1. IURISTAX
Acquisition of Companies
in Bankruptcy Procedding

2. Index
I. Bankruptcy proceedings: an approach to
the procedure.
II. Concept os production unit (PU).
III. Bankruptcy agreement:sale of PUs.
IV. Bankruptcy liquidation: sale of Pus.
V. Case studies.
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3. Bankruptcy proceedings:
an approach to the procedure
1. Insolvency. Stay/Dismissal of proceedings.
Application.
2. Judicial proceedins.
3. Mercantile courts. Bankruptcy administrators (BAs)
4. Common phase. Report. Assets. Liabilities.
5. Agreement phase.
6. Liquidation phase.
7. Rating.
8. Reintegration.
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4. IURISTAX

5. Guiding principles
Principle of par condicio creditorum.
Principle of universality.
Principle of protecting all assets.
Principle of restricting privileges.
Principle of continuity of company (art. 44 LC).
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6. X-ray of a company in bankruptcy
 Series of tensions.
 Refusal os suppliers to serve.
 Cuts in supplies.
 Calls of wildcat strikes.
 Dissatisfied customers for breaches.
 Disapproving or fleeing partners.
 Talent drain.
 Zero business training of BA.
 Collapsed courts.
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7. X-ray of a company in bankruptcy (II)
 Bureaucratic procedure.
 Guiding principles and rules created during a
boom period.
 Spring bankruptcy.
 Debtor’s fear os a guilty rating. Guarantees.
 PU buyer’s fear of being “contaminated” by
liability.
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8. X-ray of a company in bankruptcy (III)
 Demanding bankruptcy administration.
 Banks demanding guarantors.
 Press harassment with damaging news.
 Disoriented business person.
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9. Production unit: indeterminate legal
concept defining an independent
economic entity capable of
undertaking a business or
professional activity by its own
means.
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10. Series of human, intangible and
material resources forming a
business capable of functioning
independently and of being
transmitted.
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11. Features:
Only includes assets (without prejudice to the
transfer of undertaking for labour purposes).
Its value as a whole is greater to that of its
individual form.
There is a strong interest in maintaining it.
The differential factor is that the market perceives
continuity in the business withou any change other
than that of its owner.
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12. What is not production unit?:
 Exclusively all machinery without the workers.
 Trademark.
 Portfolio of contracts.
 Portfolio of customers.
 Hiring of a group of workers.
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13. THE AGREEMENT
Advantages:
Better press.
Non-problematic preservation of
licenses, administrative classifications, against
insurance companies or banks, ISO, AENOR, etc.
Payment to creditors.
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14. Disadvantages:
Subsitence of bankruptcy liabilities against assets.
Risk of contingent liabilities (AEAT).
Consensus of all partners, majority of creditors and BA.
Long implementation periods.
Bureaucratic process.
Price for partners (pax out)
Bankruptcy agony…
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15. PU PURCHASE: Guiding principles
of liquidation
 Transparency (151 LC).
 Flexibility (15 veces en la EM).
 Preserving the unit (148 y 149).
 Worker’s meeting (148.3).
 Combination of maximum price with continuity of
company (149.1)
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16. WTSO IURISTAX
Weaknesses
Social conflict?
Deterioration of image for customers?
Loss of
approvals, certifications, classifications, activity
licenses?
Termination of contracts?
Talent drain?
Pressure from competition?
Costs of resortoring confidence?
Adaptation to turnaround?
Threats
Challenges to plan?
Judicial bureaucracy? Unnecesssary delay.
Corruption.
Strenghts
Value of intangibles?
Collaboration of management team?
Deferred payment.
Implicit prices (completion of works, environmental
problems, etc…)
Treatment of mortgaged property.
Resilence
Flexibility
Opportunities
Existence of other bidders?
Are we the last chance?
Professionalism of advisory team?
Buyer solvency?
Support of feasibility plan?
Return on investment?

