61989CC0362_EN
Opinion of the Advocate-General
Opinion of the Advocate-General
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Mr President,
Members of the Court,
1. The Pretore di Milano (hereinafter referred to as "the referring court"), has submitted to the Court two questions relating to the interpretation of Council Directive 77/187/EEC of 14 February 1977 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 businesses (hereinafter referred to as "the directive"). (1)
Those questions were raised in the main proceedings brought by the plaintiffs in those proceedings, Giuseppe d' Urso and others, who are employees of the company Ercole Marelli Elettromeccanica Generale SpA (hereinafter referred to as "EMG"), against the defendants in the same proceedings, EMG and Ercole Marelli Elettromeccanica SpA (hereinafter referred to as "Nuova EMG"), which was subsequently split into ABB Tecnomasio SpA and ABB Industria Srl.
2. By a decree of 26 May 1981 the Minister for Industry placed EMG and other companies in the Marelli group under the special administration procedure for large undertakings in critical difficulties ("amministrazione straordinaria delle grandi imprese in crisi") provided for by the Italian legislation. At the same time, he authorized EMG to continue trading whilst remaining subject to that procedure.
In 1985, all the companies in the Marelli group had been restructured, with the exception of EMG which remained under special administration. As from that year (the precise moment in time is not indicated in the order for reference) the contracts of employment of the plaintiffs in the main proceedings have been suspended and the Cassa Integrazione Guadagni Straordinaria (hereinafter referred to as "CIGS") has paid them benefits for the whole duration of the normal working time. (2)
In September 1985 the whole business ("il complesso aziendale") of EMG was transferred with the Minister' s authorization to the company Nuova EMG, which was set up for this purpose.
Pursuant to the contract of transfer and in accordance with the agreements with the trade-union organizations to which that contract referred, 940 EMG employees were transferred into the service of Nuova EMG. However, 518 other EMG employees remained in EMG' s service. One of the agreements with the trade- union organizations stipulated that the employees who were not transferred to Nuova EMG were to remain entitled to benefits from CIGS. That agreement also contained a number of provisions designed to resolve the problem of surplus personnel.
The plaintiffs in the main proceedings belong to the workers remaining in the service of EMG, which was under special administration. They ask the referring court to rule that their employment relationship continued uninterruptedly with Nuova EMG from the date of the transfer of the undertaking which employed them. They rely on the first paragraph of Article 2112 of the Italian Civil Code, which reads as follows:
"Where an undertaking is transferred, contracts of employment will continue to be valid as against the transferee unless the transferor has given the required notice and employees shall retain the rights flowing from the seniority acquired before the transfer." (3) (4)
That provision guarantees in principle that the rights of the workers of an undertaking which is transferred are transferred from the transferor to the transferee. However, there are a number of derogations from that principle. Thus, the defendants in the main proceedings rely on Article 3 of Decree-Law No 835 of 9 December 1986, (5) which, with some amendments, was converted into Law No 19 of 6 February 1987 (6) which reads as follows:
"In the event of the transfer of undertakings or parts of undertakings, carried out pursuant to programmes imposed on undertakings under special administration ..., the first paragraph of Article 2112 of the Civil Code shall not be applicable to workers who were not transferred at the time of the transfer ...".
According to Article 3(3), that provision is applicable to special administration procedures which, as in the case of EMG, had been set in motion at the time of the entry into force of the Law amending the decree-law, and with effect from the date on which those procedures commenced.
3. The Pretore considers that the main proceedings raise two questions concerning the interpretation of Directive 77/187. Why this should be so - for example, because, according to the referring court, the provisions of the directive may be relied upon directly by the parties in the main proceedings or because the Italian legislation must be interpreted in conformity with the directive - is not explained in the order for reference. I shall not therefore focus my analysis on the effect of the directive but shall confine myself to answering the two following preliminary questions. Those questions read as follows:
"(1) Does the first subparagraph of Article 3(1) of Directive 77/187 of 14 February 1977 provide for the automatic transfer to the transferee of the employment relationships relating to the transferred undertaking and in existence at the time of its transfer?
(2) Is the directive applicable to transfers of businesses made by undertakings under special administration?"
Like the Italian Government, the French Government and the Commission I shall begin by examining the second question.
The second question: the scope of the directive
4. By the second question the referring court wishes to know whether Directive 77/187 is applicable to the transfer of an undertaking where the transferor has been made subject to a special administration procedure provided for by Italian legislation. In answering this question it is necessary to avoid defining the scope of the directive by reference only to a specific procedure existing in the legal system of an individual Member State. In my proposed reply I shall therefore indicate the general criteria which a procedure such as that in question in this case must satisfy in order for a transfer taking place under such a procedure to be caught by, or fall outside the scope of, the directive. It will then be for the referring court to consider whether the special administration procedure in Italy satisfies those criteria. In order for my reply to be sufficiently related to the specific question, I shall, however, begin by briefly describing the Italian procedure for placing under special administration large undertakings in critical difficulties, placing emphasis on the criteria which, in view of the case-law of the Court, I shall subsequently consider to be decisive in ascertaining whether the directive is applicable.
The Italian special administration procedure
5. The special administration procedure for large undertakings in critical difficulty is one of the procedures laid down by Italian legislation for the event that an undertaking is not in a position to meet its obligations. Besides that procedure, there are also bankruptcy proceedings properly so called ("fallimento"), compulsory administrative winding-up ("liquidazione coatta amministrativa") (7), preventive arrangements and composition ("concordato preventivo") and supervised administration ("amministrazione controllata"), which, as the Agent of the Italian Government confirmed at the hearing, is comparable to a procedure like "surséance van betaling". (8)
The special administration was introduced into the Italian legal system by Decree-Law No 26 of 30 January 1979, (9) which, with amendments, was converted into Law No 95 of 3 April 1979 (10) (hereinafter referred to as "Law No 95/79"), which was subsequently amended.
