Insolvency proceedings are not the only option available to a company facing insolvency difficulties. Restructuring plans before and the sale of the production unit after the insolvency proceedings are two options to be considered in order to achieve the company’s continuity.
In this article we analyse the pros and cons of these alternatives to insolvency proceedings, a solution that still unfairly suffers a great deal of negative stigma and is often seen more as a way to dismantle the business than as a tool for its survival after a difficult transitional period.
The latest insolvency reform gives great weight to restructuring plans, consisting of pre-insolvency agreements of the debtor with its creditors or of the creditors and binding on the debtor. However, in the time that the new rules have been applied, successful restructuring plans have been scarce in comparison with the number of insolvency proceedings.
This is primarily because restructuring plans face a number of constraints:
In any case, the pre-bankruptcy mechanism of debt restructuring through a restructuring plan is an option to be taken into account due to its viability for medium and large companies.
When the insolvency proceedings fail and the insolvency agreement is not approved, there is still the possibility of selling the production unit in liquidation. This is an option that has grown significantly in the last year.
The sale of the production unit is a judicial procedure whereby all the assets inherent to an economic activity (material means, machinery, intangible assets, employees, etc.) are sold. The buyer does not assume the company’s debts prior to the transfer, whether they are bankruptcy debts or debts against the insolvency estate. The liabilities remain with the insolvent company unless the purchasers of the production unit are partners, administrators or relatives of the insolvent company.
The conditions for the sale of the production unit are as follows:
It is essential to identify and delimit the scope of the production unit to be transferred. A production unit is understood as an economic entity with a set of means organised for the purpose of carrying out an essential or ancillary economic activity.
Therefore, with the sale of the production unit we can save part of the company, that which is profitable.
In reality, the possibility of selling the production unit is not limited to the moment of liquidation of the insolvency proceedings. It can also be done in the common phase of the insolvency proceedings and even in the application itself. This must include a binding written proposal for the purchase by a creditor or third party. The aim should always be to take measures to save the company as soon as possible, at an early stage. If your company is in insolvency difficulties, please contact us as soon as possible for personalised advice.
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