17. Information
• Due diligence. Maximum information. WTSO [BS]
• Sales procedure.
• Existence of competitors.
Offer
• Binding. Speed up deadlines.
• Maximum discretion (or not).
• Compliance with formalities.
Sale
• Strenght of resolutions.
• Documentation / title.
• Registration of fixed assets.
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18. Buyer’s demands
• Transparency.
• Maximum information.
• Brief deadlines.
• Generic offer, with inclusions and without perjudice.
• Coverage of labour liabilities.
• Price to earnings.
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19. PU disposal systems in LC
a) Under Article 43LC.
43.2. Until court approval of the agreement or
commencement of liquidation, the property and
rights comprising the assets cannot be disposed of
or encumbered without judicial authorisation.
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20. 43.3. Exceptions to that stated in the above paragraph:
• 1. Disposal actions that the bankruptcy
administration considers essential to ensure the
viability of the company or the liquidity needs
required for the continuity of the bankruptcy.
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21. • 2. Disposal actions of property that is not required
for the continuity of the activity when offers are
submitted substancially matching the value given
to said property in the inventory. The match is
considered substantial if in the case of real estate
the difference is less than 10% and in the case
movable property some 20% and there is no
higher offer.
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22. • 3. Disposal actions inherent in the continuation of
the debtor’s professional or business activity
under the terms established in the following
article.
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23. b) The part of Bankruptcy Liquidation.
Preparation of Liquidation Plan.
Delivery to parties for their comments.
Plan approval.
Possible appeal (firmly within 20 days).
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24. Elements of offer
1.- Scope:
Generic definition by inclusions: production unit in
general.
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25. Specific definition by inclusions (subjetct to
final payment clause):
Scope of offer: All assets, that is, the production
unit, including trademarks, logos, licenses, corporate
image, software, website, projects, plans, designs, patents, ca
talogues, samples, utility models, goodwill, trade faie
rights, contracts in force, list of customers and theis
circumstances, machinery, fixed assets, rights on leased
assets, computers, stocks and raw materials and all property
and rights comprising production unit.
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26. Definition by excluions:
 Liquid assets.
 Customers account.
 Division of …
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27. 2.- Price
Explicit:
• Specific economic amount.
• Possible fixed price according to variables of
business destination.
• Possible deferred payment.
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28. Implicit:
 Termintation of ongoing contracts to avois charges
for delays in completion of
work, abandonment, defective performance, etc.
(define cutoff date)
 Cleaning of toxic, unhealthy or dangerous waste.
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29.  Tracking management of recoveries from
customer portfolio.
 Coverage of guarantees up to a certain amount.
 Subrogation of employment contracts so that
proceedings will save payment of indemnities in
favour of all or part os the workforce.
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30. 3.- Conditions
• The bidder shall in no way be subrogated to any
obligations with the Spanish Tax Office, Spanichs General
Social Security Treaury (TGSS), Spanish Wage Guarantee
Fund or labour debts of the bankruptcy company.
Consequently, there is no transfer of business against such
organisations or others of a public nature and people, and
this must be stated in the Adjudication Ruling, which is
understood as tacitly recognised otherwise.
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31. • Assets and rights shall be delivered free of liens and
encumbrances.
• The offer shall be expressly ratified, approved or
authorised by the court hearing the company’s bankruptcy
proceedings, without whose authorisation it shall not be
valid.
• The validity of the offer is until the day … at which moment
the bidder shall be released from any obligation in this
regard (short deadlines are advisable to move the
proceedings forward).
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32. • The budder may subrogate the leases, indluiding the
contracts for leased assets, leasing or renting, that the
insolvent / bankruptcy company has signed, without
entitlement to compensation of any kind for the latter.
• The bidder shall be subrogated in the service contracts and
execution of works that the insolvent company has signed
with third parties, deducting in his favour the economic
performance of the work executed after the cutoff date
that is established to enforce the subrogation.
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33. • This present offer is binding in its condition.
• The offer must be understood as a whole, without its
clauses or conditions being accepted individually.
Otherwise it shall be deemed as not established.
• The bidder reserves the right to assign the rights pertaining
to the adjudication or sale to a third company with which it
forms a group or is linked, which must mean that the social
administration of the insolvent company has an interest in
the outcome and success of the operation.
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34. Treatment of employment claim
JM of Tarragona Ruling on 30 April 2013
However, Article 149.2LC allows that the judge in the
adjudication ruling may agree that the purchaser is not to be
subrogated that portion of wages or compensation pending
payment prior to the disposal that is assumed by the Wage
Guarantee Fund (FOGASA) in accordance with Article 33ET. In
other words, the amount of wages and compensation in
accordance with Article 33ET was paid by FOGASA as a result of
the bankruptcy of the business owner employer, and would have
the right of subrogation to turn directly to the insolvent
debtor, and it shall not be reclaimable from the purchaser of the
business or production unit if released from this obligation by the
judge of the bankruptcy proceedings
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35. Mortgage issue
The sale of the production unit may naturally include assets
subject to singularly preferential credits; for example, a
property encumbered with a mortgage or financially leased
assets, which cannot prevent the sale of the whole, but
adds the difficulty of allocating a share of the price
obtained by the sale to the payment of this credit. For
example, if an operational production unit is sold that
includes a warehouse encumbered with a mortgage and
machinery for a single price, the part of the price that has
to be allocated to the payment of the mortgage has to be
defined.
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36. TGSS issue
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Many courts and tribunals have also ruled on this matter in
favour of the TGSS, including, among others, the following:
Judgement of the Administrative Litigation Chamber of the
High Court of Cantabria on 1 April 2011, Ruling of the Provincial
Court of Álava on 24 March 2011, Ruling of the Provincial Court
of Badajoz on 20 September 2012, Ruling of the Provincial
Court of Badajoz on 27 October 2011.
In addition to the following: Ruling of Mercantile Court Nº. 1 of
San Sebastián on 18 November 2010, Ruling of Mercantile
Court Nº 1 of Cádiz on 31 July 2012, Ruling of Lower Court Nº
10 of Santander on 14 October 2008, Ruling of Lower Court Nº
3 of Huesca on 16 July 2009, etc.

