Vol 14 (2017) - Issue 6

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Estro: The End of the (Dutch) Pre-pack

Introduction
Almost five years ago, in 2012, the Dutch legislator announced a number of measures aimed at improving the restructuring capabilities of the rather ancient Dutch Bankruptcy Act (which dates from 1893). In particular a proposal on the 'Dutch pre-pack' and a proposal on the 'Dutch scheme of arrangement' were welcomed by Dutch practitioners. While there is still an expectation that the 'Dutch scheme of arrangement' will become enacted into law in 2018 or 2019, the 'Dutch pre-pack' seems to have been killed off by a recent decision of the EU Court of Justice (the 'EU Court').
A (Dutch) 'pre-pack' is aimed at allowing the debtor to prepare and negotiate a restart of the viable part of its business already prior to bankruptcy, whereby the actual restart is implemented post bankruptcy. An important element of the restart is typically that the new owner of the business cannot take over all employees of the bankrupt company. Important in this respect is that pursuant to Article 5(1) of the Transfer of Undertakings Directive, employees rights are (as will be discussed in more detail hereinafter) not protected in case a business is transferred through bankruptcy proceedings (unless a member state has provided otherwise).
In a recent landmark judgment relating to the Dutch Estro case, the EU Court (in line with the opinion of Advocate General Mengozzi) ruled that a pre-pack procedure does not fall under the aforementioned exception included in the Transfer of Undertakings Directive. This means that all rights and obligations of employees of the bankrupt transferor of an undertaking are
automatically transferred to the transferee in case of a sale through a pre-pack.
This judgment clearly has material implications for Dutch pre-packs, but also for similar types of restructuring tools in other EU member states6 and possibly even more generally for turnarounds via insolvency proceedings in the European Union.