Amendment of the Spanish Insolvency Law

The amendment of the Spanish Insolvency Law was published today in the Spanish Official Gazette, and will come into force in twenty days[1]. The most relevant feature of such reform turns around the streamlining of proceedings in courts and the great role given to the pre-bankruptcy institute of the Restructuring Plan.

New regulation of the pre-bankruptcy situation

After this amendment, the right to access to this restructuring proceeding starts now with the so-called “probability of insolvency” which allows for pre-insolvency proceedings and the application for approval of restructuring plans at an earlier point in time.

The “probability of insolvency” is defined as the situation where it is objectively foreseeable that, in the absence of a restructuring plan, the debtor will not be able to regularly meet the obligations falling due within the next two years.

The content required for the notification of pre-bankruptcy proceedings is extended to:

  • List of creditors with whom you are negotiating and the amount of their claims
  • Total amount of all claims
  • Accrual date for entitlement claims
  • Assets and liabilities
  • Turnover
  • Number of employees
  • Assets or rights necessary for the continuity of its activity, as well as contracts inherent to it.

The duration of the pre-insolvency proceedings remains three months (plus one month to file for insolvency proceedings), extendable for a further three months at the request of the debtor or creditors accounting for more than 50% of the liabilities.

The most relevant new feature is the possibility of preventing the enforcement of third-party guarantees on claims against the company in pre-insolvency proceedings if the guarantor is a group company and the debtor in pre-insolvency proceedings proves that enforcement could cause the insolvency of the guarantor or its own insolvency.

Restructuring plan

Restructuring plans become the only pre-bankruptcy instrument allowed to benefit from the protections or advantages offered by the Insolvency Law.

As the restructuring plan will now be able to reshape the financial structure of the debtor, the reform published today gives it a very broad scope of impact, extending to the modification of the debtor’s assets, liabilities and equity, including the transfer of assets, production units or the sale of the whole company, together with the necessary operational modifications.

After approval of the necessary percentages of creditors, the restructuring plan will require judicial approval in certain cases.

Claims affected by the restructuring plan must be grouped into classes – sharing a common interest justified according to objective criteria – according to which the creditors’ votes will be counted.

Majority rule:

  • The plan is considered approved by a class if creditors holding more than 2/3 of the total number of claims in the class vote in favour of the plan (3/4 if the class is composed of secured claims). Same majorities apply to syndicated claims unless a lower majority is provided for in the syndication agreement.
  • If the plan is not approved for all credit classes, homologation (through carry-over of dissenting classes) will be allowed provided that it has been partially approved in one of the following terms:
  1. by a simple majority of classes, provided that at least one of the classes that has approved the plan is made up of credits that would be classified as privileged in the event of bankruptcy.
  2. for at least one class of claims that can be presumed to receive any payment following a going concern valuation of the debtor. In this case, the court approval will require the appointment of a restructuring expert to carry out the valuation report.
  • Secured creditors cannot be carried forward for the part of the claim covered by the security.

In cases of imminent or current insolvency, a restructuring plan containing measures affecting and imposed on the debtor’s shareholders may be approved even if the general shareholders´meeting has voted against the plan.

This amendment will benefit those who grant financing during the process, giving them privileged treatment to the financing amounts: 50% as a credit against the assets and the remaining 50% as a credit with general privilege.

Challenges to the judicial approval may only be made on the basis of a closed list of grounds.

[1] With the exception of the third book, which shall enter into force on January 1st 2023.

The information contained in this note should not in itself be considered as specific advice on the matter under discussion, but only as a first approach to the subject matter, and it is therefore advisable that the recipients of this note obtain professional advice on their specific case before adopting specific measures or actions.

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