The court ruled to allow the sale of the production unit with assignment to the acquirer of the agreements involving the insolvent companies affected by the transfer of the production unit and necessary for its continuance.
In the insolvency proceedings for the “BLANCO” clothing stores, the court was asked for permission to sell the production unit directly to the sole bidder after an advertising and dissemination process of the offer for sale. The court allowed the sale, stating that the conditions were met for authorising the sale of the production unit without waiting until the liquidation phase of the insolvency, as follows:
- Sale of the production unit could not wait until the liquidation phase because it would have been practically impossible for it to continue operating until then.
- Acquirer and sole bidder was a listed United Arab Emirates company with proven financial solvency and its offer met the conditions required to safeguard the aims of the insolvency proceedings (including continuing the business activity, paying higher price than the proceeds of separate liquidation, and maintaining jobs).
- Sufficient guarantees were provided to ensure maximum transparency for the sale (advertising in the press and online, disseminating the offer on the market and contacting potential acquirers).
In this order, the most important pronouncement was that the court authorised the sale, declaring, as requested by the insolvency administrators, the compulsory subrogation of the acquirer in instrumental agreements to continue the production unit’s business activity, without needing the counterparties’ consent to those agreements.
The legal grounds for this pronouncement are that it concerns the obligatory assignment of agreements as required by law, subject to the principles of continuance of the business activity, under insolvency regulations. In the context of insolvency, there is no voluntary assignment of the contractual relationship, but an obligatory assignment, as it comprises an act for liquidation of the insolvency assets. The insolvency administrators are obliged to transfer the production unit as a whole and the transferred production unit can only be maintained as such if the contractual relationships through which its business activity was operated are continued. Consequently, the assignment of these agreements to the acquirer of the production unit may be imposed on the counterparties to those agreements.
In agreements that, due to their legal nature, do not make provision s in that regard, the only effect would be the replacement of the contracting party (the insolvent debtor) by the acquirer of the production unit. If the legal or conventional regulation of a specific agreement provides for some effect of the assignment that does not compromise its validity, efficacy and persistence, but only affects incidental factors, these provisions will prevail.