Works Council must be consulted when restarting a bankrupt enterprise

In May 2016 the Enterprise Chamber (special division of the Amsterdam Court of Appeal) had surprisingly found that the right of the Works Council to be consulted is in principle incompatible with the role of the bankruptcy trustee in the liquidation of the bankrupt’s estate. This decision was surprising, because earlier the Committee for Promoting Employee Participation of the Social and Economic Council of the Netherlands (SER) considered that the rights included in the Works Councils Act - such as the right to advice, consent, consultation and information - apply both before and after the bankruptcy of the entrepreneur and that a trustee is also held to comply with the Works Councils Act.

The Works Council of the bankrupt drugstore DA could not agree with the decision of the Enterprise Chamber and lodged an appeal with the Dutch Supreme Court. The Dutch Supreme Court has annulled the decision of the Enterprise Chamber (ECLI: NL: HR: 2017: 982). The Supreme Court is of the opinion that a bankruptcy does not in itself cause the enterprise to cease to exist or to cease to carry on an enterprise. Furthermore the Supreme Court held that the Works Councils Act is not in principle incompatible with the purpose and consequences of a bankruptcy.

The Supreme Court considers that a trustee as (representative of the) entrepreneur in principle must comply the Works Councils Act during a bankruptcy. Acts of the trustee aimed at liquidation of assets (sale of assets, dismissal of employees) are excluded from this obligation. However, if the sale of assets takes place in the context of a continuation or a restart of (parts of) the enterprise by the same or another entity, with the prospect of maintaining jobs, the bankruptcy trustee must seek advice from the Works Council.

This gives rise to the question whether the Works Council actually benefits with this – at first sight - employee-friendly decision. According to this decision, the bankruptcy trustee is allowed to deviate from the "formal requirements" of paragraphs 2 to 6 of Section 25 of the Works Councils Act, if the circumstances of the vase require this. The reasonableness and fairness must then pave the way, according to the Supreme Court. However, paragraph 2 of Section 25 of the Dutch Works Councils Act requires such a timely request for advice that this advice of the Works Council may still "significantly affect the decision to be taken." This is not just a formal requirement. When the bankruptcy trustee is allowed to deviate from this, it is likely that this will threaten the essence of the entire consultation process.