Towards a European pre-pack
In 2022 the European Commission presented a Proposal for the harmonisation of rules on pre-packs.[1] There were two central elements to the Commission’s proposal. First, all Member States should allow for pre-packs also with related parties. Second, existing EU protection of employees in case of pre-packs from the Transfer of Undertakings and Protection of Employees (TUPE) Directive[2] as developed by the CJEU would be abolished. The protection afforded under TUPE, as interpreted and developed by the CJEU, provides that employees transfer where the prepack is not aimed at the liquidation of the enterprise. As a consequence, employees will transfer most notably where a former shareholder or another related party acquires the business out of insolvency. In its unexplained attempts to give pre-packs a maximal boost, the Commission’s Proposal simply provided that all pre-packs would be deemed to be aimed at liquidation, which would mean that employees would never transfer on the basis of European law.
Under the European legislative process, the Commission has the right to initiate a directive, but it is up to the Council and the European Parliament to adopt a directive. The Council’s position has been somewhat unclear. The European Parliament pushed back against the Commission’s proposal for the harmonisation of rules on pre-packs with an amendment aimed at safeguarding employees’ protection. With these different positions, the Pre-pack Proposal entered the Trilogue phase, a process often referred to as the “back room of the back room.”[3] Since the Trilogue is not a transparent procedure, outsiders could not know in which direction the negotiations were heading. Like Schrödinger’s cat, we did not know whether employees’ protection was dead or alive while the Trilogue was ongoing.
The outcome of the Trilogue remains somewhat messy.[4] However, we conclude that, based on the text of the Pre-pack Directive, it is sufficiently clear that employees’ protection under TUPE is still intact and that employees will continue to transfer in the case of related-party pre-packs. The rather aggressive attempt to abolish employee protection in such cases has been unsuccessful.
We first discuss the protection afforded by TUPE and the relevant CJEU case law as it developed up to 2022. We then review the 2022 Pre-pack proposal of the Commission, the 2025 position of the Council, the 2025 amendments by the European Parliament and the outcome of the Trilogue.
European legal framework of TUPE
The TUPE Directive protects employees against dismissal or the deterioration of their employment conditions when a business is transferred. Under article 3 TUPE Directive, employees automatically transfer to the acquirer by reason of this transfer. However, article 5 TUPE Directive allows Member States to derogate from this rule in case of formal insolvency proceedings, which is also referred to as ‘the insolvency law exception’. If this exception applies, it means that, notwithstanding the transfer of an operating business, the employees do not transfer along with it. For the insolvency law exception to apply, the relevant insolvency proceedings must meet three cumulative requirements: (i) it must be a statutory insolvency proceeding, (ii) it must be initiated with a view to liquidation, and (iii) it must be subject to the control of a competent public authority.
Case law from the CJEU has provided further guidance on the scope of article 5 TUPE Directive and on when a pre-pack is genuinely aimed at liquidation. In the Smallsteps judgment (CJEU, 2017),[5] the childcare chain Estro was sold through a pre-pack to a buyer linked to the same shareholder.[6] The CJEU held that this specific pre-pack did not qualify for the insolvency exception under the TUPE Directive, as it was not genuinely aimed at liquidation.[7] In the Heiploeg judgment (CJEU,2022),[8] the pre-pack concerned a sale to an external buyer.[9] Here the CJEU took a more accommodating approach, ruling that preparatory steps alone do not disqualify a pre-pack from being regarded as aimed at liquidation.
Much debate has followed on the correct interpretation of these two cases, but the distinction lies in the facts. In Smallsteps, the pre-pack was conducted indirectly with the former shareholder, whereas in Heiploeg the pre-pack was conducted with an external (non-related) party. If a pre-pack is conducted with the former shareholder, it is not genuinely aimed at the liquidation of the enterprise,[10] and therefore employees should transfer along with the business.
An enterprise should be understood as a combination of capital and labour.[11] Applied to pre-packs, this means that if the enterprise is genuinely broken up, so that the former shareholder as capital provider is no longer involved, there is no need for labour law protections to remain in place. A consistent application of this principle would imply that when, after a pre-pack, the original capital provider remains in place, then so should the employees. Conversely, if the original capital provider does not remain in place, there are no compelling reasons to protect the employees.
