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08 February 2019
One of the options under Belgian law for a company in financial difficulty is to receive protection from its creditors and proceed to a partial sale of its assets as a going concern, all with a view to continuing the distressed activities (for further details please see "Reorganisation proceedings: access and possibilities").
Although changes were made to the Belgian insolvency framework in 2017 (for further details please see "Changes to insolvency regime proposed"), the articles that govern the transfer of assets and activities were not materially altered.
When negotiating an agreement to transfer part of a distressed company's assets and activities, the company's personnel are an important factor.
To facilitate this process, the Belgian legislature introduced provisions making it possible to take over only a portion of the personnel and/or to negotiate new labour conditions. This deal can be authorised later by the labour courts.
In 2012 the concrete factory Echo applied for protection from its creditors. As it was impossible to have a reorganisation plan accepted by the majority of its creditors, the company moved to a (court-supervised) transfer of its assets and part of its personnel.
A deal in that regard was confirmed by the court in April 2013 and two-thirds of the company's staff were transferred.
Some of the staff members who were not transferred launched legal proceedings claiming, among other things, that the Belgian legal framework regarding reorganisation proceedings violated the EU Transfer of Undertakings Directive (2001/23/EC).
As a result, the former employees claimed that they had been automatically transferred to the new entity, together with the assets and activities.
At first instance, the court did not accept their claim. As a result, some former employees appealed this judgment.
In the appeal proceedings, the Antwerp Court of Appeal made a preliminary ruling request to the European Court of Justice (ECJ).
The ECJ advocate general published his opinion on 23 January 2019.
In summary, the advocate general found that the Belgian legal framework infringes the EU Transfer of Undertakings Directive. In his view, Belgian reorganisation proceedings cannot be seen as liquidation proceedings and therefore do not fall within the scope of the directive's exceptions.
This opinion does not come as a surprise. In a similar Dutch case (Estro/Smallsteps), the ECJ also found that the Dutch pre-pack provisions infringed EU law.
If the ECJ follows the advocate general's opinion, this ruling will be a major blow to the Belgian legal insolvency landscape.
The ECJ is likely to rule that the Belgian reorganisation framework infringes the EU Transfer of Undertakings Directive with regard to the transfer of personnel.
If the option to transfer only a portion of staff is no longer available in Belgian reorganisation proceedings, companies will have no choice but to formally file for bankruptcy.
After bankruptcy proceedings have been opened, the distressed company's assets and part of its staff can be transferred to an interested buyer.
Arguably, a negative ECJ judgment could result in more bankruptcies and fewer saved labour contracts. When introducing this mechanism into Belgian law, this was exactly the issue that the legislature and labour unions had hoped to avoid.
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