According to Article 1 of Law No 95/79, the special administration procedure is applicable to large undertakings, that is to say those having had more than 300 employees (including workers entitled to claim benefits under the CIGS rules) for more than one year and whose debts to credit institutions and social security institutions exceed both set a minimum and five times the paid-up capital. The special administration procedure is applicable to those undertakings, to the exclusion of the bankruptcy procedure.
The decision to apply the procedure is taken by ministerial decree. However, it is first necessary for the court to have found that the undertaking is insolvent or that at least three months' salaries have not been paid. The court can arrive at that finding on its own initiative or on the application of the undertaking itself, one of its creditors or the Public Prosecutor' s Department.
The procedure is conducted by one or three auditors who are appointed by the Ministry for Industry and act under his supervision.
Save where Law No 55/79 otherwise provides, the course of the procedure is governed by the insolvency legislation on compulsory administrative winding-up. (11) It follows from this inter alia that the organs of the undertaking cease their functions and lose their power to manage the undertaking and dispose of its assets.
6. Article 2 of Law No 95/79 provides that the ministerial decree commencing the procedure after the court has found that the undertaking is in a state of insolvency or has failed to make payments may authorize the undertaking to continue in trading under the supervision of the auditor for a period not exceeding two years; that authorization may be extended two times for a total period not exceeding two years.
The auditor draws up a programme which must be approved by the supervisory authority. That programme contains, as far as possible and taking into account the interests of creditors, a restructuring plan compatible with the main thrust of industrial policy. The plan identifies the plants to be brought back into operation and those which must be transferred. Article 2 of Law No 95/79 expressly provides that the integrity of the operating plant must be preserved as far as possible, even in the case of plant which is to be transferred.
Article 2bis of Law No 95/79 provides that the State may guarantee debts incurred vis-à-vis credit institutions in order to finance the day-to-day running or recommissioning of certain plants.
Article 3 provides that the procedure may be extended to all companies in the group to which the undertaking under special administration belongs, including parent companies, subsidiaries and sister companies, even if, considered on their own, they may not be regarded as "large" undertakings.
Article 5bis of the Law grants a fiscal advantage in the event of the transfer of an undertaking or a part of an undertaking whilst Article 6bis allows the auditor, subject to authorization from the supervisory authority and after consultation with a supervisory committee comprising representatives of creditors, to derogate from the obligation to transfer an undertaking or a part of an undertaking by way of public sale.
7. Opinions differ on the purpose of the special administration procedure. In the order for reference the referring court states that the procedure is mainly intended to restructure the undertaking, having regard above all to the safeguarding of jobs. According to the referring court, the "conservatory" purpose of the procedure is clear from the following circumstances:
"1. The report on Decree Law No 26/1979 clearly states that the purpose of the procedure is to save the parts of an undertaking or group of undertakings which are basically sound, by transferring ownership of the undertaking - but not its debts - from the insolvent transferor to the transferee;
2. An undertaking placed under special administration may obtain from credit institutions sums of money whose repayment is guaranteed by the State, for the purpose of:
3. Bringing back into operation and supplementing plant, land and buildings and industrial equipment (Article 2bis of Law No 95/79);
4. The protection of creditors' interests is less extensive than in other liquidation procedures; in particular, creditors are not involved in decisions relating to the continued operation of the undertaking and, above all, they have no possibility of having the court determine whether continued operation is in their interests;
5. The preference shown for continuing the operation of the undertaking is so great that the law does not deal with the converse, but theoretically possible, case, nor does it deal with the situation in which the restructuring plan proves to be impracticable after the continued operation of the business has been decided upon."
The Commission observes that the aim of the procedure is to protect both the interests of creditors and jobs. In practice, however, it is not always possible to reconcile those two aims. This explains the differences of view between academic writers regarding the nature of the special administration procedure: for some, it is a winding-up procedure designed to protect the interests of creditors; for others, it is a conservatory and restructuring procedure. The Commission takes the view, however, that in academic writing and above all in case-law the main emphasis is placed on the winding-up function of the procedure. It points out in this regard that the fact that the provisions of the bankruptcy legislation which govern compulsory administrative winding-up are in principle applicable to the special administration procedure and the fact that the latter procedure may not be applied where insolvency is temporary and reversible.
The defendants in the main proceedings state categorically that the interpretation of the referring court is wrong. According to them, it is unanimously accepted in Italian academic writing that special administration is a creditors' arrangement procedure having liquidation as its purpose. The fact that the undertaking concerned may continue its operations for two or three years does not alter anything. That period allows the liquidation to go ahead under conditions which allow the production units to be maintained but not the undertaking itself.
The plaintiffs in the main proceedings state that the principle aim of the procedure is to enable undertakings or parts of undertakings under special administration to be transferred to third parties.
Finally, according to the Italian Government, the aim of the procedure is to save as far as possible the viable parts of the undertakings by transferring them to a new employer so as to limit the economic and social damage which may be caused when large undertakings cease to operate.
8. At the hearing the Italian Government produced figures showing that on 30 April 1990 the procedure had been declared applicable to 40 groups of undertakings representing in total 300 undertakings. At that date seven undertakings had been authorized to continue trading, 273 were in the course of being wound up and the procedure had been closed in respect of 20 of them. Those undertakings employed 60 000 workers before the procedure was commenced. Application of the procedure had enabled 29 000 workers to be transferred. 24 400 workers had opted for voluntary redundancy or been made redundant. As at 30 April 1990, 7 600 workers were still employed in the undertakings under special administration and 6 600 of them were receiving benefits from CIGS.
Case-law of the Court of Justice
9. Article 1(1) of Directive 77/187 defines the scope of the directive as follows:
"1. This directive shall apply to the transfer of an undertaking, business or part of a business to another employer as a result of a legal transfer or merger."
The Court interpreted the expression "transfer of an undertaking, business or part of a business to another employer" in its judgment in the Spijkers (12) case. According to the Court (paragraphs 11 and 12), the decisive criterion for establishing whether there is a transfer for the purposes of the directive is whether the business in question retains its identity. The mere fact that assets are disposed of is therefore not sufficient. On the contrary, the entity transferred must be a going concern, which would be indicated, inter alia, by the fact that its operation was actually continued or resumed by the new employer, with the same or similar economic activities.
