May 2009
COMMERCIAL LAW
REFORM OF THE INSOLVENCY LAW
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.
