The silent administrator for pre-pack bankruptcy arrives in Spain
By Manuel Gordillo, Partner, Abencys
The Mercantile Courts of Barcelona have recently developed guidelines for pre-pack transactions (the “Guidelines”) that imply the introduction of the Silent Administrator in Spain, following the example of other jurisdictions as UK and The Netherlands.
The court process to sell the businesses of a company under insolvency in Spain sometimes proves inefficient due to the protracted duration of such process. This was due to several factors but mainly the need of granting all the parties involved legally established periods of time to exercise their rights and the time needed by the Insolvency Practitioner to get a reasonable knowledge of the company.
As a result, the time consumed by these factors usually caused a quick loss of value of the business at stake and, consequently, a loss in terms of creditors’ satisfaction, employment and productive economic activity.
Besides, before filing for insolvency the owner or the management of the company in distressed have usually devoted time and engaged in fruitful negotiations with possible purchaser of the business that, after filing for insolvency, turn futile due to the time needed to obtain the approval by the court on the transaction, complying with every provision of the Spanish Insolvency Act.
In this sense, the Guidelines are a very reasonable attempt to deal with all these difficulties and simultaneously comply with the three main legal principles of any bidding process under Spanish Laws: disclosure, openness and competition.
In brief, the Guidelines create the possibility for the seller to engage in negotiations with possible purchasers but being supervised from the beginning by the Silent Administrator appointed by the court, who will provide the court with a report about the transaction that will make it far simpler for it to be approved in a more agile way.
Although the Guidelines have not been developed as a piece of legislation formally passed by the Spanish legislator, it clearly falls within the provisions of the Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency).
Regarding the main functions of the Silent Administrator, these would be as follows:
- To assist and supervise the company when preparing the transaction
- To get reasonable knowledge of the company and its business
- To inform the creditors of the whole process and, if necessary, participate in the negotiation process, liaising especially with privileged creditors, public creditors and representatives of the workforce.
- To assure the disclosure, openness and competition of the whole process, especially the equal access to the same information for all bidders and interested parties.
- To issue a final report about the whole process
Once the process is completed, and the report is issued, the company will submit it before the court along with its application for insolvency. In the ruling rendered by the court opening the insolvency proceedings, a 10-days period will be granted to file possible objections to the transaction. After that, the court will approve or not the transaction. The decision will be immediately enforceable despite the fact that parties may challenge it by filing a motion for reconsideration that will be solved by the same court.
In conclusion, we do believe that the Guidelines will be a very helpful tool for companies under distressed situations in terms of creditors’ satisfaction, employment and productive economic activity.
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