How to acquire a company without debts/encumbrances in a bankruptcy procedure?

The buyer can (and must) limit the object of its acquisition, without the liabilities and/or contingencies that the transferring company has.

In this sense, in 2014 an important reform in bankruptcy procedure matters was introduced. Which directly affected the regulation of the sale of the production units.

This amendment introduced the “full-fledged” subrogation of the purchaser in the contracts and administrative licenses held by the debtor. Without the need for the consent of the other party.

Likewise, mechanisms for exemption from liability for previous debts have been arbitrated, except in certain specific cases. It is regulated that the transfer will not entail the obligation to pay credits not satisfied by debtor before this transfer. Whether they are bankrupt credits or credits against the estate. Unless the acquirer expressly assumes this obligation.

There is one exception: this is the case of acquirers especially related to the debtor (partners, administrators, group entities, among others). Also those cases of business succession for employment purposes. In these cases, these persons cannot acquire the company free of debt or encumbrances.

It is precisely the labour aspect that has generated the most controversy in this area. Precisely because of the regulation regarding the obligations assumed with regard to the staff of the bankrupt company being transferred.

Unlike decisions adopted by Supreme Court regarding joint and several liability between seller and buyer in labour and Social Security matters. Some Social Security Courts have modified the criterion by exempting the acquiring company from labor obligations.

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Purchase of Real Estate in a Bankruptcy Procedure

This article comments on one aspect of a recent Spanish Supreme Court ruling. This ruling questions the sphere of control of the Property Registry in the acquisition of real estate from a bankruptcy procedure.

Articles 148 and 149 of Bankruptcy Law provide two systems of liquidation of bankrupt companies: the conventional and the legal system.

Recent resolutions of the Superior Courts of Justice (TSJ) have some new considerations:. Transfer of production unit by means of conventional procedure may adapt to the rules of liquidations presented by the Receivership.  Being those liquidations approved by the courts and based on the offer made by the acquirer.

In this sense, it seems clear that once the submitted offer has been accepted there is no business succession for employment purposes. If it is stated in the offer that the acquirer is not obliged to subrogate himself or assume responsibility for the payment of the debts. Debts incurred prior to the transfer.

It does not seem that the acquiring company should take on the part of debt for salary and compensation not assumed by FOGASA. In accordance with the supplementary rules for liquidation established in Article 149. Applicable only when it is not possible to approve a liquidation plan within the bankruptcy procedure.

These resolutions interpret that the regulation (Article 149 LC) states that the acquirer shall not be subrogated as a debtor. Not replacing the transferor company in the amount of the wages and compensation assumed by FOGASA. The public body that will be subrogated as a creditor of the bankrupt company once it has paid the amounts owed. A condition in which the acquiring company is not therefore subrogated.

Without prejudice to the foregoing, the issue of business succession due to transfer continues to be subject of controversy. With the Supreme Court having conferred jurisdiction in this matter to the Social Courts.

If you liked this reading you can consult the following article for further information:

The Sale of a Production Unit in a Bankruptcy Procedure.