The planned EU Restructuring Directive will enable companies to take measures at a very early stage in an impending crisis situation and avert possible insolvency. In Germany, concrete proposals for the implementation of the Restructuring Directive can be expected imminently. These proposals will also affect the rights of employees and their representatives and in some ways strengthen them, reading between the lines of the Directive. 

Employee representation rights 

The Restructuring Directive stipulates that the measures, objectives and alternatives modes of restructuring should be discussed ‘in a dialogue’ with employees and their representatives. This refers in particular to the minimum requirements under EU law for consultation and information and national implementation. In addition, there is a strengthening of the participation rights in various parts of the Directive. 

The Directive also provides for the establishment of warning mechanisms to be triggered, for example, if a company no longer pays taxes or social security contributions. This information must be made available to employee representatives, who can apply for assistance to assess the economic situation (this is possible under s40 of the Industrial Relations Law, ‘BetrVG’). 

Employee representatives should be informed regarding the decision to initiate preventive restructuring proceedings. The economic committee should be informed in accordance with s106 (3)1 or s100 (2) BetrVG and the works council should also possibly also be informed in accordance with s111 BetrVG if the employer is already pursuing a concrete plan as to which objectives are to be achieved within the framework of preventive restructuring. 

There may also be a right for employee representatives to initiate the preventive restructuring procedure, even against the will of the company. 

Companies must inform employees and employee representatives in detail about the restructuring plans so that they are in a position ‘to examine the various scenarios in detail’. This may result in more extensive consultation than is currently required for ‘normal’ business changes. The legislative intention appears to be that information on group enforcement in social plans and the economic situation in the group (beyond the boundaries of the company concerned), for example, should also become relevant. 

Employees' rights 

If employees' claims are included in the restructuring plan, they are ‘affected’ and, like all other affected creditors, must agree to the restructuring plan. Overall, the restructuring plan is deemed to have been approved if the majority of the creditors in each class approve the plan. In any event, if the restructuring plan results in the loss of more than 25% of jobs, the plan must also be reviewed and approved by a judicial or administrative authority. Depending on how the plan is implemented in Germany, the authority must then check compliance with procedural regulations and the protection of creditors' interests. 

Scale and consequence for companies 

Due to the stricter requirements and strengthened rights for employee representatives formulated in the proposed Restructuring Directive, it is to be expected that German courts will apply a strict standard when reviewing restructuring plans. In particular, they will examine whether the employee representatives have been sufficiently informed about the current and future financing of the employer, the possible safeguarding as well as the economic scope of action of the employer, including its shareholders. If a company fails to comply with these consultation obligations, or fails to do so in time or sufficiently, the worst-case scenario is that the restructuring plan will be rejected by the employees concerned, or by a court. Companies are therefore well advised to recognise the scope of the information obligations at an early stage and to document the information carefully to prepare for possible later judicial review. 

Conclusion 

The EU Restructuring Directive does not simply reference existing employee rights. On the contrary, it stresses that employee interests should be taken into account more comprehensively in pre-insolvency proceedings. Employee representatives are likely to be entitled to advise on any measures planned as part of the restructuring plan even at the ‘pre-crisis’ stage and the scope of their right to receive information may well be greater than it is today.