Acquiring distressed companies’ business units, a guide

España - 
Adrián Thery, Borja García-Alamán, Juan Verdugo and Juan María Jiménez

We look at the differences and advantages of the Spanish and UK systems, pinpointing the more favorable elements of the Spanish system, designed to give greater security and certainty to the investor.

Over isolated sales of distressed companies’ assets, Spanish lawmakers preferred to provide an arrangement for sales of business units, meaning an organized set of resources able to preserve the greater value that any business has as a going concern, even if it is in distress. Transactions involving business units may be a very attractive opportunity for investors.

The reforms introduced in the Insolvency Law between 2011 and 2015 (at the height of the economic downturn in Spain) led to an increase in these transactions and brought the Spanish business unit sale arrangement closer to the UK’s pre-pack sales, historically geared towards preserving value, protecting investors and keeping the business afloat.

Although pre-pack sales in the UK are funneled through a smoother process –due to needing less judge and creditor participation–, business unit sales in Spain are blessed with greater advantages for investors, such as automatic assignment of critical agreements signed by the debtor, the general rule of the investor “not assuming” debts or the chance to carry out the transaction without the consent, or even with the objection of a portion of the secured creditors.

Garrigues’ restructuring and insolvency department has many years’ experience in negotiating and concluding this type of transactions. In their last article our lawyers explained the differences and similarities between transfers of business units in Spain and the UK, which share a common goal: maximize creditors’ recovery and at the same time allow viable business units to keep ongoing (even if the legal entity that previously owned the business is liquidated and disappears).

We look in depth at all these issues in an article published in GRR Europe, Middle East and Africa Restructuring Review 2019, covering the business restructuring and insolvency landscape, which can be read here. It was published in June 2019.