Plessers: the ECJ on a Killing Spree in the Belgian Insolvency Landscape?

Setting the Boundaries of Articles 3–5 of Council Directive 2001/23/EC in the Aftermath of Smallsteps

Yesterday, Advocate General (AG) Szpunar delivered his opinion in Plessers (C-509/17), a case before the European Court of Justice (ECJ) that concerns the protection of employees in one of the Belgian insolvency proceedings, i.e. the judicial reorganisation by transfer under judicial supervision/gerechtelijke reorganisatie door overdracht onder gerechtelijk gezag (hereinafter referred to as ‘GROG’). If the ECJ follows the interpretation by AG Szpunar of Articles 3-5 of Council Directive 2001/23/EC (hereinafter the ‘Directive’), the referring court would have almost no other option than to rule that Article 61(3) WCO (now: Article XX.86, §3 WER) violates the Directive.



On 23 April 2012, NV Echo entered into a judicial reorganisation by way of collective agreement. However, a collective agreement could not be reached, and on 19 February 2013, the judicial reorganisation proceeding was transformed into a GROG. On 22 April 2013, NV Prefaco took over the business of NV Echo together with two-thirds of the total employees of the transferor.

Plessers, who was one of the dismissed employees, argued (among other things) that Article 61(3) WCO violates the Directive. According to Article 61(3) WCO, the transferee can choose which employees he will take over provided that it is determined by technical, economic and organisational reasons and that the choice is made without prohibited differentiation (the latter limitation basically adds a layer of protection to the benefit of the worker representatives). This provision indeed deviates from the principle that can be found in Article 3(1) of the Directive: ‘the transferor’s rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee’. Such deviations can be justified if the exceptions contained in Articles 4 or 5 of the Directive apply. However, the referring court was not sure whether the conditions of these exceptions are met. As a result, the court applied to the ECJ for a preliminary ruling concerning the interpretation of the relevant provisions in the Directive.

The question that the AG has been called to examine is whether the right of option for the transferee under Article 61(3) WCO, insofar as the GROG is applied with a view to maintain all or part of the transferor or its activities, is consistent with the Directive.


The Categorical Derogation in Article 5(1) of the Directive

Article 5(1) of the Directive, which consists of a three-prong test, reads, ‘Unless Member States provide otherwise, Articles 3 and 4 shall not apply to any transfer of an undertaking, business or part of an undertaking or business where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of a competent public authority (which may be an insolvency practitioner authorised by a competent public authority)’ (emphasis added). A preliminary remark is that Belgium did not provide ‘otherwise’, making the exception laid down in Article 5(1), which must be interpreted strictly, highly relevant in the present case.

When applying the first prong of this test to the GROG, the AG finds that the GROG is not a ‘bankruptcy proceeding or any analogues insolvency proceeding’. The reasoning is that, although a GROG can – and often will – result in a liquidation of the transferor, this is not systematically the case. Indeed, Article 22 WCO provides that the debtor cannot be declared bankrupt (and if the debtor is a company, the company cannot be dissolved in court) as long as the court has not ruled on the request for judicial reorganisation.

The argumentation of the Belgian state, that the GROG is explicitly mentioned in annexes A (‘insolvency proceedings’) and B (‘liquidation proceedings’) of Regulation 1346/2000 and therefore should be considered to be a bankruptcy proceeding or any analogues insolvency proceeding, did not convince the AG. These annexes (which, of course, do not change the intrinsic nature of the GROG) are only relevant for the purpose of Regulation 1346/2000 and not for the application of the Directive.

When considering the objective of the GROG (i.e. the second prong), the AG uses a reasoning that is consistent with the one used in previous case law of the ECJ and its AGs. As is well-known, Article 5(1) represents the codification of principles laid down in the case law concerning Directive 77/187 (the predecessor of Directive 2001/23) developed by the Court: Abelsd’Urso and OthersSpano and Others and Dethier Equipement. In d’Urso and Others, the Court expressly stated that ‘[g]iven all the considerations set out in the judgement in the Abels Case, the decisive test is therefore the purpose of the procedure in question’ (later affirmed in Spano and others). If the objective of the procedure is to liquidate the debtors’ assets to satisfy collectively the creditors’ claims, then the transfers effected under that procedure are excluded from the scope of Directive 77/187. On the other hand, if the objective of that procedure is also to keep the undertaking in business, the social and economic objectives thus pursued neither explain nor justify the circumstance that, when the undertaking is transferred, its employees lose the rights which the directive confers on them. The first interpretation of the current Article 5(1) of Directive 2001/23, however, dates from 2017 (Smallsteps). In this judgment, the Court clarified that although there may be some overlap of objectives within the aims of any given procedure, ‘the primary objective of a procedure aimed at ensuring the continuation of the undertaking is, in any event, the safeguarding of the undertaking concerned’.

As in the Smallsteps case, the wording used in the insolvency legislation played an important role in determining the primary objective of the scrutinised insolvency proceeding. The AG examines Articles 16 (which states that judicial reorganisation proceedings ‘a pour but de préserver, sous le contrôle du juge, la continuité de tout ou partie de l’entreprise en difficulté ou de ses activités’), 22 (supra) and 23 WCO. Furthermore, the AG refers to Article 59(1) WCO, which stipulates that ‘Le transfert sous autorité de justice de tout ou partie de l’entreprise ou de ses activités peut être ordonné par le tribunal en vue d’assurer leur maintien lorsque le débiteur y consent dans sa requête en réorganisation judiciaire ou ultérieurement au cours de la procedure’. In this case, the Commercial Court of Hasselt had also ordered the GROG ‘met het oog op het behoud van het geheel of een gedeelte van de onderneming van Echo of van haar activiteiten’, which is consistent with the wording that can be found in Article 59(1) WCO. Considering all these elements, the AG ruled that the primary objective of the GROG is the continuation of the undertaking (and not its liquidation).

