10.7 Participation rights

Seen from the perspective of participation rights, ideally the works council should always be able to perform its task fully, including all related rights and obligations, in the event of (imminent) insolvency. However, this is not a realistic wish, especially not after the company’s bankruptcy. As a result, the rules of the game change, partly because the role of the trustee in bankruptcy, unlike the role of the entrepreneur outside of bankruptcy, primarily evolves around the interests of the joint creditors and maximising the proceeds. However, a distinction can be made between the situation in which the trustee in bankruptcy immediately ceases the activities and proceeds to liquidating the assets (in that case there is no or hardly any role for the works council) and the situation in which the trustee in bankruptcy continues the business, whether or not for a longer period of time and/or works on the continuation of the activities of the bankrupt company through a restart (in which case there would be a more prominent role for the works council). Sometimes it is however hard to draw a line, which is why it calls for a more flexible participation right with an equally more flexible objective of the works council. The aim is that, as far as possible, the works council is involved in the decision-making process, which also connects to the obligations arising from European regulations.

The main objection against the full maintenance of all participation rights in the event of insolvency, as can be concluded from this research (chapter 8), is the time that it takes to completely comply with all obligations, including its time limits. Often time is lacking when a company is on the verge of collapsing or when an administrator or trustee in bankruptcy has to act at lightning speed with a view to, for example, a possible restart. In those cases it will not always be possible to arrange a consultation meeting with the entire works council right away (article 25 paragraph 4 Works Councils Act). Sometimes it can also not be acceptable to award reasonable time to obtain advice, including for example the appointment of an expert. Often the suspension period of article 25 paragraph 6 of the Works Councils Act will not be awaited, let alone the outcome of the appeal proceedings at the Enterprise Court.

Thus, this is where interests clash: the interest of complying with employee participation rights versus the interests of those involved in a rapid restructuring or rescue operation. How can this be solved? First of all, in my opinion, the interest of the joint creditors in rapid action can’t be conclusive too quickly in weighing the conflicting interests. Some flexibility from the person in charge of their interest, the trustee in bankruptcy, is required and practicable. This does not have to be at the expense of due care, which in no way withholds the parties involved from being able to act expeditiously. My proposal is therefore to implement the following changes in the Works Councils Act.

In article 25 paragraph 1 the following text could be implemented (for the sake of convenience, it is assumed that the legislative proposal on the Business Continuity Act I (in Dutch: ‘wetsvoorstel Wet Continuïteit Ondernemingen I’) will be accepted by the Senate without being altered):

A seventh paragraph should also be added to article 25:

These changes provide for a reduced waiting time, while it is also established that a shortened advisory process can be followed in requesting to appoint the envisaged trustee in bankruptcy and for filing its own bankruptcy. Moreover, this proposal stimulates the entrepreneur to continue to involve the works council in the course of events in the silent preparation phase by setting up a consultation meeting, because this will result in further shortening of the set period (from one week to two days). I am not in favour of the abolition of the right of appeal, because the obligation to ask for advice may then turn into a paper tiger too quickly. I do expect reasonableness and fairness will have a strong influence on the attitude of the works council. Furthermore, this proposal removes any uncertainty after the so called DA-decision of the Supreme Court: the works council must also be consulted in case of bankruptcy of the employer. I consider the objection to consultation of the works council because of the confidentiality of the subject matter, to be already sufficiently covered by the existing rules.

An alternative approach, which does not require a legislative amendment, is the following, which also fits in with the DA-decision of the Supreme Court. I have found that, in my view, the Works Councils Act does provide the right to be consulted to the works council, both during insolvency, as in the period prior to that, including filing for suspension of payment or a bankruptcy order. This can remain the starting point. The requirements of reasonableness and fairness (as referred to in article 2:8 and 6:2 of the Civil Code) then determine in each separate case to what extent the entrepreneur can reasonably be expected to respect all employee participation rights. Factors that play a role in that were identified in chapter 8. With the starting point that employee participation rights, albeit mitigated, remain applicable to insolvency-related situations, legal exceptions aside, the test of reasonableness and fairness can reduce these rights in content and scope to acceptable proportions, depending on the circumstance of the case.