10. This case concerns other terms of the aforementioned directive, more particularly those according to which the directive is applicable only to transfers carried out as a result of "a legal transfer or merger" (which is not in issue in this case). Those terms, too, have also been interpreted by the Court. In particular in the Abels case, (13) it considered whether it followed from those terms that the directive is applicable where the transferor of the undertaking (in that case, pursuant to Netherlands law) has been declared insolvent or obtained a "surséance van betaling" (judicial leave to suspend payment of debts). In that judgment, the Court ruled that:
"Article 1(1) of Council Directive No 77/187 of 14 February 1977 does not apply to the transfer of an undertaking, business or part of a business where the transferor has been adjudged insolvent and the undertaking or business in question forms part of the assets of the insolvent transferor, although the Member States are at liberty to apply the principles of the directive to such a transfer on their own initiative. The directive does, however, apply where an undertaking, business or part of a business is transferred to another employer in the course of a procedure such as a 'surséance van betaling' (judicial leave to suspend payment of debts)."
Given the importance of that judgment in replying to the question submitted in the present case, I propose to examine the grounds of that judgment in more detail.
11. The Court noted first of all that there were discrepancies between the various language versions of Article 1(1) of the directive. Some versions indicated that transfers arising as a result of an administrative or judicial decision were excluded whilst others seemed to indicate a wider scope of application. Moreover, the term "legal transfer"* had different meanings in the insolvency law of the Member States. Whilst in certain Member States it was considered that a sale effected in insolvency proceedings was a normal contractual sale, even if judicial intervention was a preliminary requirement for the conclusion of such a contract, under other
and in the French text "cession conventionnelle" legal systems the sale is regarded as taking place by virtue of a measure adopted by a public authority. In view of those differences, the Court considered that the scope of the provision at issue could not be appraised solely on the basis of a textual interpretation; its meaning had to be clarified in the light of the scheme of the directive, its place in the system of Community law in relation to the rules of insolvency, and its purpose.
12. The Court went on to state that insolvency law was characterized by special procedures intended to weigh up the various interests involved, in particular those of the various classes of creditors; consequently, in all the Member States there were specific rules which might derogate, at least partially, from other provisions, of a general nature, including provisions of social law.
* Translator' s Note: the term used in the Dutch version of the directive is "overdracht krachtens overeenkomst"
The specificity of insolvency law was also confirmed in Community law. Thus, Council Directive 75/129 of 17 February 1975, on the approximation of the laws of the Member States relating to collective redundancies, (14) excluded from its scope workers affected by termination of an establishment' s activities "where that is the result of a judicial decision". Moreover, according to the Court, the specificity of insolvency law was also reflected in Council Directive 80/987 of 20 October 1980, on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer, cited above (in footnote 2). That directive created a system to ensure the payment of outstanding claims relating to pay which applied equally to undertakings which had been adjudged insolvent.
The fact that insolvency law is the subject of specific rules both in the legal systems of the Member States and in the Community legal order and the fact that the rules on insolvency and analogous proceedings are very different in the various Member States led the Court to state (in paragraph 17) that:
"if the directive had been intended to apply also to transfers of undertakings in the context of such proceedings, an express provision would have been included for that purpose".
13. The Court derived its second argument in support of its judgment from the aim of the directive. Referring to its preamble, it stated that the directive aimed to afford protection to workers in the event of transfers of undertakings in view of the need, referred to in Article 117 of the EEC Treaty, "to promote improved working conditions and an improved standard of living for workers".
The Court observed that the parties in the Abels case were divided as to whether, if the directive were held to be applicable to liquidation or similar proceedings, the resulting social and economic effects would be favourable or prejudicial to the interests of employees. In this regard, I would observe that, in the present case, the parties are also divided as to the effect of the possible applicability of the directive where the transfer took place in the course of a special administration procedure.
Certain parties in the Abels case considered that the directive ought to be applicable in the event of insolvency on the ground that it is precisely the employees of the employer declared insolvent which most need protection. However, other parties in that case, including the Commission pointed to a number of unfavourable economic consequences which, in their view, would arise if the directive were to apply to transfers of undertakings in the event of insolvency or a "surséance van betaling". In their view, such an extension of the scope of the directive might dissuade a potential acquirer from acquiring an undertaking on conditions acceptable to the body of creditors, which might lead them to sell the assets of the undertaking separately. That would entail the loss of all the jobs in the undertaking, which would defeat the useful effect of the directive.
14. According to the Court, that difference of opinion showed that there was considerable uncertainty about the impact on the labour market of transfers of undertakings in the event of an employer' s insolvency and about the appropriate measures to be taken in order to ensure the best protection of workers' interests. The Court' s conclusion from this was that:
"... a serious risk of general deterioration in working and living conditions of workers, contrary to the social objectives of the Treaty, cannot be ruled out. It cannot therefore be concluded that Directive 77/187 imposes on the Member States the obligation to extend the rules laid down therein to transfers of undertakings, businesses or parts of businesses taking place in the context of insolvency proceedings instituted with a view to the liquidation of the assets of the transferor under the supervision of the competent judicial authority." (paragraph 23)
However, the Court went on to state that, even though transfers of that kind did not fall within the scope of the directive, the Member States were at liberty independently to apply the principles of the directive, wholly or in part, on the basis of their national law alone. Article 7 in fact provides that the directive "shall not effect the right of Member States to apply or introduce ... provisions which are more favourable to employees".
The Court thus arrived at the same conclusion as Advocate General Sir Gordon Slynn who, in his Opinion, had warned against the perverse affect of the application of the directive:
"The counterproductive result of applying the Directive, which seems to be a real possibility, is so contrary to its objectives that in the absence of other clear indications, it seems to me that the intention was not to apply the provisions to undertakings which are in liquidation." (15)
15. The Abels case also raised the question whether a transfer taking place in the Netherlands "surséance van betaling" procedure fell outside the ambit of Directive 77/187. According to Advocate General Sir Gordon Slynn, in such a context it was simpler to consider the sale of the undertaking by the owner as a contractual transfer.
