The Judicial Transfer of Activities: Rising from the Ashes?
From 1 September 2023, the Belgian reorganisation procedure by way of a business transfer under judicial authority will be transformed into a liquidation procedure. This re-establishes the transferee’s possibility to choose the employees it takes over together with the business.
Traditionally, the Belgian judicial reorganisation procedure by way of a business transfer under judicial authority (formerly known as the GRP 3/PRJ 3) allowed the interested candidate-buyer to choose the employees it would take over together with the business, provided that this choice was based on technical, economic or organisational reasons (Article XX.86, §3 CEL and CLA no. 1021).
As a burdensome (social) cost structure is often, at least partly, the cause of a debtor's decreasing profitability and financial difficulties, the Belgian legislator considered this choice for the transferee to be crucial for this reorganisation procedure to be effective.
However, in 2019 the CJEU condemned this employee selection possibility in the well-known Plessers’ 2case, ruling that it was contrary to the European TUPE Directive,3 which by default requires all employees linked to the business to be taken over. Only in the framework of bankruptcy or insolvency proceedings with a view to liquidate the assets, is an exception to this employment protection rule permissible.
Although in practice the debtor would effectively be liquidated or declared bankrupt shortly after the transfer of its business, this reorganisation procedure was by law aimed at the “preservation of activities” (old art. XX.84 CEL) and therefore, according to the CJEU, not eligible for the exception under the TUPE Directive.
What’s new?
For this reason, both the objective and the procedure itself was revised by the Belgian Act of 7 June 2023 transposing the EU Directive (2019/1023) to comply with the CJEU’s case law. The transfer under judicial authority has been transformed into a liquidation procedure explicitly aimed at “the efficient liquidation of the legal entity or of the assets of the company” (new art. XX.84 CEL) and a new Article XX.93/1 CEL has been introduced requiring the courts to convene the debtor once the business transfer is court-approved and declare it either bankrupt or in liquidation.
In addition, an express duty has been imposed on the courts to validate the transferee's motivation, potentially resulting in a refusal of the transfer for that reason.
In the case of comparable takeover bids, the bid that retains the most employees will still prevail by law.
Key takeaways:
- Alignment of the business transfer procedure with the TUPE Directive and the CJEU case law;
- Re-establishment of the transferee’s choice of employees, provided that it is based on technical, economic or organisational reasons;
- Increased scrutiny by the courts on the motivation of the choice of employees;
- Priority to maximum employment retention in case of comparable offers.
The importance of this revised procedure cannot be stressed enough as it promotes legal certainty for potentially interested transferee-buyers and facilitates the acquisition of distressed businesses.
How can we help?
In a field that is becoming increasingly complex, our Belgian Restructuring Department can help you navigate these legislative changes. We’re happy to help you in the process of a judicial business transfer.
Do not hesitate to reach out to our team.
1 Collective Labour Agreement no. 102 of October 5, 2011 concerning the preservation of workers' rights in the event of a change of employer due to judicial reorganization by transfer under judicial authority.
2 CJUE 16 May 2019, ‘Plessers’, C-509/17. See also before the CJEU ruling in the Dutch ‘Smallsteps’ case (CJUE, 22 June 2017, ‘Smallsteps’, C-126/16) and later in the Dutch ‘Heiploeg’ case (CJUE, 28 April 2022, ‘Heiploeg’, C-237/20).
3 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.