The third prong of the test, which was added in Dethier Equipement (‘account should also be taken of the form of the procedure in question, in particular in so far as it means that the undertaking continues or ceases trading, and also of the objectives of Directive 77/187’), considers whether there is supervision of a competent public authority. The AG is quite brief on this part of the test and concludes that the supervision of a judicial trustee (‘mandataire de justice’) who has to organise a transfer in the name of and on behalf of the debtor (Article 60 WCO) is insufficient to satisfy the third prong.

Consequently, the GROG does not come under the derogation in Article 5(1) of the Directive.


Firm-specific Derogation in Article 4(1) of the Directive

Next, the AG interprets the derogation in Article 4(1) of the Directive: ‘The transfer of the undertaking, business or part of the undertaking or business shall not in itself constitute grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of dismissals that may take place for economic, technical or organisational reasons entailing changes in the workforce’.

The AG argues that in order to determine whether the employees were dismissed solely as a result of the transfer, it is necessary to consider the objective circumstances in which the dismissal took place. In a case such as this, an objective circumstance which has to be considered is the fact that the dismissal took effect on a date close to that of the transfer and that a part of the workforce was taken on again by the transferee (Bork International; Colino Sigüenza). Furthermore, the transferee should prove that the dismissal is caused by additional economic, technical or organisational circumstances (other than the transfer itself) such as the failure of the transferee and the landlords to agree a new lease, the impossibility of finding other commercial premises or the impossibility of transferring the staff to other stores (Kirtruna and Vigano). The national court should be exhaustively informed of the technical, economic or organisational justifications by all parties involved in the transfer to assess the necessity of redundancies.

The mere desire to reduce the costs of taking over an enterprise or preventing or limiting financial problems cannot be accepted as justification. The AG finds support for his statement in the opinion of AG Van Gerven in d’Urso and Others: ‘I do not share the view that the directive allows any kind of dismissal on economic, technical or organizational grounds. The directive expressly prohibits such dismissals where they occur as a result of the transfer of the undertaking. It is only where the dismissals have already taken place, for example if they had already been decided on before the question of any transfer of the undertaking arose, that they come under that derogation. Article 4 of the directive cannot therefore be used as an argument to dismiss some of the employees on account of the transfer of the undertaking’. According to the AG, the safeguards provided in Article 61(3) WCO are inadequate to ensure that dismissals are in conformity with Article 4(1) of the Directive.


Will European Collective Dismissal Law Turn against the Employees It So Desperately Tries to Protect?

If the ECJ follows the opinion of its AG, the referring court will almost have no choice than to rule that Article 61(3) WCO violates the Directive. Even if the ECJ deviates from the opinion of the AG, it is highly unlikely that the ECJ would rule that the GROG falls under the derogation in Article 5(1) of the Directive (since all three prongs would have to be satisfied). In fact, I already predicted this outcome in TBH/RDC 2018/7.

However, “hope” can still be found in Article 4(1) of the Directive. Possibly, the ECJ could tolerate that in a GROG part of the workforce can be dismissed when the debtor can prove that the only alternative to the GROG was the liquidation of the company. In that case, it is often a trade-off between saving part of the workforce (via a GROG) or dismissing all the employees (via a liquidation). One could argue that in such a case, the undertaking had already decided that absent a transfer of the undertaking dismissals had to take place – since the liquidation and the associated dismissal of all employees was the only alternative. Such dismissals are not caused solely by ‘the transfer’ but by financial and economic difficulties (e.g. market changes). Indeed, often the transferee has to close down part of a company because it is not performing, meaning that the business does not need people with a certain specialist skill, and therefore makes those employees redundant. By concluding otherwise, the ECJ could potentially also hamper other European insolvency regulations (such as the English TUPE or Article 613a(4) of the German BGB).

In the case at hand, NV Echo tried to reorganise using a collective agreement but failed to do so. The only alternatives were a liquidation proceeding (making all employees redundant) and a GROG (saving two-thirds of the employees). Being able to dismiss certain employees to save two-thirds of them would be socially and economically desirable. In that context, it is noteworthy that even the Belgian trade unions, whose duty is to protect their members, always considered the GROG to be a liquidation proceeding for the purpose of Article 5 of the Directive, thus falling under the categorical derogation.

It goes without saying that the answer to this preliminary question will have significant implications for the Belgian (and European) insolvency landscape. If the ECJ rules that the GROG does not fall under any of the derogations in Articles 4(1) or 5(1) of the Directive, the GROG will be moribund. The Belgian insolvency landscape would be left with only two (instead of three) effective judicial reorganisation proceedings. After the recent withdrawal of the legislative proposal concerning pre-packs in Belgium (and other European countries such as the Netherlands) due to the ruling of the ECJ in Smallsteps, this would be a serious blow for the Belgian (and European) insolvency legislator(s). The spree killer is expected to strike later this year.


Frederik De Leo

Author: Frederik De Leo

Lawyer (NautaDutilh), Visiting professor (UHasselt, University of Leuven)

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