessers had lost the opportunity to be employed by the interested buy-er. However, the Court made a low assessment of the damages, which resulted in compensation of only EUR 1,000.
That Labour Court of Appeal decision reanimated the Belgian restructuring procedure by transfer of assets under judicial supervision, as in most cases not all of the employees are taken over by the interested buyer.
2. The story continues with Heiploeg
In a judgment of 28 April 2022 regarding the Dutch pre-pack of the Heiploeg group, the ECJ empha-sised that, in each situation, one must verify whether the Dutch pre-pack procedure was carried out with a view about the transferor’s liquidation due to its insolvency and not with a view about its reorganisation. The ECJ seemed to admit that the transfer of a business that is still economically active whilst being insolvent, complies with the exception referred to in Article 5, §1 of Directive 2001/23, provided that this transfer eventually aims at preparing the liquidation/bankruptcy that will occur after the transfer.
In such a case, the transfer falls under the exception to employee protection under Directive 2001/23 and the interested buyer can make a choice regarding which of the transferor’s employee are taken over.
3. Does the proposed insolvency framework meet Heiploeg?
The timing of the Heiploeg ruling could not be more convenient, as the Belgian legislator is working on amending Articles XX.84 and XX.86 §3 of the Belgian Economic Law Code (“ECL”) to comply with the Plessers ruling, as part of the transposition of the EU Restructuring Directive 2019/1023.
The current draft bill adds to Article XX.84 ECL that the judicial restructuring by transfer under authority “aims at the liquidation of the legal entity or its assets”, so that it complies with the first criteria of Article 5, §1 of Directive 2001/23. Furthermore, Article XX.86 §3 ECL will be adjust-ed in a way that, if the interested buyer does not take over all the transferor’s employees, it must justify the dismissals with technical, economic or organisational reasons that are independent of the planned transfer.
According to the Heiploeg ruling, the current Belgian insolvency framework on the transfer of assets would comply with Article 5 §1 of Directive 2001/23 when the transfer under judicial supervision ultimately leads to the transferor’s bankruptcy (which is what mostly happens in practice).
However, with a partial transfer, the transferor’s activities continue after the transfer with the branch of activity that it has retained. In this scenario (the proposed) Article XX.84 ECL does not meet the ECJ’s interpretation under the Heiploeg ruling, so that the interested buyer should justify any dismissal of the transferor’s employees with economic, technical or organisational reasons that are independent of the planned transfer.
Last but not least, the EU Restructuring Directive 2019/1023 will also impact reorganisation proce-dures by means of a collective agreement and will not only impact Article XX.84 ECL.
If you have any specific questions or would like to obtain more detailed information about this subject, then the ALTIUS’ Insolvency and Restructuring team is available to further assist you.