Guide to buying a company in insolvency proceedings in Spain: legal framework, productive unit acquisition process, advantages for the buyer, specific due diligence, and risks to consider.
Buying companies in insolvency proceedings represents one of the most interesting — and most complex — opportunities in the acquisitions market. For the well-prepared buyer, an insolvent company can be an extraordinary investment: productive assets at prices significantly below their value under normal conditions. For the reckless buyer, it can be a costly trap.
This article analyses the process, opportunities, and risks of acquiring a company in insolvency proceedings in Spain, from the perspective of Blue Mountain Capital as an investor specialising in special situations in the middle market.
Spain’s Insolvency Act (Royal Legislative Decree 1/2020, amended by Law 16/2022 transposing the European Restructuring Directive) governs the corporate insolvency process and establishes the mechanisms through which a buyer can acquire the assets or productive unit of an insolvent company.
The two main acquisition mechanisms are:
Productive unit sale. The most common mechanism for company buyers. It allows the acquisition of an organised set of assets (machinery, contracts, brand, workforce) constituting a viable economic unit. The sale is carried out under court supervision and can take place during either the agreement phase or the liquidation phase.
Restructuring plan. The pre-insolvency alternative introduced by the 2022 reform. It allows the company’s debt to be restructured before formal insolvency proceedings, preserving the business as a going concern. The buyer can participate by providing new financing (new money) or by acquiring existing debt.
Companies in insolvency proceedings are published in the Public Insolvency Register and the Official State Gazette. However, the best opportunities come through professional channels: insolvency administrators, specialised law firms, restructuring advisors, and special situations investor networks.
Early identification is key. A company in pre-insolvency or in the early months of proceedings retains more value than one in advanced liquidation, where key clients, suppliers, and employees may have already left.
Analysing an insolvent company differs from analysing a healthy one. It must assess:
The due diligence of an insolvent company has important particularities compared to conventional due diligence. See our general buyer’s due diligence guide as a complementary reference.
Limited information. The available information is usually less complete and less reliable than in a conventional sale. Information systems may be deteriorated, the finance team reduced, and documentation disorganised.
Focus on viability. The analysis centres less on historical value and more on future viability: can the business generate profits once free of debt? How much investment does it need to restore normal operations?
Workforce analysis. Identifying key staff who must be retained, evaluating labour costs, and assessing adjustment options within the insolvency framework.
Contract review. Verifying which contracts (clients, suppliers, leases) remain in force and which have been terminated during proceedings.
Assets and liabilities. Determining which assets form part of the productive unit and which liabilities will (or will not) transfer with the sale.
The purchase bid is submitted to the commercial court handling the insolvency (or to the insolvency administrator, depending on the phase). It must include:
The judge evaluates the bids received and approves the sale considering the interests of the insolvency estate (maximising value for creditors) and the protection of employees. The process may include an auction if there are multiple bids.
Once the sale is approved, the transfer is formalised, the price is paid, and integration begins.
The most obvious advantage. Insolvent companies are sold at significant discounts from their value under normal conditions — typically between 30% and 60% lower. The discount reflects business deterioration, the urgency of the sale, and the inherent uncertainty of the process.
With court approval, the productive unit can be transferred free of the insolvent company’s prior debts. This allows the buyer to start with a clean balance sheet, without inherited liabilities — a huge advantage over acquiring a healthy company, where hidden contingencies are a permanent risk.
Within insolvency proceedings, there is greater flexibility to adjust the workforce to the actual needs of the business. The employment plan accompanying the purchase bid can include a workforce reduction agreed with the insolvency administrator, with severance costs generally lower than those of a restructuring outside insolvency.
The insolvent company market attracts a limited number of buyers — the complexity of the process, the uncertainty, and the tight deadlines deter many investors. For the prepared buyer, this translates into less competition and better prices.
Insolvency is a destructive process. Clients leave because they fear supply disruptions. Suppliers tighten terms or stop delivering. Key employees seek alternatives. The longer the proceedings last, the less remains of the original business.
The quality of information available for due diligence is typically lower than in a conventional sale. Financial statements may not be up to date, accounting may have deficiencies, and documentation may be incomplete.
The purchase process in insolvency has legal particularities that require specialised insolvency law advice. Deadlines are strict, formalities numerous, and third-party challenges (creditors, employees) can delay or complicate the transaction.
The sale may be challenged by creditors who consider the price insufficient or the process non-transparent. Although these challenges rarely succeed, they can generate uncertainty and legal costs.
Employees of an insolvent company face uncertainty that drives them to seek alternatives. Retaining key staff requires a specific communication and retention plan from the first contact.
Not all insolvent companies are alike. We distinguish three types:
Financial crisis with a viable business. The company generates operating profits but is suffocated by excessive debt (acquired during a failed expansion, a poorly structured refinancing, or a temporary sector crisis). Once free of debt, the business is profitable. These are the best opportunities.
Operational crisis with valuable assets. The business is not viable in its current form, but has valuable assets: brand, distribution network, technology, client contracts, specialised workforce. The buyer acquires the assets and integrates them into their own operation.
Advanced deterioration. The company has been in decline for months or years, having lost clients, employees, and assets. Little value remains. These opportunities only make sense if the price is very low and the buyer has a clear reactivation thesis.
Buying a company in insolvency proceedings is not for everyone. It requires experience, speed of execution, risk tolerance, and a team of advisors specialised in insolvency law and special situations.
For the prepared buyer, however, insolvency proceedings offer access to productive assets at prices that do not exist in the conventional market. The key is distinguishing between a good company with financial problems and a bad company with any type of problems.
If you are evaluating opportunities in insolvent companies or companies in financial difficulty, contact our team. Blue Mountain Capital has specific experience in special situations investments and can advise you on the viability and structure of the transaction.
By Blue Mountain Capital
By Blue Mountain Capital
By Blue Mountain Capital
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