37. IURISTAX
Moreover, the reasoning of the Judgment of Administrative
Litigation Court Nº 3 of Jaén on 30 March 2012 states that the
judge of the bankruptcy proceedings cannot intervene in
defining the other consequences of the disposal not contained
under Article 149. Thus, as already mentioned, if a transfer of
business exists, the mercantile judge may exempt the successor
acquirer of the payment of wages that were paid by
FOGASA, but not of the commitments already made to the
TGSS. Therefore, it is considered that the power of deriving
administrative responsibility for the transfer of business in
administrative proceedings corresponds to the TGSS, subject to
the administrative litigation courts, which have to rule on the
appeal against which it is aimed.

38. Other aspects to consider
 Control of social media
 Need for circulating capital (Modiss)
 Demand confidentiality letters. Do not facilitate customer
relationships
 Demand transparency and publicity. Necessary
promptness of proceedings because of loss of value
 Ongoing communication with stakeholders
 Obligatory company information
 Advisable collaboration of management staff
 Possible demand of deposits
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39. IURISTAX
AGREEMENT
Better press
Subsistence of bankruptcy
liabilities against assets
Risk of contingent liabilities
Consensus of all partners, majority
of creditors and BA
Long implementation periods(4
months)
Bureauvratic process
Price for partners and bankruptcy
Bankruptcy agony
Preservation of
approvals, licenses, administrative
classifications, ISO, AENOR…
LIQUIDATION
Worst press
Full cleanout of liabilities
No contingent liabilities
Consensus of BA and approval by
courts
Short implementation time
(1 month)
Agile process
Bankruptcy price (creditors)
New blood