The Council of Ministers has passed the draft of a new law modifying the current law on insolvency proceedings in Spain. The law has already been modified by Royal Decree 3/2009 dated March 27th, 2009which implemented some urgent measures regarding the tax and financial aspects of insolvency proceedings. The amendments have attempted to speed up such proceedings and reduce costs.
The aim of this new amendment is to make insolvency proceedings a tool which can be easily used by companies, not only for winding up, but also to try to save the company.
Alternatives to bankruptcy proceedings
The new draft provides other measures to try to save the company instead of starting an insolvency or bankruptcy proceeding. This will help to reduce the amount of work that the civil courts are currently burdened with in Spain.
These are some of the proposed measures:
- To promote restructuring agreements with some of the creditors of the company and making such agreements valid in case of a future insolvency or bankruptcy proceeding.
- To promote out-of-court agreements for refinancing the company. These agreements will be profitable for the signing creditor and also the other creditors.
To that end, the exclusive power to challenge agreements for refinancing has been granted to the insolvency administrators or agents. Moreover, the judge can also validate such agreements. This judicial validation affects all creditors, even if some creditors are not in favor or did not participate in the agreement, provided that the agreement is to save the company in the opinion of an outside and independent expert.
For the agreement to have effect, it must have the support of creditors representing at least 75% of the debt. If the agreement does not seriously infringe upon the rights of the minority creditors, the judge will validate the agreement to promote the feasibility of the company. This reform promotes the availability of credit to companies suffering from the financial crisis.
Besides the pre-insolvency measures, the new draft introduces for the first time the regulation of the so-called fresh money, i.e., money paid by the creditors to the company within the refinancing agreement. 50% of this fresh money qualifies as crédito contra la masa (privilege credit), which means that it will be repaid before other ordinary and privileged credits. This constitutes a higher guarantee for the creditor refinancing the company.
Development of a simplified proceeding
In order to reduce procedural costs and time, the judge will be able to apply a simplified proceeding when he/she determines that the proceeding is not that complicated, based on objective data without his/her own personal evaluation. The same will apply in the event that there is no employee working for the company when the debtor files an anticipated plan proposal regarding the transfer of the company or its liquidation.
The draft proposes the professionalization of the insolvency administrators in charge of the insolvency proceedings. From now on, insolvency administrators will be allowed to correct errors in the creditors list. It will no longer be necessary to file a complaint before the court to correct the list. Up to now, this has been a major issue affecting the length of insolvency proceedings.
Giving more responsibilities to the insolvency administrators will reduce the amount of work for the civil courts in Spain. In any type of insolvency proceeding, it is also possible to appoint delegated assistants. Moreover, the insolvency administrator can be either a legal entity or a natural person.
Labor related reforms
The draft maintains the exclusivity of the civil courts to try any issue related to the insolvency proceeding, including employment complaints and the reforms provided by the Royal Decree of 2009.
In addition, the draft includes all modifications provided for in the recent labor reform and guarantees the rights of employees affected by the insolvency of the company.
This article is not considered as legal advice