Law 16/2022, of September 5, amending the revised text of the Insolvency Law, as approved by Royal Legislative Decree 1/2020, of May 5, implements Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019, on the frameworks applicable to exemptions from preventive restructuring, debt discharge and forfeiture, and on measures to increase the efficiency of restructuring, insolvency and discharge proceedings of debts, also amending Directive (EU) 2017/1132 of the European Parliament and of the Council, on certain aspects of company law (Directive on restructuring and insolvency), and introduces a number of amendments to the legislation on insolvency. Some of its most relevant content is highlighted below.
Main novelties of the insolvency reform
The reform replaces existing pre-insolvency instruments (refinancing agreements and out-of-court settlement agreements) with restructuring plans, providing more flexibility and scope:
- Allow to act earlier in a situation of potential insolvency, that is to say before the imminence of insolvency and well before the state of actual insolvency.
- Unlike current refinancing arrangements, it will now be possible to restructure the debtor’s commercial or non-financial liabilities, assets and equity, or even consider the sale of the debtor’s business or one of its production.
- The grouping of liabilities by class is introduced on the basis of the “common interest”, in line with what is happening in other jurisdictions in our environment (USA and England). Approval of the restructuring plan requires the favorable vote of at least two thirds of the class of creditors concerned, or three quarters when this class is made up of guaranteed loans.
- In certain circumstances, the plan may be validated, even if it is not approved by all categories of creditors or shareholders of the debtor company.
- Possibility of piling up all categories of creditors, including the shareholders of the debtor company, on whom the creditors could impose certain measures of the restructuring plan.
- Concepts such as “interim financing” or “new financing” are defined and rules are established for their protection against resolution actions.
- Particular attention is paid to the fact that contractual compensation agreements and financial guarantee agreements under Royal Decree-Law 5/2005 are not affected by any restructuring plan.
The reform codifies the pre-pack mechanism which, for some years, had been enshrined as a practice supported by certain commercial courts. It allows the filing of insolvency proceedings to include an offer to purchase the production unit, together with the binding written proposal from a creditor or third party:
- Unlike the previous regime, the opening of the liquidation phase will not be necessary.
- The appointment of the expert does not exempt the debtor from his obligation to request the declaration of insolvency, within a period of two months from the date on which the debtor knew or should have known the real state of the insolvency.
- The purchase offer must be subject to a cash payment requirement.
- In the event of the appointment of an expert to collect the offers for the purchase of the production unit, the judge, within the framework of a subsequent collective procedure, may ratify him as trustee.
- The offer can be presented by any creditor or third party, with one limitation: the offeror cannot act on behalf of the debtor.
- The offeror undertakes to continue or resume the activity of the production unit(s) for at least three years, failure to comply with this undertaking may give rise to an action for damages.
- The offer to purchase one or more production units is published on the insolvency liquidation portal of the public insolvency register (which should be created within six months of the entry into force of the reform ) the same day of the declaration of insolvency published in the first section of this register.
- Once declared insolvent, creditors can submit their considerations on the proposal and any interested party can submit a binding alternative proposal. The receivership will then issue a report evaluating the offers, and the judge will approve the most advantageous offer for the interests of the procedure.
It extends the scope of actions to recover the acts of the debtor:
- On the one hand, it extends the term “suspicion”, to include acts performed by the debtor in the two years preceding the date of the application for declaration of insolvency, as well as acts performed between that date and the date of the statement .
- On the other hand, it also includes the acts performed by the debtor in the two years preceding the date of notification of the existence of negotiations or the intention to initiate them, as well as those performed from this date until the date of the declaration of insolvency, even in the absence of fraudulent intent, provided that the following two conditions are met:
- That no restructuring plan had been approved or, if it had been, it had not been validated by the judge;
- That the insolvency has been declared within one year of the term of this notice, or its renewal period, if applicable.
Guarantees granted by the Spanish State
The reform clarifies the regime applicable to guarantees granted by the Spanish State under Royal Decree-Laws 8/2020, 25/2020 and 6/2022:
- Credits arising from government guarantees will be treated as financial credits for all purposes under insolvency law, including class formation and cancellation of unpaid debts.
- These receivables will be assimilated to ordinary receivables, without prejudice to the existence of another form of security granted to the secured principal credit, which will have at least the same rank in the order of precedence as the unsecured principal.
- The financial institutions will be responsible, in the name and on behalf of the Spanish State, of the insolvency procedures concerning the credits resulting from public guarantees.
- In order for the financial institution to be able to vote, in the name and on behalf of the Spanish State, in favor of the restructuring plans granting deferrals, advances or reductions in value, it must first seek the approval of the Department of collections from the Spanish tax authorities. Failure to comply with this obligation may result in the loss of the guarantee for the part that has not been performed or, otherwise, the Collections Department of the Spanish Tax Administration retains the rights of collection and recovery, without being affected by the contents of the plan or agreement.
- The restructuring and continuity plans, as well as the composition proposals likely to affect the above appropriations, do not impose any of the following contents: changes in applicable law; the change of debtor, without prejudice to a third party being able to assume, without the debtor being exonerated, the obligation to pay; modification or termination of collateral held; or the conversion of credits into shares, participating loans or credits, or any other credit of a different nature or rank from those corresponding to the original credit.
- In the event of the insolvency of the secured debtor, the declaration of insolvency, whether or not enforcement of the security has commenced and payment has been made to the principal creditor, entails, to the sole extent of its participation in the proceedings collective, the subrogation of the Ministry of Economic Affairs and Digital Transformation on the part of the guaranteed principal. Nevertheless, the financial institution concerned will continue to represent the credits for the financial transaction as a whole, including the share of the subrogated principal.
Other New Features
- It clarifies that notification to the competent court of the start of negotiations with creditors will not affect the possibility of early expiry, rescission and termination of contractual netting agreements under Royal Decree-Law 5/2005, will not prevent not the execution of financial guarantee agreements subject to Royal Decree-Law 5/2005, and will not affect the possibility of early maturity of the guaranteed obligations, for the part covered by this financial guarantee.
- It creates the figure of the restructuring expert, and establishes the cases where his appointment is mandatory.
- It provides for the approval, within the next six months, of various regulations (for example that applicable to receivership) and the publication of certain complementary documents, such as models and forms, or the electronic liquidation platform, among others. .
Main changes in the legislation
Revised text of the Companies Act, as approved by Royal Legislative Decree 1/2010, of July 2, 2010:
- Amends Article 365, adding a new paragraph 3, which clarifies that the directors of the company will not be required to call a general meeting to pass the resolution for the liquidation of the company, if they had requested a declaration of insolvency of the company, or had notified the competent court of the existence of negotiations with the creditors to arrive at a restructuring plan. However, the convening of the meeting will take place immediately, as soon as the effects of such notice are no longer in force.
- Amends Section 367, clarifying certain issues on the joint liability of the directors of the company for the obligations of the company after the occurrence of the legal grounds for liquidation, adding the exemption from liability in the event the court is informed of the existence of negotiations to reach a restructuring agreement, or the request for declaration of insolvency.
Royal Legislative Decree 1/2020, of May 5, which approves the revised text of the Insolvency Law:
- Amends additional provision 1, specifying that a group of companies means that defined in Article 42.1 of the Commercial Code, even if the control of the direct or indirect subsidiaries is held by a natural or legal person who is not not a legal person.