This distinction between pre-packs involving related parties and those that do not, fits well with the way the CJEU interpreted the TUPE Directive in its Abels-Judgment and subsequent cases.[12] According to the CJEU in its Abels-Judgement, there are strong grounds to question whether it is ultimately in the employees’ interest to force their transfer along with the business. An interested party may be willing to buy the company out of insolvency from the trustee in bankruptcy, but may decline to do so if the acquirer is required to take on all employees. Therefore, one could reason that the interests of all workers are better protected, if there is no rule providing for a mandatory transfer in case of going concern sales out of insolvency proceedings. This reasoning by the CJEU, however, only applies in case of external acquirers. If existing shareholders were allowed to acquire the enterprise through a pre-pack without any obligations towards employees, this would severely undermine the protection that the TUPE Directive affords to employees. In the case of a pre-pack involving a related party, the substantive owner or operator of the enterprise remains indirectly the same because the continuity of the enterprise with the former shareholder as the original capital provider has not actually been broken. This may involve a poorly performing enterprise, but it does not constitute bankruptcy for which the insolvency exception was designed. Since the actual head[13] of the enterprise remains solvent and the business is merely continued in a streamlined form within a new legal entity via a pre-pack, the situation is much more comparable to a transfer of an undertaking from one group company to another within the same group. In such cases, the TUPE Directive fully applies.[14] An example where the CJEU has looked through legal personality within a group in light of the purpose of the TUPE Directive is when employees have contracts of employment with one group company but are permanently employed in a business operated by another group company. Their employment contracts with the other legal entity automatically transfer when that enterprise is transferred.[15]
The legislative process of the Pre-pack proposal
The 2022 Pre-pack proposal of the Commission tried to eliminate the protection granted to employees under the TUPE Directive in cases of pre-packs, including pre-packs with related parties. The actual exclusion of employees’ protection was set out in Article 20(2) of the draft Pre-pack Directive as proposed by the Commission, which provided the following:
‘For the purposes of Article 5(1) of Council Directive 2001/23/EC16, when it takes place in proceedings which can end in the liquidation of the debtor, the liquidation phase shall be considered to be bankruptcy proceedings or any analogous insolvency proceedings instituted with a view to the liquidation of the assets of the transferor under the supervision of a competent public authority.’
The Commission’s proposal has been somewhat disingenuous from the outset. In the Preamble to the Commission’s proposal, the following was stated in recital 22a:
‘The pre-pack mechanism should be without prejudice to employees’ rights under Union and national law, including the involvement of employees’ representatives. Specifically, it should be governed by statutory or regulatory provisions and should be construed in a way where the transfer of all or part of an undertaking is prepared with the assistance of a monitor under the supervision of the court or competent authority, prior to the institution of formal insolvency proceedings that are instituted with a view to the liquidation of the assets of the debtor. While the primary aim of the pre-pack mechanism is to enable, in the interests of creditors, in the insolvency proceedings, a liquidation of the debtor’s assets by the transfer of all or part of the undertaking as a going concern which satisfies to the greatest extent possible the claims of all the creditors, it can also serve employment preservation. Consequently, when it takes place in proceedings which could end in the liquidation of the debtor, the liquidation phase of the pre-pack mechanism in this Directive is an eligible procedure for the purposes of article 5(1) of Council Directive 2001/23/EC.‘
Where the Preamble offered comforting language that nothing would change for employees, it seemed to end with an attempt to abolish protection of employees. It does so, however, not in clear language by providing for example that employees do not transfer with the business and that their contract can be terminated. It rather does so in highly technical language by saying that ‘the procedure is aimed at liquidation’. Not only will 99% of the employees in Europe not understand this secret message. The attempt by the Commission has also remained unnoticed by most labour lawyers in Europe. This can partly be explained by the fact that there is no direct amendment of the TUPE Directive itself, but rather a very large restriction of the working of the TUPE Directive introduced through insolvency legislation. And it does so while being embedded in a broader piece of legislation that also addresses transaction avoidance, directors’ duties to file and creditor committees. Possibly, the Commission sought to force upon employees and labour lawyers the bankers’ insolvency rule: ‘You snooze, you lose’. But then, it does all this, after the comforting sentence that ‘the pre-pack mechanism should be without prejudice to employees’ rights under Union and national law, including the involvement of employees’ representatives.’ It seems that the European Commission actually wanted employees and labour lawyers to snooze on this provision.
