Act Governing Transfer of Undertaking in Bankruptcy to Council of State

The protection of employees in bankruptcy has been a concern in the Netherlands for a long time. The starting point is that a trustee may dismiss employees pursuant to Section 40 of the Bankruptcy Act (Faillissementswet), on a notice period not exceeding six weeks. If the trustee realises a restart, the buyer can in principle choose whether and under what conditions to take employees into service. The legislature considers this undesirable and has been working for years on a draft Act to strengthen the position of employees: the Act Governing Transfer of Undertaking in Bankruptcy (Wovof). On 11 July 2025, the Cabinet approved the submission of the draft Act to the Council of State for advice.

Transfer of undertaking

In employment law, the concept of ‘transfer of undertaking’ applies. In short, this means that when an undertaking is transferred or otherwise passes to another party, the rights and obligations under the employment contracts pass by operation of law to the acquirer. These provisions do not apply if the employer has been declared bankrupt and the undertaking forms part of the estate.

Restart practice

A party purchasing an undertaking out of bankruptcy is not obliged to take all employees into service under the same conditions. Sometimes a bankruptcy and the subsequent restart were meticulously prepared. The District Court would then appoint a silent administrator or silent trustee (also known as a prospective administrator/trustee). As soon as the bankruptcy had been declared, the restart was immediately realised. Employees were dismissed by the trustee pursuant to Section 40 of the Bankruptcy Act and the buyer did not always take all employees into service under the same conditions. This informal procedure is known as the ‘pre-pack’. Trade union FNV initiated proceedings to test whether the bankruptcy exception could be invoked in such cases.

Further background to the pre-pack: Directive 2001/23/EC

The exception to the rules governing transfer of undertaking in bankruptcy is based on Directive 2001/23/EC. Article 5 provides that the rules do not apply where:
a. the transferor is subject to bankruptcy proceedings or analogous proceedings,
b. those proceedings are directed towards the liquidation of the assets of the transferor, and
c. the proceedings are conducted under the supervision of a competent public authority.

A trustee is regarded as such a competent authority. In the pre-pack, the main question was whether conditions b and c were satisfied. In the Smallsteps and Heiploeg judgments, the Supreme Court, after references for a preliminary ruling to the Court of Justice of the EU, held that this was not the case. The pre-pack has no statutory or administrative law basis and the prospective trustee therefore does not qualify as a competent public authority.

Wovof

In a regular, unprepared restart in bankruptcy, the buyer may continue to determine whether and under what conditions to take employees over. However, the legislature considers that employees deserve additional protection in such cases and has drafted the Wovof. On 1 September 2024, the second internet consultation closed; 23 responses from various stakeholder groups were submitted. Both within and outside that consultation, strong criticism was voiced: restarts would become less attractive, potentially leaving employees worse off on balance. The draft Act now lies before the Council of State for advice.