Employees as stakeholders in restructuring and insolvency: acquired rights and business transfers

Abstract

Employees seem to be late to the party when it comes to considering their position in a restructuring procedure, particularly given the focus that the EU has had on employee protection over the years. While insolvency has shifted from liquidation and creditor wealth maximisation to a focus on the rescue of viable businesses and providing procedures to resolve financial distress further and further from actual insolvency, the treatment of employees during an employer’s insolvency has remained static over the last two decades in terms of the EU Directives that provide protection at such times. Debates around preventive restructuring continue to revolve around the rights of stakeholders who have legal interests in a financially distressed company and while the Preventive Restructuring Directive 1023/2019 introduced Article 13, which appears to provide protection to workers, it really merely refers to those Directives that are already in place and that have changed little in parallel with the shift in insolvency and restructuring policy. The aim of this Chapter is to discuss a key regulatory mechanism that protects employees and employment in the context of restructuring procedures. As the nature of restructuring, preventive or otherwise, will often lead to asset sales, sometimes taking the form of business or going concern sales, a key practical consideration must be the fate of associated employees who are covered by the protections of the ARD and the impact of such protections on the potential success of a restructuring plan. This Chapter will focus on the treatment of employees in the context of business sales in Europe with an emphasis on the UK as a key restructuring destination that has had to deal with the ARD in great detail in its domestic courts. Although the cases generally deal with restructuring under the UK’s Administration procedure or the pre-pack, the reasoning employed in determining the application of the ARD will be relevant to whether the application of the Directive in new preventive restructuring procedures as the PRD throws this determination into the realm of applicable national law. This will then be contrasted with the approach in the Netherlands to the same issue, and the impact the Court of Justice of the European Union’s findings have had on the use of the Dutch and Belgian pre-pack. Finally, there will be some analysis as to what this approach may mean for incoming preventive restructuring procedures implemented subsequent to the Preventive Restructuring Directive.