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    Pre-pack under fire as a result of the findings of the advocate general (EU)

    On 29 March 2017, Advocate General Mengozzi of the Court of Justice of the European Union found that the protection of employees in case of a transfer of undertaking also applies to a sale after a Dutch pre-pack. According to the Advocate General, the exception to this, set out in article 5 of the European Directive 2001/23/EC, does not apply to a Dutch pre-pack. If the Court of Justice agrees with this opinion, the possibilities for restarting an undertaking after a bankruptcy with the pre-pack approach will be strongly reduced.

    The opinion of Advocate General Mengozzi was given with regard to the Estro-bankruptcy. The bankruptcy of Estro was prepared, after which Estro could make a restart because the undertaking had been sold in the bankruptcy (a pre-pack). This approach has been developed in Dutch practice. In short, it means that the district court appoints a proposed curator who supervises the possible restart of the undertaking before the bankruptcy is pronounced. The sale and transfer of the undertaking are subsequently effected almost simultaneously after the bankruptcy has been pronounced. Until now, it has been assumed that a sale prepared with the pre-pack fell under the exception to the transfer of undertaking, given that the sale and transfer take place after the bankruptcy.

    The exception of article 5 of the EU Directive only applies to a transfer during insolvency proceedings that have been instituted for the purpose of liquidating the assets of the transferor. In his findings, Advocate General Mengozzi indicates that the pre-pack procedure as developed in the Netherlands cannot be regarded as a procedure that has been instituted for the purpose of liquidating the assets of the transferor. If the Court of Justice agrees with the view of the Advocate General, the pre-pack can no longer be used in a restructuring in the context of which the workforce is reduced.

    In practice, this can have the effect that, in order to be able to make use of the exception to the transfer of undertaking, a sale of an undertaking from a bankruptcy can only be discussed with the curator after the bankruptcy has been pronounced. This will create uncertainty, take time and result in a loss of value of the undertaking.

    Click here to read the findings of Advocate General Mengozzi.

    For more information, you can contact Stefan van Rossum or Jelmer Baukema.