The deadline granted by the European Union to transpose its innovative Directive 2019/1023 on preventive restructuring frameworks in the field of insolvency and to definitively approve the Draft Law on the Reform of the Consolidated Text of the Insolvency Law in Spain will soon come to an end.
In general, we identify a clear desire from the European and Spanish legislators to escape insolvency proceedings through restructuring plans. This figure – relatively new in the Spanish legal system – is provided with the necessary instruments in the face of the uncertain and dark economic future besetting the Western world, weighed down by the war in Ukraine and fast-paced and unstoppable inflation.
The main novelties of the Directive and the Draft Law are the following:
Novelties in Directive (EU) 2019/1023 of 20 June 2019 on restructuring and insolvency
- The proposer of the restructuring plan is allowed to identify the affected and non-affected parties. Consequently, only the voting rights of the ‘affected’ parties will be respected, and reasons must be given for any exclusion from voting (Articles 8(1) and 9(2) DE 2019/1023)
- The debtor divides the creditors into different categories. In each one of them, a separate vote is taken so the dissenters to the restructuring plan are isolated, and the effects of their opposition are lessened (Article 9.4 DE 2019/1023)
- To prevent misleading behaviour, the Directive allows judicial or administrative control to confirm the restructuring plan if some requirements are met (…) even if not approved by all voting categories. Approval by a minority or even by a single category is allowed. It is referred to as cross-class cramdown in the doctrine; the Directive calls this instrument forced debt restructuring (Article 11 DE 2019/1023)
- The Directive strengthens the creditor’s interest as a counterbalance to previous measures by establishing parity of creditors with a community of interests. It also provides for the option to reject the restructuring plan if it does not serve to ensure the company’s viability or to avoid the debtor’s insolvency
- The Directive establishes an independent body called the restructuring trustee to support and advise the debtor and the creditors in drawing up and negotiating the restructuring plan. Its assistance will be mandatory when:
- A judicial or administrative authority must approve the plan
- A general suspension of single performances is agreed upon, and the competent authority determines that attendance is compulsory
- A majority of creditors (provided they bear the costs) or the debtor requests it.
Draft Law on the Reform of the Consolidated Text of the Insolvency Act (RCTIA)
The Proposed Legislation transposes Directive 2019/1023 and adopts some of its new instruments, from which we highlight:
- To simplify the existing system, the draft law replaces out-of-court payment agreements and refinancing agreements with restructuring plans
- The Proposed Legislation allows the enforcement of restructuring plans on debtor companies, except for small and medium-sized enterprises (SMEs), provided such companies are insolvent or in imminent insolvency. Let us recall that:
- A debtor unable to meet its obligations as they fall due and payable by creditors is insolvent
- A debtor who expects to be unable to meet its obligations is in imminent insolvency
- It introduces new mechanisms to manage situations in which creditors have a sufficiently high weight to block the achievement of a restructuring plan. Like the Directive, the Proposed Legislation distinguishes between creditors and only attributes voting rights to the affected parties (Article 628.1 RCTIA). The debtor may determine the classes subject to certain limitations (Article 623 RCTIA)
- The draft law allows advancing the initiation phase of the restructuring process with the introduction of the concept of the debtor’s likelihood of insolvency
- It introduces the figure of the restructuring expert (Articles 638, 639 and 669 RCTIA). It must be a natural or legal person with extensive legal, business, and financial knowledge and comprehensive experience in restructuring (Article 674 RCTIA)
- Another novelty is the possibility of terminating or modifying contracts with reciprocal obligations and pending performance. It includes senior management contracts, provided that the termination or modification is in the interest of restructuring.
The Spanish State has a deadline of 17 July 2022 to transpose Directive 2019/1023 on restructuring and insolvency.
With the transposition of these two rules, companies in insolvency will be able to stick to a negotiation plan instead of filing for insolvency proceedings directly.
Álvaro Gómez Fernández
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