On several occasions, colleagues from Scandinavian law firms, or the governing bodies of companies established in Spain (or considering doing so), have asked us whether we were aware of any sales or acquisition opportunities involving real estate assets or production units in Spain that could be bought from local companies in financial difficulties.

The possibility of directly acquiring a company, real estate assets, or production units very often arises with the more or less imminent provision of a declaration of bankruptcy from the company that needs to sell these actives or even sell the whole company itself.

In this regard, the concept of the pre-pack aims to prevent the deterioration and devaluation of the asset or production unit caused by the excessively lengthy bankruptcy proceedings, especially when compared to other jurisdictions, as well as the stigma generated by the bankruptcy process itself.

Legislative background

It is precisely in this context that the figure of the pre-pack appears as an interesting mechanism within Spanish legislation, a concept already adopted from other jurisdictions in our environment and from EU Directive 2019/1023, previously discussed in a Zafo Laws’ article regarding liability arising from the sale of production units published some years ago.

We may refer, for example, to two cases:

The “pre-pack administration” model implemented some time ago in the United Kingdom through the Ley de Emprendimiento de 2002. Under this mechanism, an insolvency practitioner is appointed to seek approval from a majority of creditors for the sale transaction prior to and within the bankruptcy proceedings.

It has also been applied in the Netherlands, where the term “silent trustee” originated, inspiring the Spanish Corporate Courts’ concept of the “silent administrador.” In the Netherlands, the technical assignment goes further, as the silent trustee is also entrusted with obtaining the financial information of the potentially insolvent company, which will request court authorization for a pre-sale (pre-pack) to carry out a safeguarded fast-track sale under the technical supervision of the silent trustee.

Procedural application of the pre-pack – scenarios

Returning to Spanish insolvency legislation, the so-called pre-pack is used as a mechanism to facilitate the pre-selection of offers for a production unit (sometimes a real estate asset, other times a production unit) before the declaration of bankruptcy proceedings, through the appointment by the Court of a qualified expert authorized to receive offers.

This expert may operate under three different scenarios, although essentially within the same procedural framework: 1) probable insolvency, 2) imminent insolvency, or 3) current insolvency.

As may be expected from a purely bankruptcy procedural perspective, the pre-pack neither avoids nor exempts the debtor from the obligation to file for bankruptcy proceedings if there are grounds for doing so. One matter appears to remain independent from the other.

Mandatory conditions of the offers

Points to consider in the procedure under Spanish legislation:

• Offers for the acquisition of the production unit must be paid in cash (no deferred payment is permitted).
• The offeror must undertake to continue the business activity (we could analyze in future publications the criteria applied regarding the preservation of companies’ workforces.).
• Failure to comply with such commitment may arise the right of liability for damages at the request of any affected party (although it would arguably be more appropriate to specify the injured parties capable of proving such damage).

Following the declaration of bankruptcy proceedings, the sale is normally completed as a production unit sale (as discussed in previous publications), with the expert who collected the offers being appointed as bankruptcy administrator. Only justified cause would generally prevent such appointments (which may include a conflict of interest or other special circumstances).

Joint or separate filing

Clearly, this framework reflects the intention of the Spanish legislator to allow transactions to be completed under market conditions (or at least as close as possible to them), by gathering offers prior to the declaration of bankruptcy proceedings itself. To this, we may add the element of immediacy in the closing of the transaction as the procedural starting point intended by the legislator. For this purpose, through the Spanish act “Ley de emprendimiento de 2022” it is possible to start the bankruptcy proceeding together with a binding offer of acquisition. This will not prevent the offer from being reviewed by the subsequently appointed expert.  

Appointed expert

What professional profile should this expert have? Who may assist them during the process?

The expert must be a company restructuring specialist or bankruptcy administrator, with the Corporative Court judge establishing the duration of the appointment as well as the fees that must perceive. The debtor may support the expert in this task, as they may be well informed with the circumstances surrounding the transaction, and the expert may also have the support of consultants and third-party specialists. However, such assistance must be provided within the expert’s own remuneration and may not increase it. If the direct sale becomes impossible, judicial auction proceedings may still be used as a subsidiary method of sale.

Finally, when establishing the conditions of sale within bankruptcy proceedings, the expert and subsequently the bankruptcy administrator must establish objective guidelines for evaluating offers: price, payment methods, business plan, viability, financial backing and solvency, including the possibility of setting a minimum price in order to avoid prejudice against creditors.