That observation must be considered against the background of the provisions of the Netherlands Faillissementswet (Law on insolvency) relating to surséance van betaling. (16) In accordance with those provisions, the court first grants a provisional surséance, which, however, it can do only upon the application of the debtor himself on the ground of his belief that he is no longer in a position to meet his debts which have fallen due (Article 213 of the Faillissementswet). The court then appoints one or more administrators to manage the debtor' s business affairs together with the debtor. At a later stage it decides whether to order a definitive suspension of payments. However, even after a definitive suspension, the debtor does not lose his power of disposal and control over his assets but simply has no power to effect transactions concerning his assets without consultation with, or the authority or assistance of the administrator or administrators (Article 228(1) of the Faillissementswet). The clear aim of the surséance procedure is to prevent liquidation brought about by agreement between the creditors (Article 252 of the Law) and is not intended to produce a "forced" liquidation of the debtor' s assets.
Despite the clearer consensual nature of the sale of an undertaking in a surséance procedure, the Advocate General came to the conclusion that a transfer in the course of such a procedure also had to be excluded from the scope of the directive because it could give rise to the same problems as a transfer in liquidation proceedings if, in the event of the transfer of the business, all the workers had to be taken on.
16. On this point, the Court did not follow the Advocate General. Proceedings such as those relating to a surséance van betaling have, according to the Court, certain features in common with liquidation proceedings in so far as both are of a judicial nature. They are, however, different from liquidation proceedings
"in so far as the supervision exercised by the court over the commencement and the course of such proceedings is more limited. Moreover, the object of such proceedings is primarily to safeguard the assets of the insolvent undertaking and, where possible, to continue the business of the undertaking by means of a collective suspension of the payment of debts with a view to reaching a settlement which will ensure that the undertaking is able to continue operating in the future. If no such settlement is reached, proceedings of this kind may, as in the present case, lead to the debtor' s being put into liquidation" (paragraph 28).
It follows, according to the Court, that the directive is applicable to transfers of undertakings taking place in proceedings such as the surséance van betaling procedure "taking place at an earlier stage".
17. The Court confirmed its judgment in the Abels case in three other judgments delivered on the same day. (17) In its judgment in the Mikkelsen case, (18) delivered a few months later, the Court also referred to the judgment in Abels. However, that judgment related to the transfer of an undertaking which had taken place after the transferor company had ceased its payments but before it had been declared insolvent. According to the Court, it followed from the judgment in Abels that:
"... the mere fact that the transfer of an undertaking, business or part of a business has occurred after the transferor has suspended payment of its debts is not enough to exclude the said transactions from the scope of Directive 77/187. It therefore applies to a transfer as defined in Article 1(1) which is effected in the course of a procedure, or at a stage, prior to the commencement of liquidation proceedings" (paragraph 10).
On my understanding of that ground of the judgment, it is not sufficient, in order for the transfer of an undertaking to be excluded from the scope of the directive, for the conditions under which the transferring undertaking would be adjudged insolvent to be fulfilled; the transferring undertaking must actually be adjudged insolvent.
The position taken in the Abels case is therefore settled law. I shall therefore use that judgment as a starting point in assessing the second question referred for a preliminary ruling.
Similarities and differences between liquidation and suspension of payments
18. I infer from the Court' s judgment in the Abels case that it did not wish strictly to limit its assessment to a situation in which the transferor has been adjudged insolvent. In both paragraph 17 and paragraph 19, the Court refers to "liquidation or similar proceedings", thus suggesting that a transfer taking place in a procedure other than a liquidation procedure may also be excluded from the scope of the directive. It is only in regard to a transfer effected in the course of a procedure of the surséance van betaling type, in contrast to a transfer in liquidation proceedings, that the Court has hitherto held that it is not excluded from the scope of Directive 77/187, on account of the clear differences between the two procedures and thus a lack of any "similarity".
In order to determine whether Directive 77/187 is applicable, the question to be examined now is what are the other procedures, amongst those existing in the Member States governing financial incapacity, (19) which are more akin to liquidation than to surséance van betaling. In the present case, that question is raised only in connection with a procedure like the "special administration" procedure, as it is described above. Therefore, it is only with regard to that procedure that the question must be answered. (20)
19. The expression "analogous procedures" (that is to say procedures similar to bankruptcy, winding-up and like procedures) also appears in other Community law texts. For example, the second subparagraph of Article 1(2) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters excludes from the scope of that convention "bankruptcy, proceedings relating to the winding-up of solvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings". (21) In the Gourdain case (22) in which the Court was asked to rule on the question whether a judgment delivered by a French court in a action en comblement du passif social fell within the scope of that convention, the Court (in paragraph 4) defined the terms used in Article 1 as follows:
"Les faillites, concordats et autres procédures analogues sont des procédures fondées, selon les diverses législations des parties contractantes, sur l' état de cessation de paiement, l' insolvabilité ou l' ébranlement du crédit du débiteur impliquant une intervention de l' autorité judiciaire aboutissant à une liquidation forcée et collective des biens ou, à tout le moins, un contrôle de cette autorité." (23)
Mention may also be made of the draft Convention on Bankruptcy, Winding-up, Arrangements, Compositions and Similar Proceedings, (24) which in a protocol annexed to that draft indicates the procedures - bankruptcy procedures and other procedures - to which the convention is to apply.
20. The "analogous procedures" referred to in the provisions cited above, as defined by the Court in the Gourdain judgment, also include procedures of the surséance van betaling type. In the protocol annexed to the draft Convention on Bankruptcy, the surséance van betaling procedure provided for in Netherlands law is, moreover, expressly referred to in the list of procedures other than bankruptcy to which the convention is to apply.
The expression "analogous procedures" within the meaning of the judgment in Gourdain cannot therefore help us in identifying the procedures which must be classified as procedures similar to bankruptcy procedures within the meaning of the Abels judgment nor, therefore, in determining whether they fall within the scope of Directive 77/187. However, the judgment in Gourdain does indicate the characteristics common to bankruptcy procedures and the surséance van betaling procedure (see below paragraph 21).
