November 2017 saw the first successful pre-packaged bankruptcy of a wind farm operator following the introduction of this procedure to Polish bankruptcy law in January 2016. Thanks to a decision made by the bankruptcy court in Warsaw, the assets of the 6 MW wind farm in Korzęcin can now be taken over by a publicly listed company operating in the renewable energy sector.

The pre-pack procedure allows an insolvent company (or its creditors) to supplement a bankruptcy petition with a motion for the approval of the conditions of sale of the insolvent company’s assets to an investor indicated in the motion. The terms and conditions of the sale are negotiated prior to the filing of such a petition.

Pre-packaged bankruptcy is often a good solution for an insolvent company and its creditors. As opposed to ordinary bankruptcy, pre-packaged bankruptcy is quicker and generally results in a higher rate of satisfaction of the creditors. It also enables sector investors to broaden their portfolios in a tax efficient manner. The general rule is that all of the assets bought out of the pre-packaged bankruptcy are free of any encumbrances, which is also why such an investment may be an attractive opportunity.

According to the press, the acquisition of the assets of the Korzęcin wind farm is subject to the satisfactory outcome of a confirmatory due diligence. The buyer will also have to execute a business transfer agreement with the bankruptcy trustee appointed over the assets of Korzęcin and pay the purchase price in full. Due to legal requirements, the buyer will have to execute new contracts, such as lease agreements, and obtain certain regulatory approvals and licences, while the farm’s previous contracts will be terminated.

The pre-pack procedure is therefore attractive both from the point of view of insolvent companies, and financing banks and other creditors. We expect to see more pre-packaged bankruptcies in the future.