Following this new judgement, we can infer that the fact for a procedure to fall under the exception is mainly based on factual considerations and the way the procedure is carried out. However, that procedure must be governed by statutory or regulatory provisions.
The judgement seems to be positive in a long-term perspective for it might be the first shift from the heavily criticised Smallsteps and Plessers judgements.
The court answered two questions asked by the Hoge Raad der Nederlanden. This article aims to provide a summary of the judgement’s main learnings.
The main feature of Directive 2001/23/EC (the “Acquired Rights Directive” or “ARD”) is the protection of employees’ rights in case of transfer of undertaking. It guarantees the continuation of the employment relationship with identical terms and conditions throughout the transfer.
Unless otherwise decided by the Member States, an exception applies when the transfer is carried out in the context of an insolvency situation.
In its case-law, the Court stated that for the exception to apply, three cumulative conditions must be met: (1) the transferor is subject of insolvency or similar proceedings, (2) those proceedings were initiated for the purposes of the liquidation of the transferor’s assets and (3) they are under the control of a competent public authority.
Context of the case
The Dutch legislation provides the exception to the application of the ARD’s protective rights in the event of insolvency. Based on that legislation, the case-law developed a national practice called pre-pack. The pre-pack procedure aims to prepare the transfer of all or part of an undertaking before the declaration of insolvency. The procedure is led by a “prospective insolvency administrator”, the latter being supervised by a “prospective supervisory judge”. Both actors are appointed by the court competent for the insolvency proceedings.
The transfer is prepared prior to the insolvency proceedings but is actually carried out after the start of the proceedings.
"Is the preparation of a transfer prior to the insolvency proceedings in line with the exception as provided for the ARD?"
The Court concluded that the Acquired Rights Directive does not necessarily preclude the preparation of the transfer during a procedure that is prior to the insolvency proceedings.
The Court addressed one of the three main conditions for the exemption to be applied, namely the procedure’s aim (second condition; see above, title 1). The Court recalled that the proceedings must be instituted with a view to liquidation of the transferor’s assets. Conversely, it cannot aim at ensuring the continuation of the undertaking. Therefore, the pre-pack procedure must be initiated where the insolvency of the transferor is inevitable and it must aim at liquidating the transferor’s assets. The primary objective must be the liquidation and to obtain the highest possible return for all the creditors.
The Court specified that a case-by-case analysis must be undertaken to determine whether, in each situation, the pre-pack procedure and the insolvency proceedings that follows are carried out with a view to the liquidation of the undertaking due to the insolvency of the transferor.
The Court stressed that the pre-pack procedure, in order to be lawful under EU law, must be governed by statutory or regulatory provisions. Because of legal uncertainty and non-uniform application, a procedure based on case-law cannot be considered as compliant with the exception as provided for in the Acquired Rights Directive.
"Can the exception as provided for in the ARD be satisfied where the transfer is prepared by persons that are, at first, not actors in the insolvency proceedings and where the transfer is concluded after the declaration of insolvency?"
The second question refers mainly to the condition related to the control of a competent public authority (third condition; see above, title 1).
The Court of Justice highlighted that the court appointing the prospective insolvency administrator and the supervisory judge reviews the latter’s exercise of their duties. Hence, there is a supervision in the meaning of the Directive. The CJEU based its analysis on the following main factors:
- the court has the possibility not to appoint the prospective insolvency administrator and/or supervisory judge when the insolvency proceedings are subsequently opened;
- the supervisory judge may refuse the transfer for the transfer is only carried once the insolvency proceedings started;
- the prospective insolvency administrator may be held liable;
- the prospective insolvency administrator may be replaced by the court and the pre-pack procedure may be stopped by that court.
To the second question, the Court also answered that a pre-pack procedure such as the one at issue was compliant with the Acquired Rights Directive provided that the procedure is governed by statutory or regulatory provisions.
Impact on the Belgian judicial reorganisation
In a previous judgement – the Plessers judgement – the CJEU ruled that a transfer declared by a court in the framework of a judicial reorganisation was infringing the Acquired Rights Directive. That decision was widely criticised in the literature. At first sight, it cannot be asserted that the Heiploeg judgement would modify the outcome of the Plessers judgement. However, it builds grounds to – to some extent – counter the Court’s decision in Plessers.
In Plesser, the Court analysed the three cumulative conditions:
- Insolvency or similar proceedings: the CJEU stated that the judicial reorganisation procedure does not amount to insolvency proceedings in the meaning of the Directive. The Heiploeg judgement does not bring any new development on that matter. However, it is argued in the literature that such statement is not legitimate.
- Proceedings initiated for the purposes of the liquidation of the transferor’s assets: the Court ruled that the condition was not met on the basis of the wording of the question asked by the Belgian court. As it appears from the Heiploeg judgement, an analysis of the fact must be undertaken to determine the proceedings’ primary aim. Therefore, one must assess whether, in fact, the transfer in the framework of a judicial reorganisation aims the liquidation of the assets.
The literature demonstrated that the judicial reorganisation procedure does not necessarily neither exclusively aims the continuation of the transferor. It is clear that a transfer in that framework may aim the liquidation of the assets.
On that basis, we may assume that the second condition may be fulfilled in a transfer occurring in the framework of a judicial reorganisation.
- Supervision of a public authority: the Court considered that there was no supervision in the meaning of the Acquired Rights Directive. The supervision exercised by the legal representative appointed by the judgement ordering the transfer was considered as being too restricted. Yet, the competent Belgian court must authorise the transaction and verify it complies with the legal requirements.
Besides, there is the possibility to seize a labour court which will probate the transfer after verification that the employees’ rights are safeguarded.
Hence, based on the Heiploeg judgement, there may be room for manoeuvre to argue that there is sufficient supervision by a public authority.
In Heiploeg, the Court stated that any procedure has to be embodied in legislation in order to be compliant with EU law. It is so for the Belgian procedure of transfer in the framework of judicial reorganisation.
In Smallsteps, the Court ruled that the pre-pack did not fulfil the three required conditions, especially the two last conditions – the proceedings’ aim and the supervision. In Heiploeg, the Court stated that the pre-pack, as organised in the case at issue, did comply with all three conditions. Therefore, a change of interpretation of the procedure organising a transfer in the framework of a judicial reorganisation is to be hoped, especially given the relevance of the arguments criticising the Plessers decision. In addition, it appears that the transfer in the framework of a judicial reorganisation could maybe be applied in a manner that is compliant with EU law.