My company is loss-making and at risk of insolvency: can I still sell it, what is a pre-pack and how much do I lose compared with a normal sale?

Quick answer

Capittal's view is that yes, you can sell a loss-making company at risk of insolvency, but timing changes everything. If you are not yet in current insolvency, an orderly sale, bringing in an investor or selling a business line preserves far more value. If you can no longer meet your obligations regularly, Spanish law requires you to file for insolvency within two months, and the way to save the business becomes the sale of the going concern (the "productive unit"), with or without a pre-pack. In that scenario the price goes to creditors, not to the shareholder, and the sale is cheaper and rushed.

Am I still in time to sell my company if it is already losing money?

It depends on where you are, and three situations should be kept apart. Loss-making but paying on time: you can run a normal sale. The buyer will discount the situation, but you keep the price. Likely or imminent insolvency (you foresee being unable to pay in the coming months): you can still negotiate with creditors, look for an investor or sell, and the Spanish Insolvency Act (Texto Refundido de la Ley Concursal, TRLC), as amended by Law 16/2022, gives you pre-insolvency tools. Current insolvency (you can no longer regularly meet obligations as they fall due): the room shrinks, and the sale almost always happens inside the insolvency proceedings.

This article covers that ground of current or imminent insolvency. If your company has debt but is solvent, the approach is different and much more favourable to you.

How long do I have before I must file for insolvency?

Article 5 TRLC requires the debtor to file within two months of the date on which it knew, or should have known, of its current insolvency. The period is short and starts running even if you chose not to see it.

There is an alternative: notifying the court that you have opened negotiations with creditors (art. 585 TRLC) to pursue a restructuring plan. That notice temporarily suspends the duty to file and shields the company from enforcement for three months, extendable in certain cases. It is meant to buy time for a credible plan, not to postpone the problem.

What exactly is an insolvency pre-pack in Spain?

It is the sale of your business as a going concern, prepared before insolvency and executed within it. Law 16/2022 regulated it in articles 224 bis to 224 septies TRLC, with two building blocks:

• Preliminary phase with an expert. If you are in likely, imminent or current insolvency, you can confidentially ask the court to appoint an expert to gather offers for one or more productive units. The appointment does not exempt you from the duty to file on time if you are already currently insolvent.
• Insolvency filing with a binding offer. You file together with a written binding purchase offer. The judge opens a short window for other bidders to improve it, and the buyer commits to continuing or restarting the activity for a minimum period.

What does the buyer get, and why buy through insolvency?

As a general rule, the buyer acquires the productive unit without liability for the seller's prior debts, except those it expressly assumes, those imposed by law or, if it is not a party specially related to the debtor, those arising from business succession. It also steps into the contracts, licences and permits linked to the business, except those it excludes in its offer.

For employment and Social Security purposes there is business succession, but it is limited to the employees of the productive unit whose contracts the buyer takes over, and the insolvency judge sets that perimeter (arts. 221 and 224 TRLC). The portion of wages and severance covered by the Spanish wage guarantee fund (FOGASA) may be excluded. That clean-up of liabilities is precisely what makes the purchase attractive.

And what do I get as the owner?

This is the difference that hurts most. In a normal sale you sell your shares and the price is yours. In insolvency, the company sells its business and the price goes into the insolvency estate to pay creditors in the statutory order. The shareholder only receives something if there is a surplus, which is unusual.

Moreover, if the insolvency is classified as culpable (for example, because the filing was delayed beyond the legal deadline, which the law presumes to be gross negligence unless proven otherwise, art. 444 TRLC), directors can be disqualified and ordered to cover part of the shortfall. That is why specialist insolvency legal advice is not optional here: within the NRRO group, the legal team handles this side alongside the transactions team.

Why is value lost compared with a normal sale?

There is no reliable percentage that fits every case, and be wary of anyone who gives you one without knowing your company. What we do know is why the price falls:

• The business is sold below its going-concern value because it arrives damaged: nervous customers, suppliers cutting credit, staff leaving.
• Timelines are short and the buyer knows it, which gives it bargaining power.
• Few buyers can decide quickly and take on the risk.
• Information is limited and due diligence rushed, so the buyer prices in uncertainty.

What alternatives do I have before reaching insolvency?

If you act while the company is in difficulty rather than insolvent, the options multiply: an early sale with a competitive process, even a short one; bringing in an investor or a capital increase to fund the turnaround; selling a profitable business line to clean up the rest; or a restructuring plan negotiated with creditors. All of them need time, and time is exactly what gets burned while waiting for things to improve on their own.

What is the next step if my company is in this situation?

Today, build an honest 13-week cash-flow forecast and decide, with data, whether you are in difficulty, imminent insolvency or current insolvency. If you are not yet currently insolvent, explore a sale or an investor now, not in six months. If you are, bring the insolvency lawyer and the M&A adviser together from day one to prepare a pre-pack with real buyers. This article is for guidance only and does not replace legal advice on your specific case.

Capittal Transacciones is an M&A mid-market boutique advising deals from 3 to 250 million euros from eight offices across Spain (Barcelona, Madrid, Girona, Lleida, Tarragona, Palma de Mallorca, Zaragoza, and Valencia), part of the NRRO group. A partner handles your case from start to finish, with no intermediaries. If you want to know what your business is worth today and how much room you have, request a free and confidential valuation.