No pre-pack if relaunch is postponed

A surprising judgment – on how a company does not fall under the pre-pack regime and the new organisation does not have to take over the staff.

Pre-pack = transfer of undertaking

A coffin manufacturer from Enkhuizen was in an economically difficult situation last summer and steering towards a pre-pack regime in which part of the personnel would end up on the streets. On the day the “silent administrator” was appointed who was to prepare the pre-pack, the Court of Justice of the European Union decided that a relaunch by means of a pre-pack (also known as “flash bankruptcy”) would be a transfer of undertaking. That means, employees in a pre-pack would be transferred automatically to the new organisation whilst retaining their working conditions, as opposed to what is customary in a relaunch after bankruptcy.

Takeover by Belgian company

Subsequently, the coffin manufacturer filed for bankruptcy and the administrator investigated the possibility of a relaunch. Less than three weeks after the bankruptcy the company announced that it would be taken over by a Belgian company.

Relaunch or pre-pack?

The dismissed employees commenced legal proceedings and claimed that this would be a pre-pack regime. They suspected that the takeover had been decided before bankruptcy had been filed for, and that therefore the bankruptcy was not focused on the liquidation of the company as is required by the Court of Justice of the European Union. Thus, the administrator, the same person as the previously appointed “silent administrator”, would have ignored other companies that guaranteed to take over the personnel. In addition, the ex-owner had become operational manager and the company name remained the same.

However, the Court decided that this was an ordinary relaunch after bankruptcy and not a pre-pack regime. It did not find any evidence that the takeover of the company had been arranged down to the last detail before the bankruptcy was pronounced. Besides, the sale of the assets of the company had taken place under supervision of the bankruptcy judge. Also, according to the Court, did see no indication of an abuse of bankruptcy with the aim to cheaply get rid of the personnel. The company had actually been liquidated, which is the focus of a bankruptcy.

Conclusion

An employee who invokes transfer of undertaking due to a pre-pack will have to prove the existence of a pre-pack regime – and that is not an easy undertaking. Therefore, it remains possible for employers to prepare a partial relaunch before the bankruptcy is pronounced.

More information

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