21. In order to determine whether a procedure of the "special administration" kind in Italian law is akin to liquidation proceedings, which, in its judgment in Abels, the Court excluded from the scope of Directive 77/187, or to a procedure of the surséance van betaling type, which the Court considers to fall within the scope of that directive, (25) it is necessary to look more closely at the similarities and differences between bankruptcies and suspensions of payments.
As the Court stated in Gourdain with regard to the concept of "analogous procedures" in the broad sense (see above, at paragraph 19), these two procedures have in common that they are based on the suspension of payments, insolvency of the debtor or his inability to raise credit, which involve the judicial authorities. As the Court noted in Abels (paragraph 28), the surséance procedure is also "of a judicial nature". That common feature is to be explained by the fact that a declaration that a debtor is unable to meet his liabilities, whether on account of liquidity or solvency problems, requires judicial intervention since it is a situation in which the debtor and his creditors are subject to a procedure entailing some restriction of their rights.
22. In the Abels judgment, the Court also indicated the differences between bankruptcy (faillite) and surséance (suspension of payment). In my view, there are three.
The first difference concerns the aim of the two procedures. In the ground of judgment set out in paragraph 16 above, the Court indicated that the object of the surséance procedure is "primarily to safeguard the assets of the insolvent undertaking and, where possible, to continue the business of the undertaking". That object is achieved by means of "a collective suspension of the payment of debts". That characteristic indicates the nature of a suspension of payments which is designed to resolve temporary payment difficulties (26) and not to liquidate the debtor' s assets but, on the contrary, to prevent winding-up. Bankruptcy proceedings are fundamentally different: their aim is to liquidate all the assets and discharge the liabilities. That realization of the assets may be done by way of sale (or contribution of capital) of the assets separately, but also by way of sale (or contribution of capital) of all or part of the assets as elements of a "going concern" within the meaning of the judgment in Spijkers, referred to above (paragraph 9).
23. According to what the Court stated in Abels (see above, at paragraph 16), a second difference consists in the fact that, in the case of a suspension of payments, "the supervision exercised by the court over the commencement and the course of such proceedings is more limited".
As far as the commencement of the proceedings is concerned, the Court had in view the Netherlands rules according to which a suspension of payments may be applied for only by the debtor (and not by his creditors) and cannot be ordered by the court of its own motion. (27) In the case of bankruptcy proceedings the situation is totally different: the declaration of bankruptcy may be pronounced upon application by the debtor or one or more creditors (and in certain cases upon application by the Public Prosecutor' s Office) or by the court of its own motion. Furthermore, when declaring a state of bankruptcy, the court will also take other measures, concerning, for example, the retroactive effect of the declaration of bankruptcy (suspect period).
As regards the course of the proceedings, the supervision exercised by the court in the case of a suspension of payments is also more limited than in the case of bankruptcy. Whereas in the latter case the law provides for some form of permanent receivership and supervision thereof by a judge, such supervision, in the case of a suspension of payments, is limited to ensuring that the debtor honours the repayment commitments into which he has entered and any acts he carries out with the assistance of an auditor or an administrator.
24. A third difference is closely connected with the two previous ones and resides in the fact that, as mentioned above, the more extensive supervision of the court in the case of bankruptcy is accompanied by the imposition of a thoroughgoing form of administration or receivership in order to ascertain the assets, realise the assets and discharge the liabilities, the reverse side of which is that the debtor is placed under compulsory receivership and loses all powers of disposition and control. Here again, the situation is totally different than in the case of a suspension of payments: at the most, one or more auditors or administrators are appointed who supervise the debtor who is assisted by them and authorized to carry out certain acts but who does not, however, lose his powers of disposal and control over his property.
In the judgment in Abels, this third difference was not explicitly mentioned. The Court did, however, point out (see paragraph 11 above) that in some Member States a sale carried out in the course of bankruptcy proceedings is regarded as a normal contractual sale, even though the intervention of the judicial authority (or, more precisely, the intervention of the receiver acting under the supervision, or with the authority, of the court) is first required for the conclusion of such a contract, whereas under other legal systems the sale is regarded as taking place by virtue of a measure adopted by a public authority. However, common to both views is the fact that the sale carried out pursuant to bankruptcy proceedings may take place without the consent or cooperation of the bankrupt person and in this sense constitutes a "forced" sale in his regard. In the case of a suspension of payments, the situation is again different since the debtor retains his power to carry out acts of disposition, even if with the assistance, cooperation or authorization of an auditor or an administrator.
Non-applicability of the directive to transfers carried out in a "special administration procedure"
25. Where, then, having regard to the similarities and differences described above, does a procedure of the "special administration" kind appear on the scale of analogous procedures: is it more akin to bankruptcy or more akin to a suspension of payments?
As regards the similarities, it is clear that the special administration procedure is also based on "inability to meet liabilities, insolvency or the collapse or the debtor' s creditworthiness", to use the terms used in the Gourdain judgment (see above at paragraph 19). Indeed, before the decision to commence the procedure is taken by ministerial decree, the court must have first declared a state of insolvency or a failure to pay salaries (see above at paragraph 5).
26. As regards the first difference, regarding the purpose of the proceedings, the national court and the parties differ in their view as to whether the special administration procedure is designed to restructure or liquidate the undertaking. In my view, this difference of opinion is based on a misunderstanding and, more precisely, on a confusion between (compulsory) liquidation of the assets and the continuity of the undertaking transferred.
