The Sale of a Production Unit in a Bankruptcy Procedure.

1. What is a Production Unit ?
   1. Definition.
   2. The main key is functional autonomy, and not the identity of the means.
2. Is there a business succession when a Production Unit is acquired ?
   1. What debts are acquired?
   2. What happens with the Social Security Debts?
   3. What are the Competent Courts to decide wether there is business succession in a particular case or not.
3. Is selling a Production Unit the same as performing an overall sale ?
4. What should be taken into account when selling a Production Unit?
   1. Set the perimeter of what is going to be acquired.
   2. The Price.
   3. The contracts.
5. Is it posible to appeal against the Production Unt Assignment ?
   1. In Common Phase.
   2. In Liquidation Phase.

What is a Production Unit?

Definition.

1. 1. There is no definition of Production Unit in our Bankruptcy Procedure Law (LC from now on).
   2. Still, the terminology “unitary alienation” is used in the mentioned law several times.
   3. Article 148.1. LC. describes the unitary alienation of production units, as well as exploitations and stablishments.
   4. Also, article. 149.1. LC. literally repeats the reference to article 148.1. in order to describe how the liquidation should take place.
   5. Our Civil Code, in its article 1532, refers to overall sale, which we will discuss about in section 3 of this article.
   6. The best approaches to the concept of Production Unit are in The Workers’s Statute and in the VAT (Value Added Tax) Law.
      • The article 44 in The Worker’s Statute defines it as a set of organized means that can execute and economic activity by themselves.
      • Article 7 of the VAT Law describes a sum of corporeal and incorporeal means that are part of the companie’s assets and are capable of developing and economic activity by their own means.

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Jurisdictional and administrative procedures in the Bankruptcy Procedure.

The main key is functional autonomy, and not the identity of the means.

1. 1. The Production Unit exists without the workers.
   2. There is the possibility of a Production Unit without any assets.
   3. Several Production Units can coexist inside the same Company.
   4. The main attribute is the functional autonomy and not the identity of the means.

Is there a business succession when a Production Unit is acquired ?

1. 1. The main risk of acquiring a Production Unit in a Bankruptcy Procedure is that a business succession may be ruled.
   2. Business Succession implies acquiring -in addition to assets- all the liabilities (or at least, most of them).
   3. If the purchaser of the Production Unit is forced to acquire the bankrupted company’s liabilities, no company will want to buy. This situation puts at risk not only the Company that’s in the Bankruptcy Procedure but also the business activity related to the Company.
   4. What debts are acquired?
      • Tax Debts are not acquired.
        1. In article 42, our General Tax Law  excludes from the business succesion those who buy economic activities or exploitations belonging to a Company that is in a Bankruptcy Procedure.
      • What happens to the Social Security Debts?
        1. In article 127.2, our General Social Security Law stablishes that those who acquire a business, industry or exploitation will be jointly liable for these kind of debts.
        2. Article 104 of the same law also specifies the liability area of all the debts generated before the business succession.
        3. Therefore, nowadays (2020) the Social Security debts are acquired when buying  a Production Unit.
   5. What are the competent Courts to decide wether there is business succession in a particular case or not?

1. 1. 1. Our Supreme Court (STS October 29th, 2014) has ruled that the Social Courts, and not the Commercial Courts, are competent in order to decide wether or not the business succession has happened when the seller is in a Bankruptcy Procedure.

Is selling a Production Unit the same as performing an overall sale ?

1. 1. In article 1532, our Civil Code talks about  the overall sale of all income, products or rights.
   2. Overall sale does not define nor segment the elements that comprise them. That is the mean difference. And such difference leads to a different liability regime.
   3. Over sale only affects a set of assets that are not capable of generating economic or business activity.
   4. The Liquidation Plan must determine wether the disposals involved are Production Units or overall sales.

What should be taken into account when selling a Production Unit?

Set the perimeter of what is going to be acquired.

• • The Perimeter of the Production Unit must describe the assets it intends to incorporate.
  • These assets may be: Machinery, Contracts, Work Contracts, Real Estate, Charges, Authorizations and Licenses, and Price.
  • The price has to involve:
    • Payment or Financing Conditions, with bank proof of solvency.
    • The part of the price that is intended to pay the maintenance costs.
    • The part of the price that is retained as coverage for contingencies.

The price (Other price considerations).

• • Price is the key of every Production Unit offer. In the acquisition of a Production Unit, it is expected that different offers may converge. However, not all offers are homogeneous.
  • Some take into account the money they bring into the Bankruptcy Procedure, while others refer to the guarantees that are mantained or not mantained. And some of them refer to the coverage of maintenance costs until the assignment.
  • How to evaluate the best offer?

• • • Although the answer in the Courts is NOT unanimous, there us a major trend in considering that “Price is the cash that goes into the Bankruptcy Procedure assets.
    • Most Judges today do not contemplate compensations, cancellations or assumptions when evaluating an offer.

The contracts.

1. 1. Our Bankruptcy Procedure Law (article 146 bis) assumes the compulsory transfer of contracts when the Production Unit is acquired.
   2. But it is not an absolute transfer:
      • It doesn’t include contracts that are not inherent to the business activity.
      • Contracts with Public Administrations are governed by Administrative Laws.
      • However, Public Administrations are obliged to assume the subrogation by the purchaser.
      • The contracts in which the purchaser states that he does not intend to be subrogated are also not included.

Is it possible to appeal against the Production Unit Assignment ?

1. 1. In Common Phase
      • Only a Reconsideration Appeal.
   2. In Liquidation Phase.
      • The resolution that approves the Liquidation Plan can’t be appealed.
      • Cabe Recurso solo contra aspectos accesorios de la adjudicación de la UP.
      • Appeals may be made only against accesory aspects of the Production Unit Assignment.