How does the reform of the Bankruptcy Law affect the sale and purchase of production units?

Previously, we told you about the Insolvency Law in Spain and the reform presented in Law 16/2022. But, what are the implications for the sale and purchase of production units? In this article we will inform you about its different phases and advantages.

Business units or productive units (BUs)

When we talk about business units or productive units, known by their acronym “BU”, we refer to a set of organized means involved in the development of an essential economic activity.

In this sense, we understand that in the business sector, the same company may have several production units in its structure, depending on the nature of the activities it performs.

It is important to note that the new Insolvency Law promotes the sale and purchase of these production units in Spain, with the intention of safeguarding the business fabric and promoting jobs.

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Advantages offered by the acquisition of production units

However, the sale and purchase of productive units after the reform of the Bankruptcy Law currently offers several advantages. These are:

• The bankrupt company is allowed to maximize the value of the assets; this means that they will be worth more in function than as isolated elements.
• Creditors also benefit, since the higher the value of the assets, the better their claims will be satisfied.
• In the case of the buyer, attractive prices are mentioned as an incentive to invest in this type of operation.
• Workers can keep all or most of their jobs.
• Another advantage of great value revolves around the economy in general, since the activity of a company is preserved, instead of liquidating its assets.

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Phases in the acquisition of production units

On the other hand, the Bankruptcy Law regulation provides for the acquisition of the productive units, through 3 phases:

1. Common phase

As a general rule, PUs are not usually sold at this stage, except in exceptional situations. Therefore, there is a legal prohibition to sell without the judge’s authorization, which allows the Bankruptcy Authorization to do so only in cases that are indispensable for its viability.

Thus, most of the sales will be conducted through an electronic auction, unless the judge rules otherwise.

2. Agreement phase

The reform of the Insolvency Law does not add modifications with respect to the sale and purchase of production units in the reorganization plan phase. Therefore, there is still the possibility that the reorganization proposals consist of the acquisition of production units.

Likewise, a prior hearing with the workers’ representatives will be necessary for its admission for processing.

3. Settlement phase

Unlike the common phase, it is in the liquidation phase that the acquisition of productive units is generally carried out. The amendment to Law 16/2022 establishes the elimination of the liquidation plans previously imposed by the Insolvency Administration (CA).

In this sense, the liquidation phase becomes governed by a set of rules dictated by the judge, and they will be complied with, modified or be left without effect if he so decides, or by prior request of the CA.

In turn, certain special formulas are mentioned in this phase. Among them we can mention the following aspects:

Submission of a request for tender with an offer to acquire one or more production units.

The purpose of this regulation in the Bankruptcy Law is to ensure that the sale and purchase process is carried out in an optimal time frame. The time periods foreseen have the following approach:

• 15 days for comments by creditors, alternative proposals, and evaluation reports by the CA
• 5 days for evaluation reports by the CA, if there are other alternative proposals.
• 3 days estimated for bid improvement
• 3 days for the most advantageous approval

In addition, you should know that the bidder will be the one who assumes the obligation to continue the activity of the productive unit for a minimum of 3 years; and in case of failure to do so, the affected parties may claim for possible damages.

Another novelty corresponds to the possibility for workers to submit a bid, by means of the constitution of a cooperative, labor or participated company. In these cases, priority is given to bids that are equal to or higher than the other existing bids, provided that it is in the interest of the bidding process.

The bids must take into account the publicity issue and be published through the Public Bankruptcy Registry; therefore, the judge may request the information he deems appropriate from both the debtor and the bidder to facilitate the presentation by creditors or third parties.

Pre-pack” procedure

The pre-pack is characterized as an agile and hybrid mechanism that carries out the sale of a PU, being agreed prior to the contest and its execution takes place after the corresponding declaration.

This type of procedure consists of requesting the appointment of an expert to be in charge of collecting the bids for the transfer of the production unit; it is thus considered to be optional.

On the other hand, in these procedures, the bidder will also assume the obligation to continue with the activity for a minimum of 2 years.

 Special procedure for microenterprises

In the case of the sale of productive units involving microenterprises, 3 key aspects are taken into account:

• When the sale cannot be made directly, it will be carried out through an auction.
• Price will be given preference and preference will be given to the offer that is 15% higher than the next one, and maintains the rest of the conditions.
• In the case of bids that differ in content, the rule of preference shall also apply.

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If you have a business in Spain and want to stay informed about the main regulations that may affect or benefit you, TAS Consulting is your reliable partner. On our website you can find out everything you need to know about the Spanish business sector or contact our advisors to clarify your doubts.