Tax & Legal 10 June, 2024

Impending Dutch law on transfer of business in bankruptcy

Wet overgang van onderneming in faillissement (Wovof)
Crowe Peak/ Knowledge Hub/ Tax & Legal/

Impending Dutch law on transfer of business in bankruptcy

New law improves employee position during bankruptcy even more  

On May 27, 2024, the Law on Transfer of Business in Bankruptcy (“Wovof”) was submitted for consultation in the Netherlands. This means that the proposed law is open for feedback from stakeholders, including businesses, legal experts, and the public, until July 22, 2024. This consultation period allows for the collection of input and suggestions to refine the law before it is potentially enacted. This proposed law aims to address the challenges faced by employees and businesses during the transfer of ownership in bankruptcy situations. If approved, Wovof will significantly impact companies seeking to acquire bankrupt businesses in the Dutch market. The proposal mandates that buyers of bankrupt entities must take on all employees unless economic circumstances prevent this. This measure is intended to enhance employee protection, ensuring that workers retain their jobs even if their employer goes bankrupt and the business is sold. However, this also introduces more complexity, time pressure, and costs in business restarts, potentially reducing the number of successful restarts. In the article below, we further explain the implications of Wovof for the Dutch business landscape. Want to know more about our services in bankruptcy situations? Contact us directly.   

Law on transfer of business in bankruptcy (Wovof) 

The EU Court of Justice and the Dutch Supreme Court have previously ruled that employees do not have to lose their jobs if a company goes bankrupt and a new owner takes over. However, this ruling lacked the clarity often needed in practical bankruptcy situations in the Netherlands. The proposed Law on Transfer of Business in Bankruptcy (Wovof) aims to provide this necessary clarity. Under Wovof, employees who are employed by the bankrupt employer at the time of bankruptcy are, in principle, to be employed by the party that continues the business. This ensures that the transfer of the business itself is not a reason to terminate employment. The only exception is if jobs are lost due to genuine economic circumstances. In such cases, the selection of which employees are retained, and which are not must be determined objectively and transparently. This approach aligns with Dutch employment law principles that heavily protect workers’ rights and aim to ensure job security even in turbulent economic conditions. The goal is to prevent the misuse of bankruptcy to easily dismiss unwanted employees and to promote fair treatment during business transitions.  

Wovof and Dutch law non-compete clauses 

In the Netherlands, employees who cannot join the buyer during a business restart need to quickly find other employment. However, non-compete clauses in their contracts can hinder this process by preventing them from working for competitors or starting similar businesses. To address this issue, the proposed law limits the effect of non-compete clauses in these situations. This means that employees will have more freedom to seek new employment opportunities without being restricted by agreements made with their former employer. This change aims to facilitate smoother transitions for employees affected by bankruptcy and ensure they can continue their careers without undue legal constraints. 

Implications for business acquisitions in the Netherlands  

The Wovof aims to improve employee protection in the Netherlands. However, there is criticism, particularly regarding the practical implications of this protection. The new regulation may require more thorough research and increased accountability during business acquisitions, leading to higher transaction costs and more preparation time. In Dutch bankruptcy situations, there is often a severe lack of time, as swift action is typically needed to maximize the chances of a successful business restart. 

To address this, the Wovof includes a procedure to quickly determine whether a bankruptcy acquisition is feasible in a specific case. Despite this, it remains to be seen whether the new regulations will raise additional practical questions that need to be resolved by the judiciary. The balance between protecting employees and ensuring efficient business transitions is a central concern in the Dutch legal and business landscape, and how this new law will play out in practice is still uncertain. 

Crowe Peak: Smart decisions. Lasting value 

Stakeholders in the Netherlands have until July 22, 2024, to respond to the current online consultation on the Wovof proposal. The timeline for the implementation of Wovof remains uncertain. The experienced lawyers at Crowe Peak are closely monitoring these developments, as well as other relevant changes in Dutch insolvency and restructuring law, including the latest on the Dutch WHOA (Homologation Private Agreement Act) and the WCO (Continuity of Enterprises Act). These laws are crucial for managing bankruptcies and restructuring in the Netherlands. Want to know more about our services or need immediate advice in a (pre-)bankruptcy situation? Contact us

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