European Trade Union Institute, ETUI.

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3 July 2017

The Netherlands: pre-pack bankruptcy does not derive workers from their rights

The Court of Justice of the European Union has ruled in favour of four childcare workers sacked in a pre-packed bankruptcy deal. The four workers lost their jobs when childcare group Estro went bust in 2014 and restarted directly after as Smallsteps. The case was brought to a Dutch court by the trade union FNV. The Dutch court asked the CJEU to decide whether the EU transfer of undertakings directive must be interpreted as meaning that the protection of workers is maintained in a situation, in which the transfer of an undertaking takes place following a declaration of insolvency and in the context of a ‘pre-pack’ prepared before the declaration of insolvency and put into effect immediately after that declaration.

The Dutch group Estro, at that moment the largest childcare company in the country, was declared insolvent by the court in Amsterdam on 5 July 2014. The group blamed the financial crisis and government cuts for its financial problems. Soon after the bankruptcy was made public, serious doubts about the procedure emerged. The bankruptcy under a ‘silent’ administrator seemed to have been a carefully planned operation, according to investigations of the Financieel Dagblad. Journalists found out that, around a month before the bankruptcy, the Estro management had moved its headquarters on paper from Amersfoort to Amsterdam, taking Estro out of the jurisdiction of the tough Midden-Nederland court and into that of the Amsterdam court which was known to be sympathetic to the appointment of a silent administrator. The ‘silent’ administrator, who has to talk to all involved stakeholders, was already in charge of the bankruptcy in early June and arranged a quick takeover of two-thirds of the group by private investment house H.I.G. Capital. Some 250 of the care centres were directly after the bankruptcy relaunched under the brand name Smallsteps in what is called a ‘pre-pack’ procedure, a deal that allows companies to restructure and prepare a restart as part of the bankruptcy process. Smallsteps was created on 20 June 2014, as a relaunch undertaking on behalf of H.I.G. Capital. It signed a ‘pre-pack’ with the insolvency administrator on the same day as the insolvency was declared.

On 7 July 2014 all Estro workers were dismissed. Smallsteps offered a new employment contract to some 2600 workers formerly employed by Estro, but over a thousand of the 3,800 workers lost their jobs. The workers were denied the rights that apply in a normal transfer of undertakings. Immediately after the bankruptcy trade union FNV opened an helpdesk and received complaints of hundreds of duped workers. The union sees such a deal as a pretext, often used by companies, to force through a reorganisation and get rid of workers, suppliers and creditors. Based on the received complaints the trade union went to a lower Dutch court in 2015, with the claim that workers involved in this ‘pre-pack’ operation should keep the same rights as is the case in a normal transfer of undertakings. The Dutch court asked the CJEU to rule on this matter. The CJEU concluded that a ‘pre-pack’ procedure such as that at issue in this case does not satisfy all the conditions laid down in the EU transfers of undertakings directive and that, therefore, there can be no derogation from the protection scheme provided for under the directive. The CJEU followed the reasoning of the Advocate General who had opined that a ‘pre-pack’ does not fall under the exception to the EU Directive on transfer of undertakings, so 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’. The FNV stated that with this ruling the ‘pre-pack’ is no longer an attractive way to reorganise and to get rid of staff cheaply.

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