Consequences of bankruptcy for employees

What are the consequences of bankruptcy for employees? Who decides on the fate of employees in the event of bankruptcy? And what is an employee entitled to after a company has been declared bankrupt? Various (new) situations can arise during bankruptcy proceedings. This is an overview of the rights and obligations of the employer, the bankruptcy trustee and the workforce.

Bankruptcy of the employer

In the event of bankruptcy of the employer, the employee generally loses his job. One of the consequences of bankruptcy for employees is that a bankruptcy petition appointed by the court will terminate current employment contracts as soon as possible. During bankruptcy proceedings, a bankruptcy trustee does not need to apply for a dismissal permit from the Employee Insurance Agency. However, the trustee must ask the examining magistrate for permission to terminate the employment contracts. Employees can object to the dismissal, but the chance of this succeeding in a bankruptcy is (very) slight.

End of contract and notice period

A bankruptcy trustee handles the bankruptcy of a company in the role of ‘employer’. Terminating the employment contracts is (often) one of the consequences of bankruptcy for employees. The bankruptcy trustee decides on how and when to terminate a contract or employment. In some situations, work during the bankruptcy proceedings is continued or the bankruptcy trustee determines that some of the employees can stay on or must continue to work. After termination by the bankruptcy trustee, a notice period of no more than six weeks applies. The employee is entitled to salary during this period. The bankruptcy trustee determines whether the employees must (continue to) work.

Bankruptcy and the workforce

Another task of the bankruptcy trustee is researching whether a business sale or company takeover is possible. A possible new owner can have varying consequences – good or bad – for employees in the event of bankruptcy. In the event of a restart or takeover, the new owner determines whether the company will be taken over with or without all or some of the employees. That is not currently the case in a pre-pack. For this option, the European Court of Justice has ruled that the employment contracts continue with the new owner.

Restart after bankruptcy

In the event of a restart after bankruptcy, the new company will have to conclude new  employment contracts with the employees. One of the consequences of bankruptcy for employees is that accrued rights remain in the bankruptcy estate. Depending on the situation, a new owner can make new contract proposals to staff. If there are no interested parties or if the bankruptcy trustee decides that a sale or takeover is not in the interests of the bankruptcy estate and creditors, employment contracts will be terminated. In this case, the Employee Insurance Agency continues to pay salaries for a statutory period of six weeks.

Salary and severance pay

The wages of an employee whose employment contract is terminated after bankruptcy are paid by the Employee Insurance Agency, the so-called insolvency benefit. The Employee Insurance Agency pays, among other things, any salary arrears (a maximum of thirteen weeks before termination of the contract), the employee’s salary from the moment of termination (usually a period of six weeks), holiday pay, unpaid pension contributions and any unused days’ holiday in the year of termination of the contract. This will in any case temporarily limit any direct consequences of bankruptcy for employees. Employees are not entitled to severance pay in the event of dismissal on account of bankruptcy.

Consequences of bankruptcy for employees

The consequences of bankruptcy for employees are often communicated to staff by a bankruptcy trustee. In addition, employees must notify the bankruptcy trustee about possible other payments that they have not received from the bankrupt company. The bankruptcy trustee will try to settle the outstanding claims. However, the bank and tax authorities, among others, take priority in the ranking of creditors over other claims of employees. Practice shows that, in general, after payment of the creditors of a bankrupt company and its preferred creditors, insufficient funds are available in the bankruptcy estate to pay any other outstanding claims.

Applying for benefits

An employee who, after losing his job, is unable to find alternative employment can apply for unemployment benefit from the Employee Insurance Agency. This application must be received by the Employee Insurance Agency one week after the end of the notice period from the bankrupt employer. Is your company in financial difficulty and would you like to know more about your obligations as an employer? And the rights that employees have? Our specialists in bankruptcy law and employment law will be happy to give you specific advice about the consequences of bankruptcy for employees. Feel free to contact us for more information.