Bankruptcy, re-starts & pre-packs what is the problem?

Recently trade unions in the Netherlands complained about the rights of elder employees when a company restarts after failure (bankruptcy). They even went to court in a attempt to persuade the judge to force the administrator (curator) to make sure, when offering the failed company for a restart, that the elder employees are part of the deal for the potential buyer.
They, the unions, even state that is is better arranged in other countries. Of course, with better, they mean better for their members; not better for the buyer, the creditors of the failed company or anybody involved.

But is it?

In France, since 2015, there is a new law in which companies don't really fail but are supposed to accept an administrator, somewhere in the middle of the  American Chapter 11 and the Dutch Surseance.
This French administrator will try to continue the companies operations as long as cash is available and start a selling process of the company.
Everybody who is credible can make an offer on all assets of the company.
But, unlike in other countries, the French turned this into a  job-saver. The winner of the bidding, in practice, is the company guaranteeing as much jobs saved as possible. The bidder can't choose the employees by name; this is arranged by the administrator following the strict laws on laying off people and their rules; in France this would be that employees with the longest history at the company have most rights. Its much more complicated than this by the way... 
The highest bidder, knowing this, will not offer a lot of cash and with this not benefitting of the failed companys' creditors. 

In the Netherlands the Wwz law (2015) protects elder employees and gives them rights that make them more expensive. With this unions forced left-wing law they now  shoot themselves in the foot...
When a company re-starts, meaning sold by the administrator to the highest offering bidder, price will come down when the re-start costs are higher. Meaning, being forced to hire the most expensive employees the administrator will have lower bids. And less money to pay to the failed company's creditors.

In pre-packs, the world is turned the other way around. The bankruptcy procedure is used the re-start. The bankruptcy is pre-cooked; everything, financials, business plan is prepared. A deal is made with the administrator and the company looks to have a slimmed down re-start and doesn't even stop doing business.

But what are the basics??

Company law is in almost every country in the world based on the sole fact that a limited company is a legal person in itself. It makes agreements with other (legal) persons. In the descriptions above the problem is that the company can't no longer meet his part of the deal in these agreement; to pay for the products delivered and services rendered. In Anglo-Saxion law you would have stop this company yourself if the company would be technical bankrupt; when the assets balance is lower than the  liabilities (and equity) side of the balance sheet; in the Netherlands eg. this is the case when can be proven that a company can't pay their bills anymore. (simplified for the matter of this).

A bankruptcy in those cases would be that an administrator (curator) is appointed to liquidate all assets and pay the creditors with all money left.
Of course there are rules; but the basic are that the creditors must be the ones to benefit of the bankruptcy proceedings.
However some are protected. Think the tax office, banks in most cases and employees for not paid salaries.

But all rights come from the agreements made. When a bank has more rights in a bankruptcy case it is because it leant money with a collateral right.  For this reason basically... and so on.
So; the bankruptcy deals only with all players and creditors of the company till the day in failed.
It doesn't dictate the buyer of (mostly only) assets from the administrator what to buy and what to do with the assets.
The administrator (curator) , by law, has only 1 task, to maximize the proceedings on behalf of the creditors.
It is all about money and the balance sheet.

SO!
Never ever have an administrator (curator) run the failed business or decide on the social part- or the chances of a restart. Except it not being his job, after all that is no merely than maximizing the proceedings, most have no knowledge whatsoever of doing this.

Never ever do anything that would bring the proceedings down at the cost of the creditors of the failed company. This will make any entrepreneur more anxious not to deal with another company, shorten trade credit lines and will have failed companies live longer. This extra dimension in business is most certainly not wished...as it doesn't do right to the basics of the original agreement of the creditor of the failed company.

What about the employees rights
The employee rights are the rights discussed in their employment agreement, backed in most countries of employment laws in place.
But they shouldn't interfere with the basics as described above. They are no more than a creditor with special rights and should not have no special rights in a re-start.

Also, if you are the buyer of the assets, you want the re-start to be a potential succes. And the better the start, the better the chances!

Concluding
When in a bankruptcy case is decided to accept less money for the creditors in return of more former employees keeping their jobs (= legally getting a new job) is, except in the France pre-pack situation,  unlawful and could be for creditors a reason to go to court.
Also forcing employment laws to stretch over a bankruptcy and become the inheritance of the re-starter is unlawful .

Rechtsraad has experience in insolvency laws in several countries. We also know (and have won a bid for a client) in the new French insolvency laws as described above. We are not curators (administrators') best friends...more on this in future blogs.