Welcome / Blog Archive / English / 2022-05-doc1 Heiploeg – European Commission: your move!

2022-05-doc1 Heiploeg – European Commission: your move!

On 28 April, the Court of Justice of the European Union (CJEU) published its long-awaited judgment in the case of Heiploeg v FNV union. See CJEU 28 April 2022, Case C 237/20 (Federatie Nederlandse Vakbeweging v Heiploeg Seafood International BV, Heitrans International BV). The European court ruled that a Dutch pre-pack sale under certain circumstances can fall within the exceptions to employee protections in Article 5(1) of the EU’s TUPE Directive 2001/23, also known as Acquired Rights’ Directive. The main goal of the Directive is the protection of employees’ rights in case of transfer of undertaking. It guarantees the continuation of the employment relationship with identical terms and conditions throughout the transfer.

In the Heiploeg case, the company was in the wholesale trade in fish and seafood, its business being mainly peeling shrimps. Around 90 of its employees from an original 300 lost their jobs through a pre-pack sale in 2014 to a local fisheries group. The CJEU passed the Heiploeg judgment as a response to questions referred to it by the Supreme Court of the Netherlands.

As a deviation to an earlier judgment from 2017 in a case called Smallsteps, the European Court of Justice now reads the TUPE Directive as allowing for the exceptions in transfers of undertakings, not only when a piecemeal asset liquidation is performed in insolvency proceedings, but also when a business is transferred as a going-concern. Dutch insolvency practitioners have welcomed the judgment as it will breathe new life to the legislative process of the Dutch pre-pack – a sale of a business initiated prior to the formal opening of insolvency proceedings and concluded during the insolvency process itself. Without a proper legal statutory basis in Dutch law, pre-pack sales were halted in the Netherlands over five years ago when three out of the eleven first instance courts ruled against such sales in light of Smallsteps.

Regulation of pre-packs. The Heiploeg judgment is certainly relevant, as it means the Dutch legislator can further build on a draft pre-pack law, the process for which it already started in 2015 (See GRR’s 29 April story EU court ruling heralds potential revival of Dutch pre-packs). That draft bill proposed to codify the halted Dutch insolvency practice whereby prior to the opening of formal proceedings, a court “appointed” (without basis in law) a “prospective insolvency administrator” and a “prospective supervisory judge”. The treatment of the bill had explicitly been suspended pending the outcome of the Heiploeg case. In Belgium a renewed revival is expected for the ‘draft law Geens’ from October 2020.

European angle. With my European glasses on, I note that the Court of Justice demanded a solid legal basis to pre-packs in paragraph 54 of Heiploeg: “54. It is clear however from the file before the Court that the pre-pack procedure at issue is governed solely by rules derived from case-law and that its application by different national courts is not uniform, with the result that, as the Advocate General pointed out in point 83 of his Opinion, it is the source of legal uncertainty. In those circumstances, the pre-pack procedure set out in the case-law of the referring court cannot be regarded as providing a framework for the implementation of the exception contained in Article 5(1) of Directive 2001/23 and does not meet the requirement of legal certainty.” Heiploeg can now be read as an invitation for member states who had not done so to regulate pre-packs as a condition for the applicability of the exceptions in article 5(1) of the TUPE Directive 2001/23 to business sales in insolvency proceedings.

The Court ruled that exclusion from the TUPE protections in Article 5(1) is satisfied “… where the transfer of all or part of an undertaking is prepared in the context of a pre-pack procedure prior to the declaration of insolvency by a ‘prospective insolvency administrator’, under the supervision of a ‘prospective supervisory judge’, and the agreement concerning that transfer is concluded and performed after the declaration of insolvency with a view to the liquidation of the transferor’s assets, provided that that pre-pack procedure is governed by statutory or regulatory provisions.” With the reference to “… regulatory provisions” one may stipulate that national non-binding soft law rules could satisfy this requirement. But I would dismiss that view. In the Netherlands non-binding “soft law” is used for some procedural as well as substantial matters, established by courts themselves, without clear authority in the Dutch Insolvency Act. Where in a pre-pack specifically rights of creditors or shareholders are concerned, it only works with a clear statutory basis.

European procedural matters. In the perspective of CJEU case law itself, the Heiploeg judgment will also be an interesting subject for specialists in European (procedural) law, as it is rather unique that in a case where the facts hardly differ and where the Advocate General gave an opinion in line with the 2017 judgment of the Court in Smallsteps, the Court five years later has given a different judgment in Heiploeg. Was it lack of clarity by the referring Dutch court? Vagueness in translations? Is the European Court (in a concealed manner) rectifying itself?

Employee rights and harmonisation. Another thought that came to mind is the situation today for many national economies where there is great demand for employees. Post-corona, under the changed circumstances, in many sectors there is not only a war for “talent” but demand for all employees. The Heiploeg judgment, therefore, is certainly remarkable. Who wants to “drop” workforce in these circumstances? The judgment is certainly welcomed, but the economic conditions are so different today.

Regulating pre-packs by member states may fit in current effort by national legislators to implement the Preventive Restructuring Directive prior to the date set as per July 2022. In addition, the European Commission most surely will feel be invited to take pre-packs into its present package of expected changes.

Where member states’ insolvency laws still differ markedly, the Commission is overseeing the process of conversion or harmonisation. It has acknowledged that this is a long-term undertaking, because insolvency laws are complex and reflect national policy choices about how best to protect vulnerable stakeholders in case of business insolvency. Nevertheless, in the third quarter of 2022, the Commission will propose an initiative that will seek to harmonise targeted aspects of the corporate insolvency framework and procedures.
Subject to an impact assessment, the Commission will – pending further discussions with member states and the European Parliament – propose a Directive, maybe to be complemented by a Commission Recommendation.

The Heiploeg judgment is very clear as well as undeniably positive that a pre-pack with “Dutch” characteristics, which is governed by statutory or regulatory provisions, will fit within the exceptions in the TUPE Directive. So not only does the pre-pack demand legal certainly in law, but it should be created on a level playing field across the whole of the EU. Furthermore, the uncertain position for employees is now a superior justification for the EU Commission to regulate pre-packs as well as employee protection in that respect. In legislation, insolvency and labour can press each other hard.

The European Parliament and the Council are in a time-critical position and must not lose themselves too long in time-consuming technical details.

This is a slightly adapted version of a regular column Bob Wessels is writing for Global Restructuring Review (GRR) on the topic of cross-border restructuring and insolvency in a European context. GRR is a subscription-only publication and the column appeared in GRR on 9 May 2022. See globalrestructuringreview.com