In this case the ECJ were asked to consider whether there was a transfer under Art 1(1) of the Directive in a Slovenian case in which domestic banking legislation mandated the transfer of client accounts to an authorised broker on the closure of brokerage.
D was employed by a brokerage, BK. In December 2011 BK decided to cease to provide investment services and its stock exchange intermediary service. Slovenian banking law required that on ceasing to provide such services the brokerage company was required to make arrangements for the transfer of financial instruments and other assets managed for the clients and client accounts relating to debt securities and other services to another authorised brokerage. It was also required to transfer all documentation and its liabilities in relation to management and storage of relevant documents to the authorised brokerage. I.e. it could not simply shut up shop without arranging for the clients to be serviced by another brokerage.
In June 2012 BK entered a transfer agreement with AI in accordance with Slovenian law. However, it was also agreed that BK would itself work for AI as a dependent stock exchange intermediary. BK informed clients in July 2012 that it was ceasing to provide stock exchange intermediary services and asked for their consent to transfer to AI and informed the clients that if they failed respond they would be deemed to have consented. 91% of BK’s clients transferred to AI. BK was subsequently deauthorised by the stock exchange and authorised to provide serves as a dependent stock exchange intermediary only. BK terminated the employment contracts of all employees in its investment served including that of D in October 2012. D subsequently brought a claim in which he argued that he should have transferred to AI.
BK and AI resisted D’s claim on the basis that BK had no choice but to enable the transfer of those clients who consented as that was required by domestic legislation. Furthermore, the transfer did not apply to employees, premises or equipment and client could elect not transfer to AI but move their account to another brokerage.
The Decision of the Slovenian Court
The Solvenian court held there was no transfer within the meaning of Art 1(1) as the transfer agreement entered into by BK and AI did not entail a change of employer within Art 1(1). It considered as decisive the fact that BK did not transfer its clients to AI. The fact that almost all of its clients chose to move to AI was not a sufficient ground for concluding that there was a ‘transfer of an undertaking’ within the meaning of Directive 2001/23. Moreover, BK continued to carry out financial intermediary activities, including for AI, confirmed there was no transfer.
The Supreme Court of Slovenia referred three questions to the ECJ for a preliminary ruling which the ECJ summarised as follows:
The referring court asks, in essence, whether [Art 1(1)] must be interpreted as meaning that the transfer, to [AI], of the financial instruments and other assets of the clients of [BK], following the cessation of [BK’s] activity and under an agreement the conclusion of which is required by national legislation, constitutes a transfer of an undertaking or of part of an undertaking, even though (i) [BK’s] clients remain free not to entrust the management of their stock market securities to [AI] and, (ii) [Bk] continues to operate as a dependent stock-exchange intermediary and, in performing that role, cooperates with [AI].
The Judgment of the ECJ
The ECJ re-emphasised, by reference to the established case law: (i) the multi-factoral approach to determining whether or not there was a transfer and in a case such as this where the economic activity is based primarily on intangible assets, the transfer of those assets is of undoubted importance; (ii) that the decisive criterion was whether the entity retained its identity and; (iii) the concept of a legal transfer must be given a sufficiently flexible interpretation to provide for the protection of workers in the event of a change of employer.
On the specific facts it held that:
- BK’s Office for Investment Services was an economic entity, as it had human and logistical resources enabling the exercise of an economic activity consisting in the provision of brokerage services and the performance of investment activities for instructing parties.
- The fact that BK continued to operate as a dependent stock-exchange intermediary and, in performing that role, cooperated with instructing parties, including AI, was, in principle, irrelevant to the classification of the transaction as a ‘transfer of a part of an undertaking’.
- Here the intangible assets, the financial instruments and other assets of the instructing parties, the clients, the keeping of their accounts, the other financial and ancillary services, as well as the maintenance of records, namely the documentation relating to the investment services provided to clients and the investment activities carried out for them, contributed to the identity of the economic entity. The transfer of those items was necessarily subject to the express or tacit agreement of the clients as, in a context such as that here, an undertaking that ceases its activity could not require its clients to entrust the management of their securities to the undertaking of its own choosing.
- As BK’s clients were not bound by the transfer agreement entered into with AI, and could freely decide to transfer their securities to the latter, this cannot, in itself, preclude there being a transfer.
- For the transaction to be a transfer it must be established that there was a transfer of clients. To that end, it was necessary to carry out an overall assessment of the facts, taking into account, in particular, the incentives offered to BK’s clients to entrust the management of their securities to AI. Whether the clients had an express choice or not as regards the transfer of their accounts to AI, or whether there was a default transfer of the records relating to their accounts was a relevant matter to be taken into account. Another factor to be taken into consideration was the provision of financial incentives such as covering transfer fees in the case of transfer to AI.
- The fact that 91% of clients transferred was not, on its own, sufficient to establish a transfer as this only followed the transfer agreement.
The ECJ concluded by summarising the position as follows:
The transfer, to a transferee, of financial instruments and other assets of the clients of a transferor, following the cessation of the transferor’s activity, under a contract the conclusion of which is required by national legislation, even though the transferor’s clients remain free not to entrust the management of their stock market securities to the transferee, may constitute a transfer of an undertaking or of part of an undertaking if it is established that there was a transfer of clients, that being a matter for the national court to determine. In that context, the number of clients actually transferred, even if very high, is not, in itself, decisive as regards classification as a ‘transfer’, and the fact that the transferor cooperates with the transferee as a dependent stock-exchange intermediary, is, in principle, irrelevant.
Link to judgment