27 Jul Decalogue of ideas about the closing down of a company

Published yesterday 07/26/2017 the “Heraldo de Aragón” the acquisition of the land and ships of RKW Iter S.A.U. by Distribuidora Polo S.A., an operation that was the end of the closing process of the Spanish subsidiary of RKW S.E.

This business closure was a real professional challenge for our firm; not only for the volume of the company (approximately 25 million turnover), its staff (more than 80 people) or the company’s membership in a multinational group. It also involved the disappearance of a company with a special linkage for almost 10 years.

In Navarro Llima Abogados S.L. we frequently carry out closing operations of companies in bankruptcy or extra-bankruptcy, being real specialists in the resolution of these complicated situations. From our experience we would highlight the following fundamental points when facing this type of processes.

1. The process approach should undoubtedly be the minimization of the impact that the closure may have, starting with the workers but following the clients, suppliers and shareholders.

2. The process must therefore be segmented into legal-commercial, labor, operational and liquidation. All aspects should be planned and prepared in advance. Only after an adequate temporal planning of the different slopes of the process must the same start up. It may happen that due to incorrect planning, the process must be restarted, with the dramatic consequences of this type of process if they are overstretched over time.

3. From the legal-mercantile point of view, it is of vital importance to consider the legal economic situation of the company and whether it is involved in any of the mandatory grounds for dissolution, capital change or competition solicitation, in which case extreme the diligence in the fulfillment of the established deadlines to solve the situation. The dissolution and liquidation of the company can be done by agreement of the General Shareholders’ Meeting in this regard. The adoption of the dissolution agreement initiates the liquidation process, where all assets have to be liquidated (converted into money) to pay all debts (creditors, governments, workers, etc.) and finally obtain the resulting amount that would correspond to the partner.

4. From the outset, a calculation of the costs of the operative closure must be carried out, which will be decisive in order to initiate an orderly dissolution or liquidation process or the request to open a bankruptcy procedure, depending on whether the solvency possibilities are allow to face the obligations derived from the liquidation or not. The most common will be the bankruptcy procedure but sometimes, as in the case referred to the beginning of the post in which the multinational had acquired the commitment to minimize the impact of the closure by group policy by providing funds from abroad, making it possible perfectly liquidation ordered extra-insolvency. The bankruptcy process offers many advantages, establishing a professional bankruptcy administrator who will perform all phases of the process with judicial ratification. In addition, if all debts cannot be satisfied, they will remain as unsatisfied liability without owners or administrators having to take care of them (unless guilty). This procedure also requires important preparation and advice to attend to the presumptions and precautions established by the Spanish Insolvency Law. In addition, within the operational closure we can include that the termination of contracts with suppliers, which can lead to damages for failure to comply with prior advice, both in supply contracts, distribution contracts, etc.

5. The protection of the management body of the company should not be lost sight of. The mere delay in the decision-making may imply the declaration of responsibility of the Board member, being able to reach the debt forgiveness or even to the payment of the unsatisfied bankruptcy liability, along with the declaration of guilty of the bankruptcy.

6. As regards labor relations, they will usually be extinguished by means of a procedure for the Employment Regulation, which must be justified on any of the following grounds: economic, technical, organizational and production.

7. In addition, it is subject to a series of obligatory deadlines, from pre-notice for the establishment of the negotiating table, the negotiation period itself and the agreement (or conclusion of the process without agreement). Only after this procedure can the company make the final decision, with its corresponding pre-warnings etc. It is therefore a procedure that will be delayed in time, delay justified by the proper protection of the rights of workers. The usual negotiation criterion is that the possible agreement is reached on the last day at the last minute, and strategies can be established for the achievement of periods of extension etc., such as the beginning of a collective dispute (strike) that transfers the place of negotiation to a mediating body. It is highly recommended in these cases to relieve or establish additional support to the negotiating team, which will have reached this stage with remarkable weariness.

8. Once the activity stopped, the liquidation process can go on. Being a process that can easily be delayed in time, it is convenient to keep those supplies that guarantee the integrity of the goods to be liquidated, in some cases hiring even security personnel. The main thing is that those productive assets are intended to be sold by productive units or, failing that, by lots of goods.

9. The process concludes with the sale of real estate assets, over which our experience tells us that it is very difficult to approach the sale at market value, since the speed at the end of the closing or liquidation process makes it difficult to find a buyer of the productive and real estate facilities of the company.

10. In summary, the closing and liquidation of a company is a complex operation, requiring extensive prior analysis of the strategy to follow. In order to reach an agreement, it is necessary to consider an approach from four points of view: from the legal point of view of the company, labor, production of the company, and finally, the final settlement of assets.

If this is achieved the process is expedited to be executed in the shortest possible time and achieve the purpose of minimizing the impact of the operation. If your company is in difficulties and has to deal with crisis situations, do not hesitate to contact Navarro Llima Abogados.

Jaime Navarro and Héctor González.

Lawyers.