A court-supervised legal process that allows an insolvent company to restructure its debts or liquidate its assets in an orderly manner under judicial oversight.
Insolvency proceedings are the words no business owner wants to hear. They carry connotations of failure, loss of control, and liquidation. Yet when used correctly, insolvency is a legal framework designed to give viable businesses a second chance — and to maximise recoverable value when viability is not possible. For an investor like Blue Mountain, companies in or approaching insolvency represent one of the most compelling sources of investment opportunity in the mid-market.
Insolvency proceedings are the formal judicial process triggered when a company cannot meet its payment obligations as they fall due. In Spain, the process is governed by the Consolidated Insolvency Act (Royal Legislative Decree 1/2020). The framework serves a dual purpose:
Proceedings may be initiated by the debtor itself (voluntary insolvency) or by a creditor (involuntary insolvency). Under Spanish law, the company is legally obliged to file for insolvency within two months of becoming aware of its inability to pay. Failing to meet this deadline can have severe consequences, including the proceedings being classified as culpable — exposing directors to personal liability.
Common phase. The court declares insolvency and appoints an insolvency administrator (a professional who oversees the process). A period of asset and liability determination begins: an inventory of assets is compiled and a creditor list is drawn up. This phase typically lasts three to six months.
Composition phase. The debtor (or creditors, or the administrator) presents a composition proposal — a plan to restructure the debt that may include haircuts (reductions in amounts owed), deferrals (postponement of payments), or both. Creditors vote on the proposal. If approved by the required legal majorities, the composition is binding on all parties.
Liquidation phase. If no composition is presented or approved, liquidation proceedings begin. The administrator executes a liquidation plan that may include selling the business as a going concern, selling individual assets, or a combination of both.
Classification. The court classifies the insolvency as either fortuitous (the insolvency resulted from circumstances beyond the debtor’s control) or culpable (the debtor caused or aggravated the insolvency through wilful misconduct or gross negligence). A culpable classification can result in director disqualification and personal liability for the insolvency shortfall.
For Blue Mountain, financially distressed companies represent an active investment segment. Opportunities arise at several stages:
Pre-insolvency. The company faces difficulties but has not yet filed. A capital injection or acquisition by a solvent investor can avoid court proceedings entirely, preserving business value and delivering a faster, less destructive outcome. This is the optimal moment to intervene.
During proceedings (composition phase). An investor can acquire the company as part of the composition agreement, taking on management and providing the resources needed to execute the approved payment plan.
Liquidation (going-concern sale). When liquidation is unavoidable, selling the business as a going concern — with its contracts, employees, assets, and brand intact — typically generates more value than a piecemeal asset sale. The buyer acquires an operating business at a significant discount to its normalised value, with a clean liability structure.
An office furniture manufacturer in Barcelona with 45 employees and historical revenue of 12 million euros enters insolvency after losing a contract that represented 35% of sales. EBITDA has fallen from 1.2 million to negative territory, financial debt stands at 4 million, and supplier arrears total 1.5 million.
Blue Mountain evaluates the situation during the common phase. The company has valuable assets: a modern factory with well-maintained machinery, a recognised brand in the contract furniture channel, an experienced technical team, and a diversified customer base (excluding the lost contract). The problem is financial, not operational — too much debt for the current revenue level.
A going-concern acquisition offer is submitted during the liquidation phase: 3 million euros for the entire asset base, assumption of employment contracts for 38 of the 45 employees, and a commitment to maintain operations for at least three years. The offer is accepted because it exceeds the administrator’s estimate of the piecemeal liquidation value.
Result: a viable business is rescued, 38 jobs are preserved, creditors recover more than they would have in a piecemeal liquidation, and Blue Mountain acquires a fundamentally sound business at a fraction of its normalised value.
Not exactly, though the terms are often used interchangeably. Modern insolvency frameworks are designed with business continuity in mind — the goal is to rescue viable businesses, not simply to wind them up. Spain’s current insolvency regime unified previous procedures for suspension of payments (temporary insolvency) and bankruptcy (definitive insolvency) into a single framework with a stronger emphasis on keeping businesses alive.
Yes. Spanish law provides several pre-insolvency tools, including the notification of opening of negotiations (formerly the “Article 5 bis” communication), restructuring plans, and out-of-court settlement agreements. These mechanisms aim to resolve insolvency without the cost, delays, and stigma of a full judicial process. The key is acting early — before the situation becomes irreversible.
In principle, yes. A going-concern purchase during the liquidation phase allows the buyer to acquire the business assets without assuming the debtor’s liabilities — with important exceptions, particularly certain employment and social security obligations that may transfer under business succession rules. The buyer must carefully negotiate the perimeter of the acquisition and obtain judicial approval of the liquidation plan. Specialist legal advice is essential.
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