THE COURT-SANCTIONED REFINANCING AGREEMENTS (`SPANISH
SCHEME´) IN THE SPANISH INSOLVENCY SYSTEM
March 2016
INDEX
BACKGROUND
2
APPLICABLE LAW
2
OVERVIEW OF COURT-S ANCTI ONED REFINANCING AGREEMENT
2
1.
BACKGROUND
1.1.
In 2011, the Spanish legislator introduced the court-sanctioned refinancing
agreement (`Spanish Scheme´ or `Homologación judicial´) in the Spanish insolvency system, amending its Additional Provision Four in order to
create a new form of pre-insolvency, inspired by what is known in English
law as a scheme of arrangement, making the possibility of refinancing the
debt of a trading company with liquidity problems more attractive.
1.2.
The amendment responded to market demand, creating a form of pre-insolvency that allowed courts to extend the effects of certain refinancing
agreements reached by the debtor to certain creditors that had not executed them initially.Thus, where a refinancing agreement meets the
conditions described below, the debtor (or any creditor that has signed the
refinancing agreement) can apply for court approval of the agreement to
the commercial court with jurisdiction for the declaration of insolvency. If
approval is given, the court will declare that specific effects provided for in
the agreement extend to the dissenting financial creditors in the terms set
out below.
1.3.
Additional Provision Four limits access to court approval of refinancing
agreements, as debtors may apply for only one approval per year.
2.
APPLICABLE LAW
2.1.
Spanish Insolvency Act 22/2003, of July 9, 2003.
3.
OVERVIEW OF COURT-SANCTIONED REFINANCING AGREEMENT
Conditions for court approval of refinancing agreements
3.1.
To have refinancing agreements approved by the court, the following conditions must be met:
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Content: the agreements must “at least significantly increase the
amount of available credit, amend, or terminate credit obligations
by extending the due date or establishing other obligations to replace the former, provided they are based on a viability plan that
allows the company’s ongoing activity in the short and medium
term.”
(a)
The refinancing agreement must meet the following conditions of
those provided for in article 71 bis 1 of the Insolvency Act:
(i)
Auditor’s certification: the refinancing agreement must be accompanied by certification from the debtor’s auditor 1 stating
that there are enough consenting creditors for the agreement
to be adopted.
(ii)
(b)
Form: the agreement must be executed in a public deed.
The agreement must be signed by at least 51% of financial creditors2 on the date of the agreement, although for its effects to be
extended, the majorities specified in sections 3.9 and 3.11 below
must be achieved. This quorum calculation will not include commercial creditors or creditors for labour claims that have voluntarily
become parties to the agreement or any financial liabilities owed to
creditors that are especially related to the debtor. Regarding syndicated loans, Additional Provision Four states that “in the case of
agreements subject to a syndication system or arrangement, all
creditors subject to these agreement will be understood to sign the
refinancing agreement when those representing at least 75% of the
claims affected by the syndication agreement vote for it, unless the
syndication regulations establish a smaller majority, in which case
the latter will apply.”
3.2.
The debtor and the creditors can request the appointment of an independent expert to submit a report on the reasonable and feasible nature of the
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If the debtor has no auditor appointed, it will be appointed by the commercial registry in the debtor’s domicile, or
the parent company’s domicile in the case of a group of companies.
22
Additional Provision Four defines financial creditors as holders of any financial debt, regardless of whether it is subject to financial supervision (same definition is provided by article 94 of the Insolvency Act, as established by Royal
Decree-Law 11/2014).
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viability plan, the proportionality of the guarantees in keeping with normal
market conditions when the agreement is executed, and other factors provided for under applicable law.
Procedure
3.3.
Where the above conditions are met, the debtor or any creditor that has
signed the refinancing agreement is allowed to submit an application to the
court with jurisdiction to judge the company’s insolvency for approval of
the refinancing agreement reached, along with a copy of the refinancing
agreement and the auditor’s certification regarding the sufficiency of the
creditors accepting the agreement and, where appropriate, the report mentioned in section 3.2 and the certificates, appraisals and reports for the
valuation of the assets subject to guarantees.
3.4.
Having examined the application for approval, the court will admit it to
processing and declare the suspension of any singular enforcement until
the refinancing agreement is approved. The court secretary will order the
Public Insolvency Register to publish the order in an announcement,
stating, among others, the debtor’s particulars, the date of the refinancing
agreement and the effects provided for in that agreement, stating that the
agreement is available to the creditors at the relevant commercial court.
3.5.
The ruling for approval of the refinancing agreement will be handed down
through urgent proceedings within 15 days, and will be published in an
announcement in the Public Insolvency Register and in the Official Gazette
of the Spanish State. The court can also order cancellation of any attachments ordered in proceedings for enforcement of the debts affected
by the refinancing agreement.
3.6.
Within fifteen days from the date of publication, financial creditors affected
by the court approval that did not sign the refinancing agreement or that
rejected the agreement can challenge the approval because the quorum
required for approval has not been met, or that the agreement’s covenants
involve a disproportionate sacrifice.
3.7.
The lack of a legal definition of disproportionate sacrifice made it necessary to (i) ascertain whether the dissenting entity suffered any sacrifice,
using measurably objective parameters and (ii) whether the sacrifice was
disproportionate. EU Commission Recommendation of March 12, 2014, on
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a new approach to business failure and insolvency, states that sacrifices
imposed on dissenting creditors cannot reduce the rights of dissenting
creditors below what they would reasonably be expected to receive in the
absence of the restructuring; that is, if the debtor's business was liquidated
or sold as a going concern.
