Way out of the insolvency crisis: The sale of the production unit

The new Insolvency Act came into force on September 1, 2020. This clarifies, harmonizes and systematizes a matter that was the subject of countless and unsystematic partial reforms under its predecessor law.

Its entry into force has raised some doubts regarding how appropriate it is within the context of the current healthcare crisis caused by COVID-19, although there is consensus that it provides greater legal certainty than the previous legislation.

In principle, the instruments in the insolvency proceedings remain the same, from the section commonly known as pre-insolvency proceedings, which aims to reach an agreement with creditors to refinance the company's liabilities in order to avoid insolvency proceedings or obtain creditors' consent to a proposed agreement, to the express liquidation of a company that has no assets and for which continuation of the activity is ruled out. The course of action depends on the decision of the insolvency administrators. Not delaying the necessary steps is in the company's own interest in order to avoid a deterioration of the economic situation and, if necessary, the associated liability of the directors.

In terms of innovations, the amendment relating to the (complete or partial) transfer of a production unit should be highlighted. This transfer can take place from the beginning of the proceedings, which can avoid further massive and progressive deterioration of the situation. Likewise, it can be executed during an insolvency agreement. In that case, it must be adapted to the conditions that the judge has stated in the agreement and it also requires a percentage voting majority of the creditors for the agreement. Finally, the transfer can still take place during the liquidation phase, in which the terms of the insolvency agreement do not have to be complied with.

In this context, the new law contains an innovation for third parties interested in the production units of companies in crisis. These third parties will now be exempt from the labor and social security debts of the previous owner for the employment contracts that the new owner does not take over and will therefore only have to pay the costs for the employees who remain in the company.

Finally, another novelty concerns the method of transfer of the production unit. This can be done judicially, extrajudicially or by other means. For this purpose, the figure of the so-called "specialized companies" is introduced, which should make the sale of the production unit more agile and professional, and whose fees are charged to the fees of the insolvency administrators.

Overall, the innovations are intended to create incentives for third parties to acquire divisions or the entire company without having to assume the sometimes unsustainable debts of the insolvent party, which until now has often made a takeover unattractive. This is intended to provide the company in difficulty with a possible way out of the crisis.

lex.ahk.es/de/aktuelles-recht/ausweg-aus-der-insolvenzkrise-der-verkauf-der-produktionseinheit

Autor: Unai Mieza