Business transfer in insolvency – Way to revive a business. The case of UCM Reșița
by Mariana Popa, Partner, Head of Insolvency practice at VF Insolvență SPRL
UCM Reșița SA, the oldest industrial unit in Romania and one of the oldest in Europe, signed the contract for the sale of business to Hidroelectrica SA, the largest supplier of green energy in the country. On December 8, 2023, VF Insolvență SPRL signed this transaction as a member of the Consortium of judicial administrators of the debtor company UCM Reșița SA – under judicial reorganization procedure.
The transfer of business from a company in insolvency proceedings to another entity is a meticulous process, full of economic and legal nuances, which in some cases becomes essential both to maximize the value of the mass of creditors, but, especially, to minimize the negative impact on the parties involved such as creditors, employees, suppliers and customers of the debtor company, as well as on other participants in the insolvency process, being a case that takes place under the legality control of the syndic judge.
At EU level, the issue of business transfer is of interest as well from the perspective of economic growth and jobs and, in this respect, policies are promoted to stimulate business continuation through their transfer, as an alternative to liquidation or creation of a business, regardless of the form of business organization, but with special attention paid to the transfer of enterprises (see Recommendation No. 1069 of 7 December 1994 of the European Commission on the transfer of small and medium-sized enterprises).
It should be emphasized that the business transfer procedure in the situation of an insolvent company necessarily implies the involvement of the judicial administrator, who, as the body applying the insolvency procedure together with the syndic judge, has a decisive role in supervising and implementing the transaction. It must ensure that creditors’ interests are protected and that the transfer is carried out in accordance with their approvals. The transaction requires a rigorous approach, set within a solid legal framework and guided by fundamental economic principles.
VF Insolvență SPRL, part of the consortium of judicial administrators of the debtor company UCM Reșița SA – in judicial reorganization procedure, has once again confirmed solid skills and extensive knowledge, suitable for the efficient coordination and keeping this company alive over 12 years so that, in the second year of judicial reorganization, on December 08, 2023, to sign the Framework Agreement for the sale of the debtor company’s business to Hidroelectrica SA.
Thus, according to the contractual clauses negotiated by the judicial administrator, Hidroelectica SA or an affiliated entity is to take over the core business of the debtor company under judicial reorganization procedure, UCM Resița SA, the oldest industrial unit in Romania and one of the oldest in Europe, which designed, manufactured and installed an overwhelming percentage of the hydropower equipment in the current operation of Hidroelectrica SA.
The business transfer, to be completed in the first half of 2024, includes the takeover of the ABC industrial production platform, the partial takeover of the Calnicel production platform, the integration of the plant’s specialists in the field of design, technology and execution, the assimilation of the know-how related to the projects together with the documentation from the debtor’s archive, as well as the takeover of the assets/endowments with machine tools and machinery necessary for the execution of new equipment, complexes, or repairs and refurbishments of equipment in operation.
In this context, compliance with legal provisions is essential to ensure transparency, fairness and legality of the process. The insolvency administrator, as the “custodian” of creditors’ interests and the smooth running of the proceedings, must identify the opportunities and risks associated with the transfer of business in relation to the stage of the judicial reorganisation of the debtor company. Thus, in this case, the insolvency administrator decided not to approach the method of recovering the most valuable assets of the debtor company’s core business in order to obtain liquidity to cover the debts. The strategic approach and the competence of the insolvency administrator in assessing the situation of the debtor company created the prerequisites for a transparent and fair transaction, which was approved by the creditors without objections in several meetings convened and held in accordance with the provisions of the insolvency law.
Skillfully navigating through the specific challenges of insolvency, the insolvency administrator facilitated the start of the complex core-business transfer process – as part of the reorganization plan of the debtor company – to finally implement the reallocation of this important business for Romanian industry to Hidroelectrica SA, thus turning difficulties into opportunities.
