European harmonisation of Pre-packs: Initiating a European race to the bottom at the expense of employees

On 23 May 2025, the European Council published its proposal for a directive to further harmonise the insolvency laws of the 27 Member States. The purpose of the Proposal is to achieve minimum harmonisation on certain insolvency law topics across Member States. This means that it lays down baseline rules that all Member States must implement, while leaving them free to go beyond these minimum standards if they so choose.

One key element of this Proposal is the harmonisation of pre-pack procedures within the EU. A pre-pack involves the preparation of the sale of a debtor’s assets or business before formal insolvency proceedings start, with the actual sale being executed shortly after the court opens insolvency proceedings. This mechanism is designed to preserve value for creditors by lining up the deal in advance, thereby minimising the risk of deterioration and loss of value between the insolvency declaration and the sale. At the same time, the (short) insolvency procedure can be used, for instance, to dismiss employees in order to 'right-size' the business. In this way, pre-packs are seen as an instrument to maximise creditor recovery.

The Proposal states in its Preamble in clear and unambiguous terms that employees’ rights should not be prejudiced by the enactment of a European pre-pack. In this paper on Corporate Finance Lab Rolef de Weijs and Johan Zwemmer argue, however, that the Proposal undermines rather than safeguards employees’ rights. The Proposal in fact opens the door to circumventing the Transfer of Undertakings and Businesses Directive, especially in related-party pre-packs where shareholders continue the business in a slimmed-down version.

The result would be a significant regression in employee protection across Europe, with Member States left to decide whether to offer protection nationally, thereby fragmenting, rather than harmonising, insolvency law.