05 Oct, 2015

Advantages of Acquiring a Business Out of Bankruptcy

According to the data provided by the Serbian Privatization Agency (as of September 21, 2015), there are currently 357 companies involved in the process of privatization.

On the other hand, the Privatization Act requires for the privatization process to be completed before December 31, 2015.

Save for 188 companies, for which the Government already adopted an action plan for the commencement of bankruptcy proceedings (due to no productivity, no interests from potential investors and unsustainable financial performance), it remains to be seen how many companies will actually find a genuine buyer, and thus, avoid bankruptcy proceedings before the December deadline.  Hence, while awaiting to see the results of these ongoing privatizations procedures, it is important to emphasize that buying a bankrupt businesses and/or its assets certainly has measurable benefits for potential buyers.

To that end, the latest amendments to the Bankruptcy Act brought more transparency and clarity to the bankruptcy process, as well as better regulation of the status and role of bankruptcy administrators with the aim of speeding up the process in a lawful manner while providing efficient protection for the creditors.  Furthermore, in comparison to acquiring a company or its assets in the privatization process, acquiring a bankrupt business and/or its assets does in fact have several important advantages, some of them being as follows:

  • No minority shareholder can affect the buyer since their rights have no bearing in the insolvency proceedings;
  • Since insolvency proceedings initiation makes for a legal basis for layoffs, there is no obligation on the buyer’s side to keep the surplus employees (i.e. the number of employees and their qualification structure may be aligned with the buyer’s business needs);
  • The acquirer is not responsible for outstanding debt obligations toward creditors, which is not the case in a privatization process;
  • Fewer grounds for the termination of Sale and Purchase Agreement (SPA);
  • Purchase prices are usually lower.
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