This Commission proposal was then sent to the Council and the European Parliament. The position of the Council has been unclear. The Council’s position was that the reassuring language from the Commission should not only be part of the Preamble, but should be part of article 20/2 and took as its position the following (addition by Council in bold):
‘This Directive is without prejudice Council Directive 2001/23/EC15 (TUPE, added) and national rules implementing it. For the purposes of Article 5(1) of Council Directive 2001/23/EC16, when it takes place in proceedings which can end in the liquidation of the debtor, the liquidation phase shall be considered to be bankruptcy proceedings or any analogous insolvency proceedings instituted with a view to the liquidation of the assets of the transferor under the supervision of a competent public authority.’
The European Parliament pushed back against the Commission’s proposal and proposed an amendment. The European Parliament suggested the following text for article 20/2 Pre-pack Directive.
‘For the purposes of Article 5(1) of [TUPE], the liquidation phase shall be considered to be bankruptcy (..) proceedings instituted with a view to the liquidation of the assets of the transferor under the supervision of a competent public authority, provided that the liquidation of the debtor’s business as a going concern satisfies to the greatest extent possible the claims of the creditors.’
The additional wording proposed by the European Parliament is derived from the CJEU’s case law in Heiploeg. The amendment clearly seeks to uphold employee protection while at the same time allowing employees not to transfer, provided that certain conditions are met. Although the amendment proposed by the European Parliament introduces additional conditions that must be satisfied in order for employees not to transfer, the amendment is not entirely clear. Notably, the amendment does not simply copy the CJEU’s reasoning in Heiploeg in full, but omits the part in which the CJEU also held that, for a pre-pack to be truly aimed at liquidation, it must involve the liquidation of the undertaking as a going concern which satisfies to the greatest extent possible the claims of all the creditors and preserves employment as far as possible. [16] Thus, while the bolded part formed part of the amendment, the underlined part did not.
The three different readings of this crucial passage can be contrasted as follows:
| Commission Proposal 2022 | Council 2025 | European Parliament 2025 |
| For the purposes of Article 5(1) of [TUPE], the liquidation phase shall be considered to be bankruptcy (..) proceedings instituted with a view to the liquidation of the assets of the transferor under the supervision of a competent public authority. | This Directive is without prejudice to Directive 2001/23/EC [TUPE] and national rules implementing it. For the purposes of Article 5(1) of [TUPE], when it takes place in proceedings which can end in the liquidation of the debtor, the liquidation phase shall be considered to be bankruptcy proceedings (..) with a view to the liquidation of the assets of the transferor under the supervision of a competent public authority. | For the purposes of Article 5(1) of [TUPE], the liquidation phase shall be considered to be bankruptcy (..) proceedings instituted with a view to the liquidation of the assets of the transferor under the supervision of a competent public authority, provided that the liquidation of the debtor’s business as a going concern satisfies to the greatest extent possible the claims of the creditors. |
So then the Pre-pack Proposal went into Trilogue phase. A text has been agreed upon in principle, but the final adoption may take a few more months.
The outcome, as said, is a bit messy. The text of article 20 itself as to the relation between the Pre-Pack Directive and TUPE matches the text from the European Council and in addition thereto, an extended version of the amendment by the European Parliament found its way to the Preamble. The text of the article and the text of the Preamble after the Trilogue, are as follows.
