Madrid Commercial Court No. 6 order of October 7, 2013: acquirer of a production unit subrogated in employment liabilities because the shareholders and directors had established the company specifically to acquire the insolvent company ("Marco Aldany Case")

The court did not rule out liability for employment obligations because the partners - directors of the insolvent company wished to acquire the production unit through a company created specifically to acquire it.

In the insolvency proceedings for the company that owned the “Marco Aldany” chain of hairdressers, the court had authorised the beginning of the process to sell the production unit dedicated to franchises under that brand. The General Treasury of  the  Social Security appealed the order authorising the process, because the court had allowed the non-subrogation of the acquirer in the amounts owed for salaries and  indemnities pending payment before the sale.

The court asserted that it can generally exercise the authority granted under article 149.2 of the Insolvency Act7 during the liquidation phase and when the sale is authorised during the common phase, as it is an issue governed by insolvency law rather than employment law. If the lawmakers’ aim was to authorise the sale of production units if 

their persistence within the insolvency estate resulted in loss of value or shut-down of their activity, making such sales subject to authorisation by the court handling the insolvency proceedings implies giving the court authority to specify the conditions (including limiting the transfer of liability for amounts owed to workers and to the social security system). Allowing this authority only during the liquidation phase would place acquirers during the common phase at a disadvantage. They would prefer to wait for completion of the full process to acquire the production unit through implement ing the liquidation plan, which could involve its impairment, loss of value, or even closure.

Having established that rule, the court did not apply it in this case, because it had been proven that the highest bidder for the production unit was a company created specifically by the insolvent company’s partners-directors to take part in the sale process. Transfer of liability could not be waived, as this would be tantamount to allowing the individual interests of partners and directors of companies in crisis, with their greater knowledge of the market and the production unit, to prevail over general interests and the public interest, deceptively acquiring the production unit that they themselves had been managing, during the insolvency proceedings and with full knowledge of the waiver of liability. The court also asserted that that position must be extended to include the conduct of partners in the insolvent company during the two years before the declaration of insolvency through its governing and supervisory bodies in connection with its credits and creditors.