{"id":2827,"date":"2021-05-19T12:10:16","date_gmt":"2021-05-19T10:10:16","guid":{"rendered":"https:\/\/carlotagonzalez.com\/what-is-pre-packaged-insolvency-and-what-advantages-does-it-have\/"},"modified":"2021-05-19T12:29:17","modified_gmt":"2021-05-19T10:29:17","slug":"advantages-pre-packaged-insolvency","status":"publish","type":"post","link":"https:\/\/carlotagonzalez.com\/en\/advantages-pre-packaged-insolvency\/","title":{"rendered":"What is Pre-Packaged Insolvency and what advantages does it have?"},"content":{"rendered":"\t\t
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The Barcelona Commercial Courts have established new guidelines for the sale of business units. This is the so-called Pre-Packaged Insolvency, a legal concept designed to speed up insolvency proceedings and avoid the loss of employment and business by using the still viable assets in a company engaged in insolvency proceedings. How does this process work and what are its benefits for creditors and debtors?<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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The average duration of insolvency proceedings in Spain is four years, although this may be extended further by the moratoria arising from the Covid-19 pandemic, according to the <\/span>Banco de Espa\u00f1a<\/span><\/a>. This has resulted in an increasing number of \u2018zombie\u2019 companies, i.e., unviable firms with frozen assets and balance sheets that withstand larger and larger losses as time passes without a solution.\u00a0<\/span><\/p>\n

Neither company voluntary arrangements, which require shorter periods of time, nor alternative options such as <\/span>corporate liquidation with a single creditor<\/span><\/a>, have significantly reduced the number of insolvency proceedings that are being \u2018dragged out\u2019 in the courts.<\/span><\/p>\n

In order to address this situation, the Commercial Courts in Barcelona have provided new guidelines, known as \u2018Pre-Packaged Insolvency\u2019, which make it possible to speed up the sale or transfer of the business units of a company engaged in insolvency proceedings.<\/span><\/p>\n

This option is not provided under <\/span>Royal Legislative Decree 1\/2020, of 5 May, approving the consolidated text of the Insolvency Act<\/span><\/a>. However, according to Directive 2019\/2013 on preventive restructuring frameworks, the role of the practitioner in the field of restructuring can be incorporated into the legal systems of the Member States. This is the touchstone of Pre-Packaged Insolvency.<\/span><\/p>\n

What is Pre-Packaged Insolvency?<\/b><\/h2>\n

The purpose of Pre-Packaged Insolvency is to <\/span>facilitate and speed up the sale of business units<\/b>, which is currently regulated under the Insolvency Act. Although the current process is intended to be a streamlined procedure, the truth is that it may become extremely slow and cause the value of the asset to decrease to the point of making the sale unfeasible.\u00a0<\/span><\/p>\n

In addition, sometimes the debtor, prior to insolvency proceedings commencing, has done a great deal of work to find potential purchasers for all, or part, of the company’s viable assets. However, even after the insolvency proceedings have been instituted, the periods required are so long that the regulations themselves (subject to the principles of transparency, openness, and creditor inclusiveness) may cause all this effort to have been in vain due to the deterioration of the units being held for sale.\u00a0<\/span><\/p>\n

So, what is new about this new concept?<\/span><\/p>\n

Basically, Pre-Packaged Insolvency involves the court\u2019s <\/span>appointment of an independent practitioner<\/b> (who will become the future administrator), who supervises the entire operations for the sale of the business unit by the debtor before the commencement of insolvency proceedings. The aim is to verify that the whole process has been carried out in compliance with the principles of transparency and creditor inclusiveness.\u00a0<\/span><\/p>\n

Pre-Packaged Insolvency is a three-part procedure: the application phase, the preliminary phase and the authorisation and implementation phase.<\/span><\/p>\n

1. Application phase<\/b><\/h3>\n

In the application to the Commercial Court to negotiate with creditors in accordance with Article 583 of the Spanish Insolvency Act, or in a subsequent application within three months after the initial one, the debtor may state that some operations related to the company’s assets (the whole company, production or business units, or a global asset sale) are in progress. These must be specifically reported and listed.\u00a0<\/span><\/p>\n

The debtor may also request that <\/span>an independent practitioner<\/b> or administrator be appointed (either in the initial application or at a later stage). This request will be processed and resolved within the file provided for in Article 583 of the Spanish Insolvency Act by the court competent to institute insolvency proceedings.\u00a0<\/span><\/p>\n

The documents that must accompany the application are:\u00a0<\/span><\/p>\n