The Heiploeg-ruling; the Dutch pre-pack practice approved by the European Court of Justice?

On 28 April 2022, the European Court of Justice (“ECJ”) published its long awaited Heiploeg ruling. In this ruling, the ECJ ruled that a pre-pack is possible without a transfer of undertaking, even if it results in the business and employment being preserved.

More specifically, the ECJ decided that the pre-pack procedure¹, together with the bankruptcy procedure, can be deemed instituted with a view to the liquidation of the assets of the transferor. Furthermore, the ECJ noted that the pre-pack procedure in the Heiploeg case may be regarded as having been carried out under the supervision of a competent public authority². As a result, the employee protection in the event of a transfer of an undertaking does not apply to the pre-pack in the Heiploeg case³.

The ECJ already ruled on the question of whether a pre-pack procedure is exempted from the employee protection in the Acquired Rights Directive 2001/23 in the Smallsteps/Estro judgment⁴. In that case, the answer to this question was negative. The Court ruled that the pre-pack was not aimed at the liquidation of the assets of the transferor, but that the main purpose was to in fact preserve the company. Relevant aspects in that situation were that the company was continued by an affiliated company and under the direction of management of part of the former (Management) Board. Furthermore, the pre-pack procedure was mainly prepared by the Management Board and there was no serious market assessment.

The difference in outcome of both proceedings can be explained by the fact that, in the present case, the Dutch Supreme Court in its prejudicial questions to the ECJ in this case has highlighted the following general aspects of the Dutch pre-pack procedure: (i) the insolvency of the transferor was unavoidable, (ii) the purpose of the Dutch pre-pack procedure is to secure the greatest possible reimbursement of all creditors and to preserve employment as much as possible and (iii) the purpose of the pre-pack procedure is to liquidate the assets to increase the chances of satisfying most creditors’ claims.

In conclusion, the ECJ provides clarity as to when there can be a derogation from the employee protection of the Acquired Rights Directive and puts an end to a long lasting legal discussion. The Heiploeg ruling can be regarded as a victory for the Dutch pre-pack practice, although it also shows the pre-pack should be aimed at liquidation. this means that, in exceptional circumstances, the TUPE legislation may still apply. In addition, this ruling might be a reason for the Dutch government to (re)start discussions on the legislative bill on transfer of undertaking in liquidation. The legal debate will continue... 

Authored by Anita de Jong, Maria Benbrahim, Imane Azdad, and Daan Koenrades.

References

1. A pre-pack is a legal construction, derived from case law, whereby a silent administrator (also called prospective insolvency administrator (beoogd curator)) is appointed by the court in private. This silent administrator prepares a restart as much as possible with all parties involved, so that the restart can take place immediately after the bankruptcy is declared. This would lead to less damage to reputation and increase the chances of a restart.

2. In point 62 of the ruling, the ECJ considers the following: “since the ‘prospective insolvency administrator’ and the ‘prospective supervisory judge’ are appointed by the competent court for the pre-pack procedure and that court not only defines their duties but also reviews the exercise of those duties when the insolvency proceedings are subsequently opened, in deciding whether or not to appoint the same persons as insolvency administrator and supervisory judge, there is already, as a result, supervision of the ‘prospective insolvency administrator’ and the ‘prospective supervisory judge’ by a competent public authority”.

3. The exemption of article 5 (1) of the Directive 2011/23/EC (Acquired Rights Directive) applies as all the conditions have been met.

 4. ECJ EU 22 June 2017, C-126/16, ECLI:EU:C:2017:489 (FNV c.s./Smallsteps)