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    Dutch supreme court: works council's consultation right also applies in case of relaunch out of bankruptcy

    In a decision of June 2017, the Dutch supreme court gave an important judgement on the scope of the works council's statutory right to be consulted by the trustee in bankruptcy. The supreme court ruled that the right of the works council to prior consultation can, under circumstances, also apply in bankruptcy.

    The respective proceedings were brought before court by the Dutch trade unions FNV and CNV in the bankruptcy proceedings of a major drugstore. To date, there was uncertainty whether the consultation right also applies in bankruptcy in case the insolvent undertaking is (partially) restarted out of bankruptcy, whereby it is foreseeable that excising jobs will be maintained. With this supreme court ruling, this uncertainty is now dispelled.

    The right to be consulted: article 25 of the Dutch Works Councils Act

    The works council promotes the interests of the employees within an undertaking. To protect the employees' rights, article 25 of the Dutch Works Councils Act (WOR) provides the right to prior consultation in the event of major decisions and measures, such as a reorganization, merger or change of location of all or part of the enterprise. The entrepreneur is obligated to give the works council an opportunity to render advice on any of such far-reaching decisions mentioned in article 25 WOR.

    The right to be consulted in bankruptcy proceedings

    The supreme court had to answer the legal question whether the right to prior consultation also applies in bankruptcy, and, if so, to what extent. The supreme court ruled that the declaration of bankruptcy in itself does not mean that the company ceases to exist. In bankruptcy, the trustee exercises the entrepreneur's authority, within the scope of the Bankruptcy Act. As such, the trustee is to be equated with the entrepreneur within the meaning of the WOR. In this capacity, the trustee is obliged - subject to the limitations set out below - to ensure that it complies with the WOR.

    The supreme court ruled that the general rule regarding the right of the works council to prior consultation, in principle also applies during bankruptcy. However, according to the supreme court, such right is limited. The supreme court ruled as follows:

    -         The works council's right to be consulted does not apply to a regular sale of assets. In these cases, the trustee's actions are aimed to liquidate the insolvent company. In such events, the creditors interest in a expeditious liquidation take precedence over the interests protected by article 25 WOR.

    -         If the trustee decides to sell the assets for the purpose of the continuation and/or relaunch of the company's activities, whereby the prospect of preservation of jobs exist, the decision regarding this sale is one on which advice must be sought, pursuant to article 25 WOR. In this case the trustee's actions are not primarily aimed at liquidation, but also at the survival of the company.

    -         Because not all the provisions laid down by or pursuant to the WOR are compatible with the rules on bankruptcy, the trustee may deviate from article 25 subsection 2-6 WOR which, in short, stipulate the formal requirements for prior consultation, such as time limits and administrative regulations.

    The supreme court ruling can be found here (in Dutch only).

    For more information, please contact Jelmer Baukema or Anouk Kruijdenberg.