Article 20/2 of the Pre-pack Directive provides the following:
‘This Directive is without prejudice to Directive 2001/23/EC [TUPE] and national rules implementing it. For the purposes of Article 5(1) of Council Directive 2001/23/EC21, when it takes place in proceedings which can end in the liquidation of the debtor, the liquidation phase shall be considered to be bankruptcy proceedings or any analogous insolvency proceedings instituted with a view to the liquidation of the assets of the transferor under the supervision of a competent public authority.‘
This in itself would result in unclear legislation, as the article begins with the notion that there is no prejudice to the TUPE Directive, but ends with a kind of attempt to exempt its most important application. However, the more elaborate Preamble provides additional context. The Preamble now states the following:
‘(22a) The pre-pack proceedings should be without prejudice to employees’ rights under Union and national law, including the involvement of employees’ representatives. Specifically, it should be governed by statutory or regulatory provisions and should be construed in a way where the transfer of all or part of an undertaking is prepared with the assistance of a monitor under the supervision of the court or competent authority, prior to the institution of formal insolvency proceedings that are instituted with a view to the liquidation of the assets of the debtor. While the primary aim of the pre-pack proceedings is to enable, in the interests of creditors, in the insolvency proceedings, a liquidation of the debtor’s assets by the transfer of all or part of the undertaking as a going concern which satisfies to the greatest extent possible the claims of all the creditors, it can also serve employment preservation.
(22b) This Directive should be without prejudice to Directive 2001/23. In view of the case law of the CJEU (Heiploeg), the liquidation phase of the pre-pack proceedings in this Directive is covered by the exception provided for in Article 5(1) of Council Directive 2001/23/EC where the pre-pack proceedings have the primary objective to satisfy the claims of creditors to the greatest extent possible whilst preserving employment as much as possible.‘[17] (Bold added by authors)
It is clear that the Preamble incorporates the case law of the CJEU into the Pre-pack Directive. This means that not all pre-packs are aimed at liquidation, but only those that ‘have the primary objective to satisfy the claims of creditors to the greatest extent possible whilst preserving employment as much as possible.’ The most important conclusion to be drawn from the text after the Trilogue is that not all pre-packs are aimed at liquidation, but only those that meet the criteria as developed by the CJEU.
As said, we understand the case law of the CJEU to mean that a pre-pack is not aimed at liquidation if the procedure is conducted with former shareholders or other related parties. In such related-party pre-packs, the pre-pack is not aimed at the liquidation of the enterprise.
Additionally, it is specified under recital 4a of the Preamble, and in articles 3b and 20(2) of the Pre-pack Directive itself, that the Harmonisation Directive does not prejudice employees’ rights under the TUPE Directive (2001/23/EC). This would also apply to employees’ rights in the context of related-party pre-packs under the CJEU’s case law, which, after all, constitutes an interpretation of the application of the TUPE Directive.[18]
While the European Commission may have attempted to reverse the CJEU’s case law, the final version of the Pre-pack Directive preserves the CJEU’s key reasoning in full. In our view, the only reasonable interpretation of the outcome of the Trilogue is that the Pre-pack Directive does not seek to reverse or undermine the case law as developed by the CJEU.
Although the Pre-pack Directive continues to send mixed signals regarding the relationship between the European pre-pack and the TUPE Directive, and the status of employees’ protection remained unclear during the trilogue, it will ultimately be the CJEU that interprets the wording of the Pre-pack Directive and determines whether the Commission has been successful in rolling back the CJEU’s case law or whether the European Parliament has succeeded in preserving it.
We conclude that employees’ protection in the case of related-party pre-packs remains intact!
Rolef de Weijs, Luca Ratti and Johan Zwemmer
Rolef de Weijs is a professor of National and International Insolvency Law at the University of Amsterdam. He also practices as an attorney at Houthoff, Amsterdam.
Luca Ratti is an Associate Professor of European and Comparative Labour Law and Director of the Master in European Law at the University of Luxembourg.
Johan Zwemmer is a lecturer and researcher at the University of Amsterdam and also practices as an attorney at DLA Piper in Amsterdam.
