Transfer of undertaking

In a transfer of undertaking, employyees’ rights and obligations are transferred to the new employer. Staff automatically join the new company while retaining existing terms and conditions of employment. When is there a legal transfer of undertaking? What are the employer’s rights and obligations? And can there still be directors’ liability after the transfer of undertaking?

When is there a transfer of undertaking?

A transfer of undertaking involves the transfer of the undertaking by a legal entity to another legal entity or natural person. This form of transfer of undertaking involves the transfer of an economic entity. Thus, in the case of a share transaction, there is no transfer of undertaking. The enterprise does not have to have a specific legal form, nor does it have to be transferred in its entirety. The applicable laws and regulations also apply when transferring a business unit or business establishment.

Sale, merger, separation of business activities

A business transfer or business acquisition can take place in many ways. A sale, merger or demerger of (all or part of) the business activities to another company, such as the business premises, inventory, business name and existing customers, is a transfer of undertaking. In many cases, the Transfer of Undertaking Act applies in these situations. By law, employees of the company being taken over automatically join the new company, retaining their rights and obligations.

Transfer of Undertaking Act

The main purpose of the Transfer of Undertaking Act is to protect the position of existing employees in a takeover, merger or demerger. However, an important condition does apply. The transfer of undertaking must involve the transfer of a business unit or activity that is part of the company’s sustainable economic activity.

Tangible assets and intangible assets

The decisive factor in determining whether an acquisition or merger is a transfer of undertaking is whether the identity of the transferred undertaking is preserved. Whether the identity is preserved is tested by various circumstances, regulations and current legislation. For example, the factors considered in a business transfer include:

• The nature of the business in question;
• Whether tangible assets are being acquired;
• The value of intangible assets at the time of transfer;
• Whether staff are part of the transfer;
• Whether the customer base is part of the transfer;
• Whether the activities carried out after the transfer are similar;
• The duration of any business interruption;
• Consequences of transfer of undertaking personnel;
• The consequences of a transfer of undertaking for staff can be considerable. For example, certain employees may become redundant in a merger or takeover.

In such situations, the new employer or the legal entity taking over the business often directs that the employee in question leave. Employees, especially if they have an employment contract for an indefinite period, are well protected. The employer can only dismiss redundant or superfluous staff by terminating the employment contract through the UWV or dissolving the employment contract through the subdistrict court.

Transfer of undertaking rights employee</2h>

In a transfer of undertaking, the rights and obligations of affected employees of the acquired company are automatically transferred to the new employer. These are the rights and obligations of the employee as they are included in the employment contract at the time of acquisition. In a transfer of undertaking, employment conditions also remain in force, as do agreements on additional holidays, compensation for overtime, travel expenses, profit-sharing and bonuses. The employee remains employed by the ‘new’ company. The old employer also remains co-responsible for compliance with the employment contract for one year.

Director liability in the event of a business transfer

Director liability arises when the seller transfers its company to a buyer and this subsequently results in the company no longer being able to meet its existing obligations. This arises if the director has allowed the company to default on its legal or contractual obligations that arose before the date of transfer of undertaking and claims from these debtors turn out to be unrecoverable. The same applies to a situation where the claim was still disputed at the time of sale and later turned out to be assignable.

A director and sole shareholder who sells his BV must carefully consider the buyer’s intentions with the company to be transferred. Previous rulings show that the former director of a sold company may still be liable under circumstances. So director liability may still exist even after the share transfer of his company.

Transfer of undertaking: wrongful acts

For liability to be established, it must be proven that the former director can be blamed sufficiently seriously for the non-recoverability of the claims. Essential in this case is whether the director knew or at least should have known that after the transfer of undertaking, it would no longer be able to recover existing claims. According to the court, this is the case anyway if the transfer was aimed at making it impossible to recover existing claims. But even if the seller did not make sufficient effort to investigate the buyer’s intentions with the company, this could constitute a sufficiently serious fault. This also applies when the seller has accepted the risk that the company will no longer be able to fulfil its obligations after the business transfer.

Search for buyer before the business transfer

According to the court, before the business transfer, the seller should at least investigate the past, intentions and background of the buyer in question. An important fact in the present situation was that the buyer had been involved in a series of bankruptcies in the past. This fact, as well as the failure to investigate further what plans the buyer had for the company, led to the former director being personally blameworthy.

Expert advice on directors’ liability

As soon as it has been established that the director did not investigate, or at least did not sufficiently investigate, the buyer and his intentions and did not act in good faith, liability in tort is lurking on the basis of this ruling. The lawyers at Fruytier Lawyers in Business have extensive experience in the field of directors’ liability. Are you looking for a lawyer who can assist you in all areas? For a smooth transfer of undertaking or in case of impending liability afterwards, our lawyers in employment law will be happy to assist you.