The foreseen “Planes de Reestructuración”

The Draft Bill on the Reform of the Consolidated Text of the Insolvency Law for the transposition of Directive (EU) 2019/1023 on preventive restructuring frameworks introduces significant reforms to insolvency law, which mainly concern the regime of exoneration of unsatisfied liabilities, the regime of insolvency without assets, the remuneration of insolvency administrators, and the authorisation of web publicity on insolvency assets in liquidation.

However, the most transcendental amendment of those drafted refers to pre-insolvency law – to which the current Insolvency Act (TRLC) dedicates its second book – unifying refinancing agreements and out-of-court payment agreements in the so-called “Restructuring Plans” (Planes de Reestructuración) . The intention of the reform is to replicate the bankruptcy structures in the pre-bankruptcy sphere, which entails the risk of transferring the inefficiencies of the former to the latter.

Apart from the criticism that the pre-legislator may deserve from both a material and formal perspective (the wording could be improved), this brief article will describe in numbered paragraphs the milestones of the new process of approval and approval of the “Restructuring Plans”, with no other intention than to offer a very general perspective of their mechanism:

  • The Restructuring Plans are introduced in the TRLC by article 177 of the Preliminary Draft, which modifies in its entirety the second book (“Pre-bankruptcy Law”) of the TRLC, from article 583.
  1. Title I, dedicated to the preconditions of pre-bankruptcy,
  2. Title II, dedicated to the communication of the opening of negotiations with creditors;
  3. Title III, devoted to the Restructuring Plans, the subject of this article.
  4. Title IV, devoted to the expert in Restructuring Plans (it seems that this matter deserves a separate title, instead of being integrated as a chapter of Title III); and
  5. Title V, dedicated to establishing certain specialities in the regime of Title II and Title III for small and medium-sized companies.
  • The Restructuring Plans may be proposed by the debtor or its creditors, and will be approved within the framework of an out-of-court procedure, under the supervision of the commercial court that would be competent to hear the debtor’s insolvency proceedings. Once their approval is formalised in a public document, they may be judicially approved in order to
  1. drag the creditors who have not voted in their favour.
  2. drag the partners of the legal entity who have not voted in favour of the statutory or structural modifications provided for in the Restructuring Plan, such as, for example, the capitalisation of credits through an accordion operation.
  3. protect the securities linked to the new financing (fresh money) obtained during insolvency against potential and future rescission actions.
  • The restructuring plans will not affect to public law credits, wages, family allowances or the financial guarantees established in Royal Decree-Law 5/2005. Nor shall it to those creditors designated, with reasoned justification, in the Restructuring Plan.
  • The credits will be grouped into classes and subclasses, these being formed under the criterion of the existence of a common interest, it being presumed – not stated if iuris et de jure – that credits of the same insolvency rank have a common interest. Other objective criteria that indicate a common interest are the financial nature of the claim, the existence of a security interest, and the common modifications provided for in the Plan for the various claims.  Both the debtor and the creditors may request the Court to confirm the “correct” formation of the classes.
  • The credits whose holders have voted in favour of the Restructuring Plan, and those who, even if they have not voted in favour, in their respective class, have obtained the support of more than two thirds (2/3) of their total liabilities, shall be subject to the Plan. If the class is made up of secured creditors, three quarters (3/4).
  • In the case of syndicated credits, their collective vote shall be formed in accordance with the above majorities, unless the majorities provided for in the syndication agreement are lower. If the collective vote is negative, the votes shall be computed individually together with those of the rest of the same class.
  • If the Restructuring Plan contains bylaw or structural modifications that require the corresponding corporate resolution, this shall be voted on at the appropriate General Meeting and shall be deemed approved if the votes in favour thereof reach the ordinary majority (arts. 198, 201 TRLSC).
  • The Restructuring Plan must be signed by all those who have voted in favour of it and formalised in a public deed, with an auditor’s certificate on the concurrence of the majorities necessary to approve the plan. For the purposes of notarial fees, it shall be considered as a document without amount.
  • In the same way as the proposal of the Restructuring Plan, the application for approval may be presented by the debtor or the creditors who have subscribed to it.
  • As stated above, the homologation of the plan will be necessary to extend its effects (drag) to (i) the classes of creditors who have not voted in favour of it, and even (ii) to the shareholders who have not voted in favour of the corporate measures necessary for its execution.
  • The admission of the application for homologation will produce a “stand still” of executions in progress and the prohibition to initiate new ones on the debtor’s assets.
  • A “cram down” of the creditors who have not voted in favour of the plan will take place in the event that a simple majority of the classes have voted in favour of the Restructuring Plan, provided that at least one of them is a privileged creditor or an “in the money” creditor.
  • It should be noted that secured creditors will also be dragged into the homologation, even if they have voted against the Restructuring Plan, provided that their class has supported the Plan by a simple majority.
  • It should also be noted that the opposition of the shareholders to the corporate measures provided for in the Restructuring Plan will not be taken into consideration in the event that the company is in actual or imminent insolvency.
  • As also stated above, the judicial approval of the plan will be necessary to protect the guarantees provided for the “fresh money” against clawback actions, in a possible subsequent insolvency proceeding.
  • The Judge will approve the Restructuring Plan, provided that the requirements are met, by means of an Order which will be effective immediately. The approval order will determine the lifting of the suspension of the enforcement proceedings of the credits not affected by the restructuring plan, as well as the dismissal of the remaining enforcement proceedings.
  • However, it may be challenged before the Provincial Court within fifteen (15) days for the following groups of reasons:
  1. Formal irregularities.
  2. By defect: the debtor is not in a state of insolvency, not even probable insolvency.
  3. By excess: the plan does not offer any possibility of avoiding insolvency or of ensuring the viability of the company.
  4. Unjustified unequal treatment between classes of creditors.
  5. Failure to comply with the test of the best interests of the creditors: these would receive a greater interest through an insolvency liquidation.
  • The ruling that resolves the challenge may not be appealed, and its effects – in the event that it is reversed – will declare the non-extension of the effects of the Restructuring Plan only to creditor or creditors who have filed the challenge.
  • