This course is funded by the Erasmus & Jean Monnet Program of the European Commission

1. Insolvency & the protection of employees Ronald M. Beltzer 20 June 2018 This course is funded by the Erasmus & Jean Monnet Program of the European Commission

2. Insolvency - Topics Introduction Social Action Programme - Directives 98/59 & 2001/23 Smallsteps case Directive 2008/94

3. Insolvency What is insolvency? Difference per Member State. Whatis the goal of insolvency procedures? Insolvencylaw is to a greatextentnationallaw: there is hardlyanyapproximisation in the EU. However: insolvencylaw has always had the attention of the European Commission.

4. Towards harmonisation? Council regulation (EC) No 2015/848 on insolvency proceedings (recast) aims to avoid assets or judicial proceedings from being transferred from one EU country to another in order to obtain a more favourable legal position to the detriment of creditors (“forum shopping”). The regulation gives rules regarding: the court competent to open insolvency proceedings; the applicable law; the recognition of the court’s decisions when a debtor (a company, a trader or an individual) becomes insolvent. No harmonisation of national insolvency laws.

5. Plans 12-12-12: “A new European approach to business failure and insolvency” (COM(2012) 742 final). Aim of the document is to modernise and to harmonise parts of insolvency law of the Member States. Page 3: “Modern insolvency law in the Member States should help sound companies to survive and encourage entrepreneurs to get a second chance. It should ensure that procedures are speedy and efficient, in the interest of both debtors and creditors, and should help safeguard jobs, help suppliers to keep their customers, and owners to retain value in viable companies.”

6. Plans The focus is clearly on survival (page 2): “The European response should be to create an efficient system to restore and reorganise business so that they can survive the financial crises, operate more efficiently and when necessary, make a fresh start. This applies not only to large multi-national companies, but to the 20 million small companies that are the backbone of Europe’s economy. The effective handling of insolvency cases is an important issue for the European economy and sustainable growth.”

7. The views have changed

8. Plans 2012 plans were reformulated in 2014: Recommendation on restructuring and second chance (C(2014) 1500 final, 12 March 2014). The Recommendation has either not at all, or very selectively been picked up by the Member States. See: Proposal for a Directive “on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU” (Strasbourg, 22.11.2016, COM(2016) 723 final 2016/0359(COD).

9. Specific topics Harmonisationcouldbeachieved in the followingfields: Second chance for entrepreneurs in honest bankruptcies. Equal discharge periods. Same rules on the opening of proceedings. Lifting the veil of uncertainty for creditors relating to procedures to file and verify claims. Promoting restructuringplans.

10. Meanwhile, in labour law… Social Action Programme 1974 “Since these directives were drafted to facilitate the restructuring of enterprises with a view to making them more competitive and efficient, they did not question the managerial prerogative to restructure and to dismiss employees. Instead, the Directives aimed to address the social consequences of these managerial decisions and mitigate their effects. In this respect the Directives were intended both to encourage a greater degree of industrial democracy and to provide an element of social protection.” (Blanpain)

11. Directive 98/59 (Collective Dismissal) Art. 3 (1): “…as a result of a judicial decision, the employer shall be obliged to notify the competent public authority only if the latter so requests.” Art. 4 (4): “Member States need not apply this Article to collective redundancies arising from termination of the establishment's activities where this is the result of a judicial decision.” (waiting period of 30 days) Landsbanki-case: Also in case of liquidation the Directive is applicable and a liquidator has to fulfill its obligations.

12. Directive 2001/23 (Transfer of Undertaking Abels case: The directive is notapplicable in case of liquidation, only in case of suspension of payment. Codification: art. 5 (1):articles 3 and 4 shallnotapply in case of a bankruptcy (or likewise) procedure, unless Member Statesprovideotherwise Art. 5 (2): Whenarticles 3 and 4 do apply Member Statesmayprovidethat: debtsfrom the transferorshallnotbetransfered. alterationstoemploymentconditionscanbe made by the transferorand employee representatives. Art. 5 (4): Member Statesshall take measurestopreventabuse.

13. “Pre-pack”– a plan to save parts of the company (243 of the 380 child care centres). Idea: smooth transfer, prepared in secrecy, under the supervision of a court-appointed prospective insolvency administrator. The transfer of the undertaking takes place following a declaration of insolvency and put into effect immediately after that declaration. The objective is both the continuation of the activities of the undertaking and the maximisation of the proceeds of the transfer for all the undertaking’s creditors. Smallsteps case (22 June 2017)

14. The pre-pack in fact entails insolvency, and may therefore be covered by the concept of “bankruptcy proceedings or any analogous insolvency proceedings”, within the meaning of Article 5(1) of Directive 2001/23. A pre-pack is aimed at safeguarding the value of the undertaking and the employment posts. Although appointed by a court, at the request of the insolvent undertaking, the prospective insolvency administrator and the prospective supervisory judge have no formal powers. Accordingly, they are not supervised by a “public authority”. Smallsteps case - ECJ

15. (50) “In those circumstances (…), it must be held that since such a procedure is not ultimately aimed at liquidating the undertaking, the economic and social objectives it pursues are no explanation of, or justification for, the employees of the undertaking concerned losing the rights conferred on them by Directive 2001/23 when all or part of that undertaking is transferred (see, by analogy, judgment of 7 December 1995, Spano and Others, C‑472/93, EU:C:1995:421, paragraphs 28 and 30).” Smallsteps case - ECJ

16. (51) “In view of the finding made in paragraph 48 of this judgment, the mere fact that the ‘pre-pack’ procedure may also be aimed at maximising satisfaction of creditors’ collective claims does not make this a procedure instituted with a view to the liquidation of the assets of the transferor within the meaning of Article 5(1) of Directive 2001/23.” Since the Netherlands have not implemented Article 5(2), the result was a full transfer of undertaking. Pre-pack has since been declared dead. Smallsteps case - ECJ

17. Main objective of the Directive is to protect employees in case of insolvency of their employer (preamble, under 3). This is done by ensuring a minimum degree of protection of employees in the event of insolvency of their employer, in order to guarantee payment of their outstanding claims. This is a true minimum Directive (e.g. art. 2 (4); 4 (3)) – it is allowed to treat employees more favourably (and thereby possibly treating others less favourably!). Previously: Directive 80/987. Directive 2008/94 (Insolvency of the Employer)

18. There is no European definition. Art. 2 (2): the Directive is without prejudice to national law as regards the definition of the term employee. Exclusion of certain groups is allowed, except for the groups mentioned in Art. 2 (2) & 3. All employees count: also those who “started yesterday”. Employees

19. A request has been made for the opening of collective proceedings involving the divestment of the employers assets and: The competent authority has: Decided to open the proceedings. OR Established the employer’s close down and that the available assets are insufficient to warrant the opening of the proceedings. State of Insolvency – Art. 2

20. This Directive does not prevent Member States from extending employee protection to other situations of insolvency, for example when payments have been de facto stopped on a permanent basis, established by proceedings different from those mentioned in paragraph 1 as provided for under national law. Art. 2 (4)

21. Art. 3: Member States shall take the measures necessary to ensure that guarantee institutions guarantee, subject to Article 4, payment of employees’outstanding claims resulting from contracts of employment or employment relationships, including, where provided for by national law, severance pay on termination of employment relationships. The claims taken over by the guarantee institution shall be the outstanding pay claims relating to a period prior to and/or, as applicable, after a given date determined by the Member States. Van Ardennen Case: Limitations are to be interpreted strictly. Claims

22. The guarantee must at least cover the remuneration of the last three months of the employment relationship prior to that reference date (and/or after that reference date). Within a reference period of at least six months. Member States may set ceilings, but they must not fall below a level which is socially compatible with the social objective of this Directive. Social security contributions

23. Art. 6: Member States may stipulate that Articles 3-5 shall not apply to contributions due under national statutory social security schemes or under supplementary occupational or inter-occupational pension schemes outside the national statutory social security schemes. However: See Articles 7 and 8. Employees cannot be adversely affected. Claims

24. See the Waterford case for the interpretation of Article 8 (ECJ 25 April 2013, C‑398/11). Article 8 must be interpreted as meaning that State pension benefits may not be taken into account in assessing whether a Member State has complied with the obligation laid down in that article. It is sufficient that the pension scheme is underfunded as of the date of the employer’s insolvency and that the employer does not have the resources to contribute sufficient money to the pension scheme to enable the pension benefits owned to the beneficiaries of that scheme to be satisfied in full. Claims

25. The economic situation of the Member State concerned does not constitute an exceptional situation capable of justifying a lower level of protection of the interests of employees as regards their entitlement to old-age benefits under a supplementary occupational pension scheme. Directive 2008/94 must be interpreted as meaning that the fact that the measures taken by Ireland have not brought about the result that the plaintiffs would receive in excess of 49% of the value of their accrued old-age pension benefits under their occupational pension scheme is in itself a serious breach of that Member State’s obligations. Claims

26. See Article 5. The assets of the guarantee institutions must be independent of the employers’ capital and inaccessible to insolvency proceedings (to prevent the employer from taking that money in hard times – see Enron in the US). Employers must contribute to its financing. The institution’s liabilities must be independent of the actual fulfillment of contribution obligations. Guarantee Institutions

27. See Article 12. Member States can take measures to avoid abuse. They can refuse/reduce liability when the fulfillment seems unjustifiable because of the existence of special links between the employer and the employee and of common interests resulting in collusion between them. They can refuse/reduce liability when the employee is (partial) owner of the employer’s undertaking and had a considerable influence on its activities. Refusing or reducing liability