[1] See Proposal for a Directive Harmonising certain aspects of insolvency law, 23 May 2025, 2022/0408 (COD), (https://data.consilium.europa.eu/doc/document/ST-9257-2025-INIT/en/pdf). The proposal for a European pre-pack is part of a broader initiative to harmonise European insolvency law, which also includes proposed harmonisation of rules on directors’ liability and the duty to file, rules on avoidance of transactions, and rules on creditor committees. The authors previously expressed critical views on the European pre-pack proposal on 2 September 2025, on Corporate Finance Lab: ‘European harmonisation of Pre-packs: Initiating a European race to the bottom at the expense of employees’ see https://corporatefinancelab.org/2025/09/02/european-harmonisation-of-pre-packs-initiating-a-european-race-to-the-bottom-at-the-expense-of-employees/ and Rolef de Weijs and Flip Schreurs on 30 October 2025 in ‘The EU Proposal for Pre-packs with Related Parties – some critical notes and essential amendments’, see https://corporatefinancelab.org/2025/10/30/the-eu-proposal-for-pre-packs-with-related-parties-some-critical-notes-and-essential-amendments/ and Rolef de Weijs, Luca Ratti and Johan Zwemmer on 8 December 2025 in ‘Insolvency Doctor Knock: not Prozac but Related Party Pre-Packs (RPPP’s)’, see https://corporatefinancelab.org/2025/12/08/insolvency-doctor-knock-not-prozac-but-related-party-pre-packs-rppps/.
[2] Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses (‘TUPE Directive’).
[3] See ‘De triloog: de achter-achterkamer van de EU-wetgeving’ – Montesquieu Institute.
[4] See for text after Trilogue, Letter sent to the European Parliament by General Secretariat of the Council, December 5, 2025, Proposal for a Directive of the European Parliament and of the Council harmonising certain aspects of insolvency law.
[5] Judgment of the Court (Third Chamber) of 22 June 2017, Case C-126/16 (Federatie Nederlandse Vakvereniging and Others v Smallsteps BV).
[6] The CJEU describes the underlying facts as follows under paragraph 20 of the Smallsteps-judgment: ‘During the implementation of Project Butterfly, Estro Groep contacted only H. I. G. Capital — a sister company of its principal shareholder, Bayside Capital — as a potential buyer. No other potential option was explored.’
[7] The CJEU observes in paragraphs 49 and 50 of its Smallsteps-judgment as follows:
’49 In the present case, it is apparent from the order for reference that a ‘pre-pack’ procedure, such as that at issue in the main proceedings, is aimed at preparing the transfer of the undertaking down to its every last detail in order to enable a swift relaunch of the undertaking’s viable units once the insolvency has been declared and in order to avoid the disruption that would result from an abrupt cessation of the undertaking’s activities on the day of the declaration of insolvency, so as to safeguard the value of the undertaking and the employment posts.
50 In those circumstances, and subject to determination by the referring court, 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’
[8] Judgment of the Court (Third Chamber) of 28 April 2022, Case C-237/20 (Federatie Nederlandse Vakbeweging v Heiploeg Seafood International BV and Heitrans International BV).
[9] For Heiploeg see CJEU, 28 April 2022, Case C-237/20 (Heiploeg) the CJEU describes the underlying facts as follows under paragraph 26 of the judgment: ‘In view of the serious financial difficulties faced by Heiploeg-former, no bank agreed to finance the payment of that fine. Thus, as soon as the fine was imposed, the possibility of using a pre-pack was examined. To that end, several independent companies in relation to the Heiploeg group were invited to submit an offer for the assets of Heiploeg-former.‘
[10] The CJEU uses different formulations when referring to the requirement that the proceedings must have been aimed at liquidation. The English-language version of the Directive itself refers to proceedings ‘instituted with a view to the liquidation of the assets of the transferor’. The CJEU, however, employs different wording in its English-language judgements. In Smallsteps, the CJEU refers solely to the ‘liquidation of the assets of the transferor’. Judgment of the Court (Third Chamber) of 22 June 2017, Case C-126/16 (Federatie Nederlandse Vakvereniging and Others v Smallsteps BV). In Heiploeg, the CJEU alternates between describing the liquidation requirement as ‘a liquidation of the assets’ and, on several occasions, as a ‘liquidation of the undertaking’. See CJEU Heiploeg, nr. 53, where the courts reasons: “It is necessary in that respect to verify, in each situation, whether the pre-pack procedure and the insolvency proceedings at issue were carried out with a view to the liquidation of the undertaking as a result of the established insolvency of the transferor and not with a view to the mere reorganisation of that undertaking.” And again in a similar way in nr. 53 and 67. In the original Dutch version of the case, the following terms are used: ‘liquidatie van het vermogen van de vervreemder’, which translates as ‘liquidation of the patrimony of the transferor’ and, three times, ‘liquidatie van de onderneming’, which translates as ‘liquidation of the enterprise’. See CJEU Heiploeg, nr. 53, where the courts reasons in full (in Dutch): “In dit verband dient in elke afzonderlijke situatie te worden nagegaan of de betrokken pre-packprocedure en faillissementsprocedure gericht zijn op de liquidatie van de onderneming nadat is vast komen te staan dat de vervreemder insolvent is, en niet enkel op een reorganisatie van die onderneming.” And again in a similar way in nr 53 and 67.
