Iñigo Bilbao, Lawyer and Partner at NORGESTION. Turnaround investing.
Today I’m going to talk on turnaround investing in Spain through the acquisition of a Company’s business in a prepackaged insolvency.
It is very rare indeed but not impossible. We’ve done it at our Firm a few times when we were lucky enough to have the stars aligned.
And it’s slightly different on how it is done in other countries such as the UK. Let’s see:
The first hurdle an investor has to overcome comes directly from the Law, in a turnaround investing.
Basically any investor seeking to purchase a business out of an insolvency, will have to be prepared to settle any debt that the bankrupted company may have with the State, whether taxes or social security, and assume all entitlements of the workforce may. Mortgages in general terms will have to be respected and, on top of that, a consideration amount for the business will have to be put on the table in benefit of the creditors.
The second issue to consider by an investor is time. Under Spanish Law, a Company can file for insolvency simultaneously presenting a binding offer from a third party to purchase the business out of the insolvent Company setting out its conditions but within the legal framework I’ve just mentioned.
The Court shall initially be surprised, but nonetheless shall study the petition and, if convincing, before deciding, shall seek the opinion of the Receiver on the binding offer in period of 10 days, which in practice could be extended for a month or two as allegations of creditors may come and go.
The question is that in the meantime the clock will still be ticking, the stressed Company is most probably running out of cash and at the end any solution may come too late.
This, of course, is something to be considered on case-to-case basis.
Having read through the new EU Directive on restructuring and insolvencies, I’m becoming more optimistic that in Spain we will actually be able to save more businesses out of insolvency through a prepackaged solution.
I am aware that the Devil will be in the details on how the Directive is implemented in Spain and I suspect that the State will try to maintain somehow its current privileges.
Even so, maybe, a new mind-set for use of a prepack as a solution to insolvent but viable businesses will be on its way.