The information contained in this Newsletter is of a general nature and does not constitute legal advice

May 2009




On 31 March 2009, the Spanish Official Gazette (“Boletín Oficial del Estado”) published Royal Decree 3/2009 of 27 March on urgent measures for tax, financial and insolvency matters (the “Royal Decree”). In essence, the aims of the Royal Decree were as follows: (i) to facilitate restructuring outside insolvency proceedings for companies undergoing financial difficulties; (ii) to expedite insolvency proceedings for companies which either decide or are bound to restructure in an insolvency situation; and (iii) to definitely settle certain discrepancies concerning credit subordinations which, although clarified by majority resolutions of provincial courts, have not been accepted by some insolvency receivers.

The purpose of this newsletter is to identify the main amendments made to the Spanish Insolvency Law (in force since 2004) by the Royal Decree. Due to their immediate enforceability, we have considered more relevant those amendments introduced in connection with certain extrajudicial company restructuring proceedings (in particular, debt refinancing transactions), as well as the modification of certain aspects of judicial insolvency proceedings in order to reduce their price, make them simpler and speed them up. These novelties are summarized below:

1. Debt refinancing transactions

i) The new Fourth Additional Provision of the Insolvency Law establishes a definition of refinancing agreements, which includes “those reached by the debtor by virtue of which the credit available is considerably increased or its respective obligations are modified, either through a deferral of its expiry date, or through the replacement of the former obligations for new ones” (the “Refinancing Agreement”). Consequently, in order to apply the protection granted by the Fourth Additional Provision to a refinancing transaction, new money is not required.

ii) The Refinancing Agreement will be effective provided that it complies with the following conditions: (a) it responds to a feasibility plan (endorsed by an independent expert) which allows a continuation of the debtor’s activity in the short and mid term; (b) it is subscribed by creditors who represent at least 60% of the debtor’s liabilities; and (c) it is executed as a public deed. If these requirements are met, the deals, acts, payments and guarantees established by implementing such agreements will not be subject to cancellation under the Insolvency Law.

iii) In the event of a supervening insolvency, only its receivership is entitled to challenge the Refinancing Agreement.

iv) Guarantees granted either in favour of Public Law credits or in favour of the Wage Guarantee Fund, in the recovery agreements foreseen in the relevant regulation, will not be subject to cancellation.

2. Additional term prior to insolvency to negotiate a creditors’ agreement in advance

If the debtor started negotiating a proposal agreement in advance within two months of the current insolvency, the debtor is entitled to apply to the Judge for an extension of three additional months to obtain the creditors’ approval to this proposal. The debtor will have to apply for the court’s statement of insolvency within the month following the end of such three-month term. During these months, no application for involuntary insolvency filed by any creditor will be permitted.

3. Review in the area of credit subordination

i) The judge is empowered to subordinate the credit which arises from a contract with mutual obligations, provided that (with a prior report from the insolvency receivership) he/she considers that the creditor is repeatedly hindering the fulfilment of the contract.

ii) The credit guaranteed by any person especially related to the debtor will only be subordinated once its guarantor has paid the creditor and, therefore, when the former is subrogated in the position of the latter in the relation to the debtor.

iii) The creditor who subsequently becomes a person who is especially related to the debtor through the acquisition of a stake will not be subordinated, although there are still some undecided cases regarding very complex facts.

4. Proposal of liquidation in advance

During the general stage of insolvency proceedings, the debtor may request the judge to provide in advance a proposal of the plan for liquidating its assets, which may be carried out (even payment of the creditors with the result of the liquidation) prior to the conclusion of the insolvency proceedings challenging the inventory or the list of creditors.

5. Publicity of insolvency proceedings, reduction of price, acceleration and simplification

i) Implementation of a new publicity regime for notification of the start of insolvency proceedings. In this regard, the Royal Decree establishes the free insertion of the notice announcing the insolvency declaration in the Spanish Official Gazette, as well as the creation of a new Insolvency Public Registry (with free access through the Internet) for the rest of the resolutions to be published by means of notices.

ii) Modification of the system for rewarding insolvency receivers (a) by limiting their rewards and (b) by creating a mechanism to ensure that they can receive fixed minimum fees from a new common fund when the companies have insufficient assets for their payment.

iii) Increase the number of cases falling within the scope of short insolvency proceedings, which means a reduction in the duration of procedural terms to half, as well as the appointment of a single insolvency receivership.

The information contained in this Newsletter is of a general nature and does not constitute legal advice