[11] This is a common way of conceptualising what an enterprise is and is also reflected in Dutch Tax law. More specifically, for Dutch Corporate Income Tax purposes, it is required that there is an enterprise, which entails a lasting organisational union of capital and labour. In full: “An enterprise is deemed to exist if 1) through a durable organisation of capital and labour 2) participation occurs in economic transactions 3) with the intention of generating a profit, which profit may also be reasonably expected.” See Amendment of the Dutch Corporate Income Tax Act 1969 and certain other laws in connection with the modernisation of the corporate income tax obligation for public enterprises (Wet modernisering Vpb-plicht overheidsondernemingen). See https://zoek.officielebekendmakingen.nl/kst-34003-3.pdf.
[12] CJEU 7 February 1985, Case C-135/83 (Abels/Bedrijfsvereniging MEI)
[13] In CJEU 25 July 1991, d’Urso and Others, C‑362/89 the CJEU in paragraph 9 refers to the transfer of a business or establishment to another ‘head of the undertaking’.
[14] CJEU 2 December 1999, C-234/98 (Allen e.a./Amalgamated).
[15] CJEU 21 October 2010, C-242/09 (Albron/FNV en Roest).
[16] The entire reasoning of the CJEU is as follows: ‘Article 5(1) of Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses must be interpreted as meaning that the condition which it lays down, according to which Articles 3 and 4 of that directive are not to apply to the transfer of an undertaking where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings ‘instituted with a view to the liquidation of the assets of the transferor’, is satisfied where the transfer of all or part of an undertaking is prepared, prior to the institution of insolvency proceedings with a view to the liquidation of the assets of the transferor and in the course of which that transfer is carried out, in the context of a pre-pack procedure which has as its primary aim to enable, in the insolvency proceedings, a liquidation of the undertaking as a going concern which satisfies to the greatest extent possible the claims of all the creditors and preserves employment as far as possible, provided that that pre-pack procedure is governed by statutory or regulatory provisions.’ (bold added)
[17] See General Secretariat of the Council, letter to European Parliament, 5 December 2025.
[18] See article 3b of the Pre-pack Directive:: ‘This Directive is without prejudice to Union and national law on the rights of workers in relation to the matters governed by this Directive, including the involvement of workers’ representatives and appropriate measures to inform and consult workers’ representatives, in particular: (a) the rights guaranteed by Directives 98/59/EC 14, 2001/23/EC15 and 2008/94/EC16;’ and article 20(2) of the Pre-pack Directive: ‘This Directive is without prejudice to Council Directive 2001/23/EC and national rules implementing it.‘ and in article 4a of the Preamble: ‘This Directive should be without prejudice to individual and collective workers’ rights under Union and national law in the context of insolvency proceedings. In particular, it should be without prejudice to Council Directives 98/59/EC and 2001/23/EC, and Directives 2002/14/EC, 2008/94/EC and 2009/38/EC of the European Parliament and of the Council and national laws transposing those Directives. In particular, the obligations concerning information and consultation of employees and the rights of employees in the event of the transfer of an undertaking under those Directives and national laws transposing them should not be affected, including where those national laws contain rules that are more favourable to workers or their representatives.‘
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