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    Pre-pack under threat by EU Advocate General's opinion

    In his opinion to the EU Court of Justice of 29 March 2017, EU Advocate General Mengozzi opined that the rule that employees transfer by operation of law (known as TUPE) also applies to a sale concluded by way of a Dutch pre-pack. According to the Advocate General, the exception to this rule under Article 5 of EU Directive 2001/23/EC does not apply to a Dutch pre-pack. If the EU Court follows this view, that will severely limit the possible use of a pre-pack as a means to relaunch a business through insolvency proceedings.

    The opinion of the Advocate General Mengozzi is rendered in relation to the Estro bankruptcy. This bankruptcy involved a relaunch by way of a sale of business out of bankruptcy that was prepared pre-bankruptcy (a pre-pack). The Estro pre-pack followed the procedure that has developed in Dutch practice. In summary, this involves the appointment by the court of a prospective bankruptcy trustee that can review the proposed transaction pre-bankruptcy. The sale and transfer is then signed and  implemented almost immediately after bankruptcy is declared. Thus far, practitioners assumed that such a pre-packed sale would fall under the exception to the TUPE rule on the basis that the sale and transfer is entered into after the transferor is declared bankrupt.

    The exception under Article 5 of the EU Directive is only available if the transferor is subject to insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor. In its opinion, the Advocate General expresses the view that the pre-pack procedure as developed in the Netherlands cannot be regarded as proceedings that are instituted with a view to the liquidation of the assets of the transferor. If the EU Court will follow this view, the pre-pack will no longer be available in order to achieve a restructuring that involves a reduction of the number of employees. 

    In practice, in order to benefit from the exception to the TUPE rule, the consequence may be that a sale of business out of bankruptcy can only be discussed with the bankruptcy trustee after the opening of bankruptcy proceedings. This will create uncertainty, will require time and may result in a loss of value. 

    Click here to download a copy of the opinion of Advocate General Mengozzi.

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