In this regard, it must be recalled that, according to the national court, which refers in this regard to the preamble to Law No 95/79 (see above at paragraph 7, point 1), the purpose of the special administration procedure is to "save the parts of an undertaking or group of undertakings which are basically sound, by transferring ownership of the undertaking - but not its debts - from the insolvent transferor to the transferee". The process is therefore one of transferring a set of assets, in the form of a "going concern", with a view to discharging the liabilities which are not transferred and which therefore remain in the estate under administration. As mentioned above (paragraph 22), the aim of bankruptcy proceedings is also to realize the assets in order to discharge the liabilities, but the assets may be transferred separately or together, as elements of a "going concern". What distinguishes the special administration procedure from bankruptcy proceedings is therefore the fact that, for the sake of preserving jobs, it gives preference to the second mode of transfer, that is to say transfer (by way of sale or contribution of capital) of a set of assets which together form a going concern (and not of separate assets), which enables the undertaking' s business to be maintained as far as possible.
In a procedure for the suspension of payments, on the other hand, there is no compulsory liquidation or realization of assets. The procedure is intended to resolve payment difficulties by granting the debtor a collective suspension of payments, possibly combined with a partial and conditional remission of debts, depending on the arrangements made by the creditors. If a sale of assets does take place, this is not the result of any compulsory liquidation.
I would make one final point: having regard to the fact that under the special administration procedure the emphasis is placed - even more than in bankruptcy proceedings - on the protection of jobs, the risk of a counterproductive effect which prompted the Court to exclude bankruptcy proceedings from the scope of the directive (see above, at paragraph 14) must be regarded as providing an additional reason for treating the special administration procedure in a way analogous to bankruptcy proceedings for the purposes of the directive. (28)
27. As regards the second difference, regarding the supervision exercised by the court over the commencement and course of the procedure, one particular feature must be noted. Whereas in bankruptcy proceedings it is the court which supervises the commencement and the course of the proceedings, in a procedure of the special administration kind, this supervision may be exercised by an administrative authority, with the qualification, however, that, as in the case of the Italian legislation in question (see above, at paragraph 5), the prior intervention of the court is necessary in order for the state of insolvency to be determined and, as in the case of bankruptcy, that declaration may be made not only upon application by the debtor but also upon application by creditors, and possibly upon application by the Public Prosecutor' s Office or by the court acting of its own motion.
The fact that the course of the procedure is subject to administrative supervision rather than judicial supervision - the difference cannot be over-estimated since in both cases the conduct of the procedure is de facto in the hands of the auditors or receivers - is not, in my view, a reason for considering that a procedure such as the special administration procedure is more akin to one providing for the suspension of payments than to bankruptcy proceedings. Moreover, the conduct of the suspension of payments procedure, as that of bankruptcy proceedings, is subject to to judicial supervision, which means that, on this point too, the suspension of payments procedure differs from the special administration procedure. The reason why the conduct of the special administration is supervised by the administration is, clearly, that the restructuring of undertakings carried out under that procedure with a view to transferring a set of assets and maintaining jobs requires policy choices to be made and this is incompatible with the judicial function.
This same reason explains why in many countries (29) undertakings such as credit institutions and insurance companies which play an important role in the economy and savings activities of a country are excluded from the bankruptcy procedure which is normally applicable and are liquidated according to special administrative procedures. (30)
28. Finally, as regards the third difference, concerning the effects of the administration on the debtor' s powers of disposal and management, it is clear that, in this regard too, a procedure of the special administration type is akin to bankruptcy proceedings. This is all the more evident since under the Italian special administration procedure reference is made, as far as the course of the procedure is concerned, and unless the law otherwise provides, to the bankruptcy legislation on compulsory administrative liquidation. This means, inter alia, that the debtor (in the case of a company, the company organs) loses all powers of disposition and management; these are transferred to the auditor or auditors appointed by the Minister for Industry (see above, at paragraph 5). The effect of this is, inter alia, that, both in the case of bankruptcy proceedings and in the case of special administration, and unlike in the case of a suspension of payments, agreements on the "transfer of an undertaking, business or part of a business" within the meaning of Article 1(1) of the directive are concluded by the receivers or auditors (acting under judicial and administrative supervision respectively) without the involvement of the debtor and are not therefore agreements freely entered into by him. In my view, that last factor has decisive importance since it means in effect that the non-applicability of the directive in the event of the transfer of an undertaking under a special administration procedure, as in the case of bankruptcy proceedings, is not independent on a decision of the undertaking' s owners.
29. It follows from the foregoing that a procedure of the special administration kind provided for in Italian law must be treated, for the purposes of the directive, as a bankruptcy procedure, bearing in mind, too, that the court stated in its judgment in the Mikkelsen case (see above, at paragraph 17) that the directive ceases to be applicable only from the time when the court adjudges the debtor to be insolvent.
This means more particularly that I cannot share the view, advanced by the Commission in this case, that, as long as an undertaking under special administration has been specifically authorized to continue trading, transfers which have already taken place fall within the scope of the directive whilst those which take place after the withdrawal of that authorization do not come under the directive. (31) That decision is an incidental decision; it can also be taken in bankruptcy proceedings properly so called and its purpose is, depending on the circumstances, to enhance the value of assets pending their sale. Moreover, declaring the directive applicable where trading is continued and declaring it inapplicable where trading ceases may bring about an immediate cessation of trading although this may be the least favourable solution from the social point of view.
Nor can I share the French Government' s view that a transfer which takes place in a procedure prior to a declaration of bankruptcy is not excluded from the scope of the directive. This view is based on the idea that, chronologically, bankruptcy proceedings are the final stage, which is not so in the case of a special administration procedure which is established in order to replace bankruptcy proceedings.
30. In view of the foregoing considerations, I propose to reply to the second question in the way indicated at the end of this Opinion, at paragraph 37.
The first question: are rights automatically transferred?
31. The reply which I propose to give to the second question does not affect the competence of the referring court to determine whether the special administration procedure has the aforementioned characteristics so as to be treated as being like a bankruptcy procedure, in which case transfers of undertakings which take place under that procedure do not fall within the scope of the directive. In the event that, contrary to my expectations, the referring court should decide that the procedure does not have the aforementioned characteristics, I must still answer the first question.
32. By its first question the referring court asks the Court to interpret the first subparagraph of Article 3(1) of the directive: is the effect of that provision that the transferor' s rights and obligations arising from contracts of employment or employment relationships existing at the time of the transfer are automatically transferred to the transferee?
