The pre-pack is present in bankruptcy law under the amendment in force since 1 January 2016. As a new form of insolvency proceedings, it is not yet widely known. In the meantime, it is worth knowing about, because in some cases it offers far greater benefits than traditional restructuring.
Pre-pack is primarily time-saving, as well as the ability to save the company's know-how by giving it entirely to the new owner. The speed of cashing of fallen assets, while reducing the cost of progress, allows to meet creditors' requirements more efficiently and to maintain the continuity of economic activity.
At a time when the company is in debt, the owner may propose to sell it on the free market or use it in the pre-pack, with the sale in this mode also subject to a specific asset of the company, distinguished by its high value and economic importance.
The liquidation prepared is a strategy worth considering with the absolute need to sell the company or part of it. Usually, because of the costs of traditional insolvency proceedings, it is more profitable and gives a chance to maintain the continuity of the company's development.
How to launch a prepared liquidation
The application for bankruptcy in the liquidation in preparation shall also contain an application for approval of the terms of sale which may be submitted by:
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- the debtor,
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- the creditor,
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- other entity according to Article 20 PU.
Important elements of the prepared liquidation are:
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- determining the terms of the sale by indicating at least the price and the buyer,
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- a description and assessment of the component covered by the application by a judicial expert.
If the price indicated in the application is higher than or at least close to the amount available in insolvency proceedings, the court shall take into account the application for approval of the terms of sale. A lower value must be supported by an important public interest or by the possibility of preserving the debtor’s business.
This regulation is necessary so that the court can examine whether the proposed price is higher than the amount available in insolvency proceedings with regard to the costs of proceedings that would have to be borne in connection with the liquidation of the standard insolvency procedure.
The minimum selling price to persons and companies associated with the debtor shall be allowed only at a selling price not lower than the estimate price.
It is worth noting that the pre-pack saves on the costs of long-term insolvency proceedings, so it is possible that even a lower purchase price than a general liquidation would lead to a more complete satisfaction of creditors .
Effects of pre-pack procedure
The process of acquiring a new buyer, as well as the sales transaction itself, takes place without the knowledge of counterparties and customers. The notice of bankruptcy, together with the approval by the insolvency court of the conditions for the sale of the undertaking or its organised part, shall be made available to the public at the earliest from the date of the relevant ruling. This allows the company's business to continue to continue without any obligations to date.
The sale made in the form of prepared liquidation has the effect of execution sales. The property components acquired in this way are free of any kind of burden. Creditors whose rights have been infringed in connection with the approval of the terms of the sale shall have the opportunity to challenge the order of the court.
The same entitlement shall be granted to the debtor when the application in question has been lodged by the creditor. However, if the application is rejected, the applicant shall be entitled to a complaint.
In conclusion, the liquidation of the company is a strategy worth considering in the absolute necessity of selling the company or part of it. Usually, given the costs of traditional insolvency proceedings, it is more profitable and gives a chance to maintain the continuity of the company's development.
Author: Michał Zawiła.
Partner in RB Restructuring. Licensed Restructuring Advisor, entry No 1050. Lawyer entered on the list at the District Bar Council in Katowice.