The amendments to the Spanish Royal Legislative Decree 1/2020, of May 5, approving the revised text of the Bankruptcy Law, have introduced important changes, especially with regard to the purchase of the productive unit of a company in bankruptcy (art. 215). The aim of these amendments has been to streamline business restructuring processes and encourage the continuity of the economic activity of companies affected by bankruptcy.
Below, we proceed to gather the requirements and advantages that these changes entail:
A. Requirements for the Purchase of a Productive Unit:
1. Guarantees of Continuity of Activity:o The productive unit must remain operational and functioning after the purchase. This implies that the continuity of the economic activity must be guaranteed. This, in part, seeks to prevent the purchase from resulting only in a liquidation without benefits for the economy or the employees.
2. Identification of the Productive Unit:
o The assets and liabilities belonging to the productive unit must be clearly identified. The productive unit may include not only material goods, but also contracts, workers, intellectual property rights and other intangible assets necessary for its operation. The perimeter to which the productive unit to be acquired is limited must be perfectly determined.
3. Auction Process:
o The acquisition process must be transparent, and in many cases, a competitive procedure is established where different buyers can submit offers. The judge supervises the auction process, ensuring that it is carried out in an objective and equitable manner.
4. Opposition to the Auction:
o There are mechanisms that allow certain creditors or interested parties to present opposition to the sale, if they consider that their rights are not being fulfilled or that the process is detrimental to the bankruptcy.
5. Liability for debts:
o When purchasing a productive unit, the buyer may assume certain debts or liabilities of the bankrupt company, but not necessarily all of them. Also, agreements can be established to distribute the debt burdens so that they do not fall entirely on the buyer.
6. Compliance with labor rights:
o In the event of acquiring employment contracts, it must be guaranteed that the employees of the bankrupt company maintain their working conditions (including seniority).
B. Advantages of the Purchase of the Productive Unit:
1. Streamlining of Bankruptcy Processes:
o The modifications to the Bankruptcy Law seek to accelerate the restructuring of companies in crisis. The purchase of the productive unit is an alternative to the total liquidation of the company, which allows avoiding total closure and potentially preserving jobs and maintaining economic activity.
2. Possibility of Restructuring without Inheriting All the Debts:
o One of the most significant benefits for the buyer is that, when purchasing a productive unit, not all the debts of the bankrupt company are always assumed. The buyer can acquire only the assets necessary to continue operating, which minimizes the financial risk.
3. Subrogation to Employees but not to Social Security:
o If the acquisition of the staff is part of the productive unit, their conditions will be guaranteed, but the buyer does not acquire the debts that the company may have contracted with Social Security in bankruptcy.
4. Tax Advantages:
o The acquisition of the productive unit in bankruptcy excludes the possibility of a derivation of the debt contracted by the company in bankruptcy, by the Tax Agency.
5. Facilitation of Business Continuity:
o By purchasing a productive unit, the buyer has the opportunity to acquire a functional part of the company with a history of operations, clients, suppliers and brand, which can facilitate entry into new markets or expansion in the business.
6. Preservation of the Brand and Clients:
o A key advantage is that, by acquiring the production unit, the buyer can retain the brand, the client base and the supply contracts, which can make the purchase more attractive than starting from scratch.
7. Possibility of Better Purchase Conditions:
o Since the company is in bankruptcy, the buyer may have access to more favorable conditions, such as lower prices for the assets of the productive unit, than if the purchase were made within the framework of a more stable business situation.
Conclusion:
The purchase of a productive unit within the framework of a bankruptcy is an interesting option for both the buyers and the employees of the affected company. The reforms to the Bankruptcy Law have facilitated this type of operation, allowing the restructuring or continuation of business activities without the need to assume all the debts of the bankrupt company and with the possibility of maintaining jobs. For the buyer, this operation presents a way of acquiring valuable and functioning assets, with a relatively reduced risk, since it can determine which debts it assumes.
Madrid, November 26th, 2024.
Author: Laura Gobernado Guzman. Partner at MG Abogados, Madrid, Spain.
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