In the order for reference this question is clarified in the following way:
"The question is whether, by virtue of that provision, the contract of employment existing on the date of the transfer is binding on the transferee of the business, without there being any need for, or regardless of, an expression of intent by the parties at the time of the transfer. In other words, the question is whether the Community directive corresponds to the first paragraph of Article 2112 of the Civil Code, thereby reinforcing it".
As the Commission rightly observes, it follows from that passage of the order for reference that the national court is not seeking to ascertain whether the provision in question of the directive has direct effect. What it does seek to ascertain is whether the effect of that provision is that the rights and obligations arising from an existing contract of employment are automatically transferred from the transferor to the transferee, even if this was not intended by the parties. The national court is probably alluding in this regard to the fact that, in accordance with the agreements concluded with the trade unions and the possibility afforded by Article 3 of Decree-Law No 835 of 9 December 1986, the transferor and the transferee expressly settled the question of the continuance of the employment relationships, at the time of the transfer of the EMG business, but not for all of EMG' s employers, since only some of them were transferred.
33. The first subparagraph of Article 3(1) of Directive 77/187 provides that:
"The transferor' s rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer within the meaning of Article 1(1) shall, by reason of such transfer, be transferred to the transferee."
In its judgment in the Berg case, (32) the Court stated (in paragraphs 11 and 13) that the obligations arising from contracts of employment are automatically transferred from the transferor to the transferee. It follows that such obligations are transferred to the transferee as soon as an undertaking is transferred within the meaning of Article 1(1) of the directive, even if the parties (that is to say the transferor, the transferee and the worker concerned) have not made any agreement on this point.
In the event that the transferor and the transferee have nevertheless expressly dealt with the situation of workers in the contract of transfer, they still may not derogate from the provisions of the directive. This was expressly affirmed by the Court in its judgment in Daddy' s Dance Hall (33):
"As was stressed above, the purpose of Directive 77/187/EEC is to ensure that the rights resulting from a contract of employment or employment relationship of employees affected by the transfer of an undertaking are safeguarded. Since this protection is a matter of public policy, and therefore independent of the will of the parties to the contract of employment, the rules of the directive, in particular those the protection of workers against dismissal by reason of the transfer, must be considered to be mandatory, so that it is not possible to derogate from them in a manner unfavourable to employees (paragraph 14)."
Not only the transferor and the transferee but also the employees themselves, acting directly or through their trade unions, may not renounce the protection afforded by the directive:
"It follows that employees are not entitled to waive the rights conferred on them by the directive and that those rights cannot be restricted even with their consent (paragraph 15)".
34. The Italian Government and the defendants in the main proceedings maintain that, although it is true that the parties may not waive the rights which the directive confers on the employees who are transferred, nevertheless the directive does not provide that all the employees working in the undertaking transferred must be taken on by the transferee.
In my view, that view must be rejected. It follows from the very wording of the first subparagraph of Article 3(1) of the directive that the protection which it affords covers all the employees who, at the time of the transfer, have a contract of employment with the transferor or are in an employment relationship with it. Moreover the effet utile of the directive would be very limited if the parties could determine for themselves which employees are to be transferred and thus define the scope of the obligations incumbent upon them under the directive.
However, a qualification must be added in the event that the transfer relates not to the whole of the undertaking but only to part of the undertaking. As can be inferred from the judgment in Botzen cited in footnote 17 (paragraph 15), in such a case the protection extends only to employees in service with the part of the undertaking which was transferred.
35. In support of its view the Italian Government also derives an argument from the first subparagraph of Article 4(1) of the directive, which reads as follows:
"The transfer of an undertaking, business or part of a business shall not in itself constitute grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of dismissals that may take place for economic, technical or organizational reasons entailing changes in the workforce."
The Italian Government deduces from that provision that the directive does not preclude collective dismissal nor, consequently, national rules more favourable to employees than collective dismissal because it allows some of the jobs to be saved.
I do not share the view that the directive allows any kind of dismissal on economic, technical or organizational grounds. The directive expressly prohibits such dismissals where they occur as a result of the transfer of the undertaking. It is only where the dismissals have already taken place, for example if they had already been decided on before the question of any transfer of the undertaking arose, that they come under that derogation. (34) Article 4 of the directive cannot therefore be used as an argument to dismiss some of the employees on account of the transfer of the undertaking.
36. I therefore propose to answer the first question in the way indicated below.
Proposed answers
37. My proposed answer to the second of the questions referred for a preliminary ruling is as follows:
"Article 1(1) of Council Directive 77/187 of 14 February 1977 is not applicable to the transfer of an undertaking, business or part of a business where the court has adjudged the transferor to have suspended payments, to be insolvent or to be unable to raise credit and where the transferor is subject to a procedure which, by analogy with a bankruptcy procedure, has the following characteristics:
- its purpose is to realize the assets of the estate under administration, even if it favours the continuance of all or part of the business by giving preference to the realization of a whole set of assets as elements of a going concern;
- from its commencement to its conclusion it is conducted like a compulsory procedure in the sense that it may be imposed against the will of the undertaking' s management bodies, its effect is that those bodies lose their powers of management and disposal over the undertaking' s property which are then conferred on special administrators appointed for this purpose by a public authority and the transfer may be decided on by those administrators without the involvement of those bodies."
In the event that this answer should prompt the referring court to consider that the procedure in question does fall within the scope of Directive 77/187, I propose that the first question submitted by that court should be answered as follows:
"The first subparagraph of Article 3(1) of Directive 77/187/EEC is to be interpreted as meaning that the rights and obligations which the transferor has under the contracts or relationships of employment existing at the time of the transfer are automatically transferred to the transferee."
(*) Original language: Dutch.
(1) - OJ L 61, p. 26.
(2) - For further information about CIGS, I refer to the documents in Case 22/87 Commission v Italy [1989] ECR 143. That case raised the question whether the Italian legislation which guarantees payment by CIGS is a system of guarantee as required by Council Directive 80/987/EEC of 20 October 1980 on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer (OJ L 283, p. 23).
