Private: The pre-pack: innovating for good reason

In the world of corporate restructuring, an innovative tool has been available to us for several years: the pre-pack. In the Anglo-Saxon world, the pre-pack has been used for years. A number of courts in the Netherlands have embraced the pre-pack, despite the lack of a legal basis. After all, innovation means thinking outside the box, and the law is already no different.

There are undeniable advantages to applying the pre-pack. In short, the pre-pack means that the business owner who fears that the company will go bankrupt in the (short) term can try to quietly prepare a restart. The noise of bankruptcy almost always entails a great loss of value. The pre-pack can prevent this. At the request of the business owner , the intended bankruptcy judge appoints an intended trustee who prepares the restart with the business owner . Immediately after the bankruptcy is declared, the asset deal (relaunch) is concluded.

On June 21, 2016, the codification of the Dutch pre-pack practice (Continuity of Enterprises Act I) was passed by the House of Representatives. But one year and one day later, the bill could be binned. What happened? The European Court of Justice had to rule on employee protection in the Estro bankruptcy. Estro operated a large number of childcare locations and was acquired by Smallsteps in 2014 through a pre-pack. As so often, there was no place for some of the former employees in the new constellation. Some of those employees and the FNV countered, arguing that this was a regular transfer of undertaking and that they also deserved protection in that context. The Court held that the pre-pack is not a procedure for the purpose of liquidation. Nor is the pre-pack regulated by law. The consequence in the Estro case was that the former employees of Estro entered the employment of Smallsteps by operation of law.

This is the death sentence for the short life the pre-pack had in the Netherlands. One wonders in all seriousness whether employees of a company in difficulty that is viable after restructuring will benefit from this ruling. After all, in many cases a "regular" bankruptcy entails a much greater loss of value - and thus job losses. So, for now, this innovation does not appear to be a success, but, as the Romans said, alea iacta est!