3.8.
All challenges will be processed together and the ruling on the challenge of
the approval must be handed down within 30 days and will not be subject
to appeal. It will be announced in the same way as the ruling for approval.
Effects of approval
Agreed effects extended to dissenting financial creditors
3.9.
Regarding the effects that an approved agreement will have on dissenting
creditors, the Spanish Insolvency Act makes a distinction based on whether
the creditor has an in rem security (i.e., mortgages and pledges). Accordingly, to extend the effects to dissenting creditors the following
majorities must be met.
3.10. In the first case (creditors with no in rem security), the extension of the
effects requires (i) consent of creditors representing 60% of financial liabilities to extend moratoria for up to five years, and to convert debt into
participating loans within five years, and (ii) consent of creditors representing 75% of financial liabilities to extend moratoria for between five
and ten years, and for debt reductions (unlimited), capitalisation of debts 3,
transformation of debt into ranking financial instruments, different maturity or conditions concerning the original debt, and assignments in
payment.
3.11. The following rules will apply to dissenting creditors with in rem security:
(i) up to the secured amount, the same effects will extend as provided for
creditors not possessing in rem security, but only where the agreement is
approved by 65%, for the purposes of section (i) of the preceding paragraph, or by 80%, for the purposes of section (ii) of the preceding
paragraph, calculated depending on the proportion between creditors with
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Dissenting creditors must state that they opt for capitalisation. Otherwise, they will be subject to a reduction of
their credit by the amount of the share capital and issue premium to which they would have been entitled in the
capitalisation.
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in rem security that have consented to the agreement and the total amount
of debt secured with in rem security, and (ii) for the amount exceeding the
value of the in rem security, the effects of the agreement will extend as
stated above for creditors that do not have in rem security.
3.12. The rule defines the value of the in rem security as the result of deducting the outstanding debts covered by the pre-emptive security on a given
asset from nine-tenths of the reasonable value of that asset, while that
value must not be less than zero or greater than the value of the credit
held by the creditor,4 or the value of the maximum secured liability agreed.
3.13. “Reasonable value” is understood as (i) for listed securities, the average
weighted price at which they have traded on one or more regulated markets
during the last quarter before the date negotiations began to reach the
refinancing agreement, in accordance with the certification issued by the
company managing the corresponding market; (ii) for real estate, the value
reached in an authorised entity’s assessment report; and (iii) for any other
assets, the value reached in the report issued by an independent expert in
keeping with the generally accepted assessment standards for these assets. The reports in the latter two cases will not be necessary where the
reasonable value has been determined by an independent expert within six
months before the date negotiations began to reach the refinancing agreement, and for cash, current accounts, electronic money, or fixed-term
deposits.
“Fresh money” privilege
3.14. For two years following the entry into force of Act 17/2014 (October 2,
2014), all credits constituting new cash inflows granted under a refinancing
agreement
entered
into
after
that
date
will
be
considered
administrative expenses, including where they are made by the debtor
or by persons especially related to the debtor (unless they are made
through capital increase).
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If the guarantee covers several assets, the results of applying this rule for each asset will be added together, while
the joint value of the guarantees cannot exceed the value of the credit held by the creditor. In the case of a guarantee held jointly by two or more creditors, the value of the guarantee pertaining to each creditor will be the result
of applying the proportion corresponding to each creditor to the total value of the guarantee, in keeping with the
rules for joint possession, without prejudice to any rules applying to the syndicated agreements.
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3.15. Once the two-year term expires, only 50% of the new cash inflows will be
considered insolvency credits, not including those made by the debtor or
by persons especially related to the debtor. The remaining 50% will be
considered credits with general privilege.
Protection against claw back actions
3.16. Court-sanctioned refinancing agreements cannot be subject to claw
back and can only be challenged by dissenting creditors or by the insolvency administration through actions for voidability or nullity (due to
simulation or fraudulent circumvention of the law) or by the so-called Paulian action (in fraud of creditors).
De facto administration
3.17. Creditors that have signed a court-sanctioned refinancing agreement will
not be considered de facto directors (and as such, persons especially
related to the insolvent debtor 5) for the obligations the debtor assumes
regarding the viability plan, unless proved otherwise.
Rights regarding joint and several obligors or guarantors
3.18. Creditors of financial liabilities affected by the approval keep their rights
vis-à-vis the guarantors and other parties that are jointly and severally
obliged with the debtor, which will not be entitled to rely on approval of the
refinancing agreement or on the effects of its approval to the detriment of
those guarantors or obligors. Creditors that have signed the refinancing
agreement must abide by the covenants agreed in their respective legal
relationships.
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Categorisation as a person especially related to an insolvent legal entity involves legal consequences, including (i)
any credit that these persons hold against the insolvent party will be considered subordinate and will be paid after
all ordinary credits have been paid, (ii) they will forfeit any in rem security granted by the insolvent party on its
assets for the benefit of these credits unless they challenge the classification of their credits on the list of creditors
in due time and form (or if a challenge is made and the court rejects it), and (iii) acts of disposal for no consideration by the insolvent party for the benefit of the person categorised as especially related within the two-year period
preceding the declaration of insolvency will be assumed to damage the insolvency assets, unless proved otherwise,
for the purposes of their possible rescission.
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