(3) - The Court has already considered this provision in its judgment in Case 23/84 Commission v Italy [1986] ECR 2291. That case raised the question whether that provision provided sufficient protection for the interests (more precisely, rights to old-age benefits of workers and former workers under supplementary social security schemes) provided for in the second subparagraph of Article 3(3) of Directive 77/187. The Court rejected the Commission' s argument that this was not the case.
(4) - Article 2112 of the Italian Civil Code was last amended by Law No 428 of 29 December 1990 (Suppl. ordinario GURI No 10 of 12 January 1991). I will return to this point in footnote 31.
(5) - GURI No 286 of 10 December 1986.
(6) - GURI No 32 of 9 February 1987.
(7) - This is in fact a special bankruptcy procedure which is declared applicable (or commenced) by a court but which is conducted under the supervision of an administrative authority owing to the particular character of the undertakings concerned (which, according to the Commission in its written observations, are, in particular, banks, insurance companies and certain public undertakings; see also paragraph 27 and footnote 30 below). The procedure for compulsory administrative winding-up is governed by Article 194 et seq. of the Royal Decree quoted in the following footnote.
(8) - For all these procedures, see Royal Decree No 267 of 16 March 1942 (GURI No 81 of 6 April 1942), as repeatedly amended.
(9) - GURI No 36 of 6 February 1979.
(10) - GURI No 94 of 4 April 1979.
(11) - See above, footnote 7.
(12) - Jozef Spijkers v Gebroeders Benedik Abattoir CV and Another [1986] ECR 1119.
(13) - Judgment in Case 135/83 H.B.M. Abels v Bedrijfsvereniging voor de Metaalindustrie en de Electrotechnische Industrie [1985] ECR 469.
(14) - OJ L 48, p. 29.
(15) - [1985] ECR at p. 475.
(16) - See in this regard N.J. Polak, Faillissementsrecht, third revised edition, 1986, at page 149 et seq.
(17) - Case 19/83 Knud Wendelboe and Others v L.J. Music ApS, in liquidation [1985] ECR 457, paragraph 10; Case 179/83 Industriebond FNV and Another v Netherlands State [1985] ECR 511; Case 186/83 Arie Botzen and Others v Rotterdamsche Droogdok Maatschappij B.V. [1985] ECR 519.
(18) - Judgment of 11 July 1985 in Case 105/84 Foreningen af Arbejdsledere i Danmark v A/S Danmols Inventar, in liquidation.
(19) - In the case of Italy, see paragraph 5.
(20) - It is sufficient to note here that, broadly, a distinction may be drawn between procedures which, like the surséance van betaling procedure and/or the preventief concordaat, are designed to prevent liquidation and procedures which, like liquidation or forced administrative liquidation, are designed to distribute the remaining assets (and, of course, any deficit) amongst the creditors. In the case of the first-mentioned procedures, the situation is one in which there are only liquidity problems or reversible problems of solvency which may be remedied by a collective suspension of payments and/or the partial (and conditional) remission of debts. In the case of the second-mentioned procedures, there are serious and irreversible problems of solvency, which suggest that the remaining assets are likely to be lost.
(21) - See also the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters signed at Lugano on 16 September 1988 (OJ L 319, p. 9), which likewise is not applicable to bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings .
(22) - Judgment of 22 February 1979 in Case 133/78 Henri Gourdain v Franz Nadler [1979] ECR 733.
(23) - This definition corresponds word for word with that given by Mr Jenard in his report on the Brussels Convention (OJ 1979, C 59, p. 1, at page 12); Article 1(2) excludes bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings, i.e. those proceedings which, depending on the system of law involved, are based on the suspension of payments, the insolvency of the debtor or his inability to raise credit, and which involve the judicial authorities for the purpose either of compulsory and collective liquidation of the assets or simply of supervision .
(24) - Bulletin of the European Communities, supplement 2/82.
(25) - As I have already stated, in the Abels case the Court had to consider the surséance procedure as it is regulated in Netherlands law, that is to say a procedure which is designed to prevent liquidation and is comparable to the Italian amministrazione contrallata procedure (paragraph 5).
(26) - In some countries, suspension of payments is accompanied by a preventative agreement whereby it is also intended to resolve reversible problems of solvency, for example by a partial remission of debts. In the latter case, other countries have a special preventative composition procedure. See also footnote 20.
(27) - The situation is the same under the Italian amministrazione controllata procedure (Article 187 of Royal Decree No 267) or under the concordato preventivo procedure (Articles 160 and 161 of Decree No 267).
(28) - If it were not so treated, there would be the additional risk that debtors would seek application of bankruptcy proceedings, instead of a special administration procedure, in order to escape the application of the directive, although the special administration procedure offers a more appropriate framework for preserving jobs as far as possible.
(29) - For example, in Italy, in the case of compulsory administrative liquidation, already referred to above: see paragraph 5 and footnote 7.
(30) - See also the list of procedures for credit institutions in difficulties, set out in the proposal for a Council Directive concerning the re-organization and the winding-up of credit institutions and deposit-guarantee schemes (OJ 1988 C 36, p. 1).
(31) - At the hearing the Commission pointed out the scope of Article 2112 of the Italian Civil Code was altered by Law No 428 of 29 December 1990 in so far as the provision is no longer applicable to transfers of undertakings under special administration if such transfers take place after the undertaking ceases trading. However, the Italian Government denied that in making that change the Italian legislature was taking the Commission' s position: Article 2112 would not be applicable once the public authorities found that the undertaking was in a state of crisis, which in practice was always the case with undertakings placed under special administration.
(32) - Judgment of 5 May 1988 in Joined Cases 144/87 and 145/87 Harry Berg and Another v Ivo Marten Besselsen [1988] ECR 2559.
(33) - Judgment of 10 February 1988 in Case 324/86 Foreningen af Arbejdsledere i Danmark v Daddy' s Dance Hall A/S [1988] ECR 739.
(34) - On this point, see V. Bertrand: Transfert des contrats de travail et cession d' entreprise, 1988, p. 108 et seq.