The Pre-pack. New formula for the express sale of production units

The Barcelona Commercial Courts agree on the protocol to be followed for the express sale of production units

The Pre-pack

Since the financial crisis of 2008, the transfer of production units in bankruptcy proceedings has become one of the most effective ways to mitigate the loss of jobs and business fabric that occurs in situations of business insolvency.

One of the main obstacles to the sale of production units was the slowness required by the procedure and the need to guarantee that these operations were carried out in a transparent manner.

In 2011, the previous Insolvency Act was amended, introducing Article 191.ter of Insolvency Act 22/2003, which provided for a procedure that would enable the rapid adjudication of the production unit when a binding offer to purchase the production unit was submitted together with the application for the declaration of insolvency.

The practical application of this formula, which is contained in Article 530 of the current Consolidated Text of the Insolvency Act, generates many misgivings among judges and insolvency administrators, as it is the insolvent debtor himself who is responsible for the prior management of the sale procedure and the choice of the offer that he finally presents to the Court.

These misgivings have meant that, in practice, when a debtor uses the formula of Article 530 TRLC, the insolvency administration or the court itself re-processes the entire sale process to guarantee transparency and free competition. Thus, in practice, the speed provided for in article 530 TRLC was diluted.

In recent months, work has been carried out on the possibility of establishing a mechanism to guarantee that the process prior to the sale of a production unit has been carried out in a transparent manner and respecting free competition. To this end, the possibility has been raised of this prior process being supervised from the outset by the person who will be the insolvency administrator in the subsequent insolvency proceedings.

This process is known as “Pre-pack” (pre-packaging) and takes as a reference existing experiences in other jurisdictions in which the aim is to prepare for the subsequent award of the production unit within the insolvency proceedings. This process is not currently expressly included in our legal system. Despite this, based on the provisions of Directive 2019/2013, which foresees the possibility of integrating the figure of the restructuring administrator into the legal systems of the member states, the Commercial Courts of Barcelona have approved a series of guidelines to serve as a guide for the processing of the Pre-pack insolvency proceedings.

Guidelines agreed by the Barcelona Courts

The Pre-pack, as set out in the guidelines approved by the Barcelona Commercial Court, will consist of the appointment of an independent expert or restructuring administrator who will be responsible for supervising the process of selling the production unit prior to the application for insolvency proceedings and will verify that the process has been carried out in accordance with the principles of transparency and free competition. In this way, once the insolvency proceedings have been declared, the production unit can be awarded more quickly.

The protocol approved by the Barcelona Commercial Court will only be applicable at the request of the insolvent debtor.

The request will be made by the debtor in the same communication provided for in article 583 of the TRLC (“pre-concurso”) or in a subsequent document filed within the pre-concurso period. In this document, the debtor must request the appointment of an independent expert or administrator in restructuring matters. In order to be admissible, the debtor must:

• accredit that it has informed and publicised the sale process through the Canal Empresa of the Directorate General for Industry of the Generalitat de Catalunya.
• provide a list of companies, sectorial or territorial associations with which it undertakes to contact in order to seek possible interested parties or bidders and which must be informed of the existence of a Register of interested parties on the Canal Empresa portal of the Directorate General for Industry.

It is envisaged that this phase may be subject to the reserved nature provided for in art. 583 TRLC, if so requested.

The Court will proceed to appoint this independent expert or administrator in restructuring matters. This expert, once the insolvency proceedings have been declared, will also be the insolvency administrator. The rules laid down in the TRLC for the statute of the insolvency administrator will be applicable to this expert, in particular those relating to appointment and liability. The remuneration of the independent expert during this pre-insolvency phase will be that corresponding to the fees of the insolvency administration foreseen for the liquidation phase.

During the pre-insolvency phase, the independent expert may not interfere in the debtor’s powers of administration and disposal, without prejudice to the recording of any objections that he may deem appropriate. His functions during this phase shall be limited to:

• Assist and supervise the debtor in the preparation of operations.
• Become familiar with the business.
• Informing creditors of the process, participating in negotiations, especially with privileged and public creditors, as well as with workers’ representatives.
• Verify and supervise the regularity, publicity and transparency in the preparation of operations relating to the sale of company assets, guaranteeing equal access to information and equal opportunities among potential interested parties or bidders and fair competition.
• To issue a final report on the management carried out.

During this process, insofar as they are applicable, the rules established by the TRLC for the disposal of productive units must be respected.

This phase concludes with a report by the independent expert, which is made known to the debtor, the court, the workers’ representatives and the most relevant creditors and, in any event, the privileged and public creditors.

The expert’s report must contain an impartial and independent assessment as to whether the free and fair competition of the interested parties has been guaranteed and whether the final price offered is reasonable (taking into account the specific circumstances). It must also contain a forecast of the evolution of the valuation of the assets in question once the insolvency proceedings have been declared and in the event that the sale of the production unit is not implemented immediately. Finally, it must propose the implementation of one or more binding offers or the formulation of alternative or complementary proposals.

When the debtor files for insolvency proceedings, it must attach the independent expert’s report, as well as the final binding purchase offers, which will be processed in accordance with art. 530 TRLC.

In the Order declaring the insolvency proceedings, the proposals will be transferred for 10 days, so that the creditors or any interested party may make the relevant allegations.

Once the 10-day period has elapsed, the independent expert, already an insolvency administrator, must issue the report provided for in the Law on liquidation plans and the Judge, on the following day, will issue an order authorising or denying the operations.

Conclusions

The agreement adopted by the Barcelona Commercial Court Judges will reduce the time taken in the procedure for the sale of the production units, with the corresponding reduction in costs and increase in their viability.

With this agreement, the predisposition of the Barcelona Commercial Court Judges to encourage the sale of production units as one of the formulas that will help to avoid the disappearance of companies and jobs, in view of the probable avalanche of bankruptcy proceedings that is foreseen for when the moratorium on the obligation to file bankruptcy proceedings agreed by the Government comes to an end, is once again made clear.