Spain Update: Does the new mechanism to overcome insolvencies work?

The Europeanization of our bankruptcy regulations has brought the new restructuring plans (PR), as the long-awaited tool that allows early action with a term of up to 2 years, so that the debtor can restructure when it foresees insolvency.

Unlike previous refinancing agreements, PRs allow the modification of assets, liabilities, equity, including transfers of assets, productive units or the entire company in operation, as well as obtaining the temporary suspension of foreclosures on the assets necessary to continue with its business activity. Public law claims are excluded for the time being, but the proposal for a European directive of 7 December 2022 will probably allow us to reduce this public privilege in the future.

In view of the importance that the introduction of this mechanism supposes to preserve the business activity, and also taking into account the good results that its application is giving in other countries of our environment for years, we detail below the main novelties that it incorporates:

• The interested parties decide whether they want to affect the entire liability or only a part, excluding public claims, employment claims, maintenance claims and those arising from non-contractual civil liability.
• Termination of contracts in the interest of restructuring, including senior management contracts, is permitted.
• The basic criteria for the formation of classes of creditors are the existence of a common interest and the separation of classes according to their insolvency ranks.
• The PR will be deemed approved for each class of credits if it votes in favor of more than 2/3 (66.67%) of the liability included in that class. Most increase to 3/4 (75%) in the secured loan class.
• The members maintain the right to vote when the PR affects their rights, but in case of current or imminent insolvency (3 months ahead), it is viable to approve the PR against their will.
• Approval is necessary when it is intended to: extend its effects to creditors or classes of dissenting creditors; the termination of contracts in the interest of the contest or protect interim and new financing.
• The debtor must consider that the majority of the liabilities affected by the PR are no longer essential, but that the majority of classes are required, so that the formation of the classes will often be a determining factor for the approval of the PR.
• Special measures are introduced to protect secured creditors, since subject to certain requirements, they will be able to start the enforcement of their guarantees within one month.
• The effects of the PR may be extended to personal or real guarantees provided by any other company of the same group not subject to the PR, when the enforcement of the guarantee could cause the insolvency of the guarantor company and the debtor itself.
• The applicant for approval may be interested in the court requiring the affected parties for their eventual opposition to the PR before its approval, and creditors or partners who have not voted in favor of the PR or previously opposed, may challenge it before the provincial court for assessed reasons.
• Interim financing and new financing granted in the context of the RP are protected against rescissory bankruptcy actions of a subsequent bankruptcy, including that granted by persons especially related to the debtor.

In short, the PRs constitute a basic pre-bankruptcy mechanism to deal with insolvency situations at an early stage, avoiding the degeneration of business activity and the loss of jobs, and corporate administrators must use them to avoid a judicialized bankruptcy procedure and their possible personal responsibilities for not making use of early warnings.

Four months after its entry into force (and without yet assessing the special regime for microenterprises, which came into force on January 1, 2023 and its telematic procedure still does not work properly), the bank receives calls daily to negotiate the content of the PR, and although the regulation of ICO guarantees was slowing down its processing, the Government has modified the regulatory framework of the ICO guarantees of the Covid-19 and the Ukrainian War dated December 27, 2022 to pave the way for negotiation. Now, we have a powerful pre-bankruptcy mechanism that allows us to avoid or overcome insolvency.

By Marío Lamarca and published at Expansión, Marimón Abogados, Spain, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact spain@transatlanticlaw.com

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