Final ruling of the Dutch Supreme Court on the pre-pack of Heiploeg

Introduction

On 6 October 2023, the Dutch Supreme Court granted its final ruling on the pre-pack in the Heiploeg-case. Earlier, we discussed in the International Restructuring Newswire, 2022 Q3 (see The pre-pack in the Netherlands may very shortly revive | Global law firm | Norton Rose Fulbright) the preliminary ruling of the European Court of Justice (ECJ) in the Heiploeg-case. Whilst the ruling of the ECJ gave room for optimism that the pre-pack may shortly revive, we also concluded back then that the pre-pack requires a statutory basis according to the ECJ and the legislature now needs to pick up the gauntlet. In its recent ruling, the Dutch Supreme Court overturned the judgement of the Court of Appeals and confirmed this position.

The Dutch pre-pack

The Dutch pre-pack is a restructuring tool that enables companies in financial distress to maximise value. If a company foresees that a bankruptcy is inevitable, it may prepare a pre-pack sale to ensure value maximisation for creditors. The debtor may request the court to disclose to the debtor who the bankruptcy trustee and who the supervisory judge will be in a subsequent bankruptcy. The debtor will then prepare a sale process and the prospective bankruptcy trustee and prospective supervisory judge will monitor this process so that they are up to speed once the company will be declared bankrupt. Once the company is declared bankrupt, the bankruptcy trustee will execute the sale to the best bidder and the supervisory judge will approve the sale. Given their early involvement, they will be in a position to do this swiftly to avoid value destruction in bankruptcy.

Judgement of the Dutch Supreme Court

In the Heiploeg-case there was debate on the question whether article 5 of the Directive for the Transfer of Undertakings and Protection of Employees (TUPE Directive)[1] was applicable on the Dutch pre-pack. Article 5 TUPE Directive provides for an exception to the automatic transfer of employees in case of transfer of undertakings or businesses in bankruptcy: in bankruptcy, the transfer of an undertaking, business, or part of an undertaking or business, does not lead to transfer of employees by the operation of law, if: (i) the transferor is the subject of bankruptcy proceedings (or any analogous proceedings); (ii) such proceedings have been instituted with a view to the liquidation of the assets of the transferor; and (iii) the transfer is under the supervision of a competent public authority (which may be an insolvency practitioner authorised by a competent public authority). The ECJ ruled (in short:) that the Dutch pre-pack falls under the exception of Article 5 TUPE Directive, provided that the pre-pack procedure is governed by statutory or regulatory provisions. On 6 October 2023, the Dutch Supreme Court ruled that a transfer of undertaking conducted in the context of the Dutch pre-pack of Heiploeg is not exempt from the provisions of the TUPE Directive, given that there is no statutory basis for the pre-pack under Dutch law.[2] The Dutch Supreme Court ruled that the positions of the prospective bankruptcy trustee and the prospective supervisory judge are not provided for by the statute and the prospective bankruptcy trustee and the prospective supervisory judge, thus, do not have statutory powers under Dutch law. This is the end of a saga (for now) on which we have been writing in our earlier publications in the International Restructuring Newswire of 2021, Q4 (see Recent activity points to the welcome revival of pre-packs in the Netherlands | Global law firm | Norton Rose Fulbright) and of 2022, Q3 (see The pre-pack in the Netherlands may very shortly revive | Global law firm | Norton Rose Fulbright).

Conclusion

The Heiploeg-case has been an important case for the development of the Dutch pre-pack. Whilst the recent ruling of the Dutch Supreme Court means that the pre-pack of Heiploeg does not meet the requirements for an exception from the TUPE Directive, the ruling of the ECJ provides an opening for the Dutch legislative to continue legislative efforts to introduce the pre-pack under Dutch law. In 2015, a legislative proposal was drafted to codify the pre-pack in the Dutch Bankruptcy Act, i.e. the draft bill 'Act on Continuity of Enterprises I' (Wet Continuïteit Ondernemingen I). The codification of that draft bill would give the pre-pack a statutory basis under Dutch law and avoid potential value leakage in bankruptcy.