The bankruptcy proceedings Pre-Pack is born out of the need to guaranty an orderly and a more efficient way to proceed with the winding up process, thereby reducing the excessive duration of insolvency proceedings and in benefit of a higher percentage of recovery.
The sale of productive units of a company involved in bankruptcy proceedings and the required adherence to deadlines and proceedings rules, sometimes entails a long process that is incompatible with the maintenance of the company’s activity, its employees as well as the daily deterioration of the value of the assets of the company.
At the same time the efforts and work carried out by the company in bankruptcy proceedings searching for investors and third parties interested in acquiring a productive unit must be reported and attached as a binding offer to the bankruptcy proceedings application, this will be later examined by the official receiver who must verify that the procedural, prior to the offer being formalised, has complied with the requirements of advertising, transparency and concurrence of creditors.
The Pre-Pack is born with the intention to bring forward the process of preparing the transactions for the realisation of assets of the company before the declaration of the bankruptcy proceedings, and at the same time, these are supervised and verified by an independent expert who will become the official receiver once the bankruptcy has been declared.
This direct contact of the future official receiver with the process for the preparation of transactions in respect of the assets of the company will not only allow the verification that the required transparency guarantees have been complied with, but also to be familiarised with the business and its creditors. This will allow the official receiver to produce a final report with an implementation proposal for one or several binding purchase offers of the company as a whole, productive units, or balloon assets, the debtor company will be able to attach such report to its application of bankruptcy proceedings.
Due to the lack of such specific legal rules in Spain, the judges of the Commercial Courts of Barcelona have published some basic guidelines for the processing of the bankruptcy pre-packs, these were approved in a conference celebrated on 20th January 2021.
The work carried out by the debtor in respect of the company’s assets can be notified to the Court together with the notification of the pre-bankruptcy application, as well as the on going negotiations with its creditors.
Also, with the same application, the appointment of an independent expert insolvency practitioner can be requested, this expert will be the future official receiver once the bankruptcy has been declared (unless they were justified circumstances to the contrary).
In order to receive permission to proceed, the application should be filed, along with the following documents:
- a) Certification that the virtual form published by the Canal Empresa de la Dirección General de Industria de la Generalitat de Cataluña’s portal, has been duly completed in order to inform and publish the key details of the business units or the company assets in distress.
- b) List of the sectorial and local representative associations, business competitors, as well as financial or industrial funds or direct investors, national or foreign that the debtor has contacted (or committed to do it) during the process.
To this respect, on their communications, the applicant commits to inform said prospective bidders of the existence of an “Interested Parties Register” where the parties can register their interest through the Canal Empresa de la Dirección General de Industria de la Generalitat de Cataluña’s portal.
During this pre-bankruptcy phase, the independent expert will supervise the operations of preparation of offers that the debtor has undertaken, in order to verify if they comply with the information requirements of advertising and transparency. At the same time, the independent expert will get in direct contact with the business and will inform its creditors about the development of the process, especially to preferential and public sector creditors as well as the workers’ representatives.
The preliminary phase will end when the independent expert files their report detailing the steps taken and the proposed sales of the company’s assets.
Likewise, the independent expert will have to value, in an impartial and independent way, among other matters, if the process has received sufficient publicity, if equal opportunity among the interested parties has been guaranteed, if the information has been provided in equal terms and the final price obtained is reasonable considering the specific circumstances.
During this pre-bankruptcy phase, the debtor will keep control of the management and disposal of their assets.
Once the bankruptcy court order has been declared, the Judge will process the filed arguments of the proposals. If none are lodged and once the official receiver issues their winding up plan report, the following day, the Judge will dictate an order authorising or rejecting the sale operations proposed. This considerably shortens the proceedings timetable, bearing in mind that there is no right of appeal against the order.
Once the order is final, the official receiver will immediately proceed with the execution of the operations approved.