This is a mechanism consisting of the implementation of one or more operations (normally a sale) regarding all or some of the assets of a company in crisis which is a going concern. The mechanism is prepared by the debtor, before the opening of the insolvency proceedings, with the supervision of an independent expert (who will become the future insolvency administrator), appointed by a judge who is competent to hear the insolvency proceedings. The judge, where applicable, will authorise these operations immediately after the declaration of insolvency.
The advantages are important because, as well as in many cases allowing the continuity of the business, or of a part of it, it also allows for the satisfaction of the interests of the creditors, the suppliers, the workers and also of the company’s clients. In addition, it allows for shortening the time compared to the time that would be necessary if it were processed within insolvency proceedings, so that the loss of value of the assets is avoided, for they are now able to be sold at a very early stage.
This mechanism is not expressly regulated by the Insolvency Act, and falls within the nature and objective of the EU Directive 2019/1023, of the European Parliament and of the Council, of 20th June 2019, on preventive restructuring, frameworks which must be transposed into Spanish law prior to 31st July 2021. Within this context, the Commercial Courts of Barcelona have published, on 20th January 2021, several Guidelines for the procedure of processing the insolvency pre-pack, establishing three phases:
1a) Request phase;
2a) Preliminary phase;
3a) Phase of legal authorisation and of the implementation of the operations.
The first phase starts with the filing of a written document (this can be that foreseen in article 583 of the consolidated text of the Insolvency Act (TRLC), through which the debtor communicates to the court the opening of negotiations with their creditors, although it can also be a later document) in which the debtor makes it clear that they are preparing operations in relation to the company’s assets (this can be the whole company, or just one or more productive units, or the global sale of various assets). In this initial document, the debtor requests the appointment of an independent expert, who will be designated by the Court as competent for the insolvency declaration. In order to be accepted, the request must be accompanied by an array of documents, including, but not limited to, the following:
a) Proof of having completed the virtual form published on the website of the Company Channel, of the Directorate General for Industry of the Generalitat (Catalan government), with the purpose of reporting and publishing the essential data of the business units or assets which are in a situation of crisis;
b) List of representative associations, competitor companies, financial or industrial resources, and also direct investors (national or foreign) with which the debtor has already contacted and/or has promised to contact throughout the process, in the search for parties with a potential interest in acquiring what is being prepared. The applicant is obliged to inform the aforementioned potential buyers of the existence of a Register of Interested Parties, on which they can register, within the website of the Company Channel of the General Directorate for the Industry.
In the second phase, which can be of a reserved nature, the independent expert must respect the debtor’s powers of management and disposal of their assets, recording in writing the observations which they consider appropriate. Their functions will be: to assist and supervise the debtor in the preparation of disposal operations, to familiarise themselves with the business, to inform the creditors about the process, to verify and supervise the regularity, publicity and transparency in the preparation of the operations regarding the company’s assets, guaranteeing the equality of access, to both information and opportunities, among the potentially interested parties, and to issue a final report about the processes carried out and the prepared sales. In this phase, the rules of disposal of productive units established by the consolidated text of the Insolvency Act and by the Commercial Courts of Barcelona must be respected. The final report will become known to the debtor, the Court, the workers’ representation and also to the most relevant creditors (and in any case the privileged and public creditors). It will contain an impartial assessment of various factors: the publicity of the process, information provided and the equality of opportunities, the guarantee of free and fair competition, the reasonability of the final price, advance payments, evolution of the value of the assets once insolvency has been declared, and, in the case that the assets are not sold immediately, a proposal to implement one or more binding offers of purchase.
In the third phase, the debtor files, along with the application of the insolvency declaration, the final report of the independent expert, with the final proposals to implement binding purchases (of the company, productive units and/or global assets). In the court order declaring bankruptcy, the proposals are notified during ten days so that the creditors or any interested parties can make allegations. Once said period has passed, the independent expert, now acting as insolvency administrator, will issue a report about the liquidation plan and, the following day, the judge will issue an order, authorising or denying the sale operations planned by the debtor.
An example of the insolvency pre-pack was the award carried out on 30th October 2020, by the Commercial Court no. 7 of Barcelona, of the productive units of the companies Crail S.L. and Linguistic Systems Institute S.L., in favour of Wall Street English Franchising Spain S.L. In this case, the debtor, facing a crisis situation created by the pandemic, as well as an unaffordable debt, filed a document requesting pre-insolvency, and asked the Court to designate an independent expert who would supervise the search for a buyer. The expert was designated, and after the inclusion of the productive units on the list of the Department of Business of the Generalitat, he contacted various operators, among which was Wall Street English Franchising, a multinational company of Italian origin, with more than 40 schools in 29 countries. The Spanish subsidiary acquired the productive units which were for sale, thus ensuring the continuity of courses (which had already been paid for) for more than 1,000 students, and also the maintenance of the workers’ contracts.
Mireia Bosch
Vilá Abogados
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26th February 2021
