Draft Bill on the Transfer of Undertakings in the event of Insolvency

The Dutch government has presented the Bill on the Transfer of Undertakings in the event of Insolvency (the “Bill”) to the Upper House of the Dutch Parliament. The Bill will change the position of employees in the event of a restart after insolvency. Internet consultation on the draft Bill is open until 31 August 2019. Interested parties may provide their input on the Bill via the Internet. After that period, the Bill will have to be adopted before it can be enacted, so anything could happen in the interimThe government intends to enact the Bill as soon as possible, however 

The Bill is the legislature’s answer to the uncertainty that has arisen these past few years about the position of employees in “prepacked insolvencies”. The current “transfer of undertaking” doctrine provides that the party acquiring a company’s assets and liabilities automatically takes over the employees who work in the company or division in question. The employees follow the work to the new employer while retaining all their rights and obligations. The “transfer of undertaking” doctrine is not applied in the event of an insolvency: the employees of the insolvent employer are therefore not automatically taken over in the event of a restart 

These past years the concept of a “prepacked insolvency has been developed in the Netherlands: a proposed trustee then prepares a restart before the insolvency already, so that the undertaking can be restarted as soon as possible after the insolvency. The main advantage of prepacked insolvency is that the insolvent company and its associated value and employment are “saved”. A disadvantage is that the system is subject to abuse, because a company can be continued in a downsized form and without any employment-law protection for the employees. The European Court recently found that the exception to the transfer of undertaking doctrine does not apply in the case of a prepacked insolvency aimed at continuation of the undertaking rather than liquidation. As a result of that judgment, employees enter the employment of the restarted undertaking by operation of law after a prepacked insolvency.  

Since prepacked insolvencies are not always classified in court as “aimed at continuation of the undertaking” and it is therefore not always apparent beforehand whether the employees are automatically transferred to the acquirer in a restart, the judgment passed by the European Court has made the situation unclear. The Dutch legislature wishes to remove that uncertainty by introducing new statutory rules that may be summarised in outline as follows: 

  • In principle, the employees of an insolvent employer are transferred to the acquirer after a restart, regardless of whether a prepacked insolvency is involved 
  • The acquirer may take over fewer employees only if jobs disappear after the transfer due to economic circumstances. 
  • Employees who do not enter the acquirer’s employment after a restart are released from their noncompete clauses, if any, at the insolvent employer. 
  • The works council and the staff association will have right to be consulted on the proposed restart. 

It is high time in general to clarify the position of employees after a restart. The question is whether the general statutory rule currently proposed by the legislature offers a desirable solution in practice. An insolvent company is generally less appealing or in any event carries a lower value if the acquirer must take over all the employees after a restart 

It is too soon to take specific steps to prepare for new legislation, because it is not yet clear what exactly the new Act will entail. We will of course keep you posted 

Please contact Sander Pieroelie or Anna Görgün for more information or advice on this subject.

This article was published in the Newsletter Vestius of July 2019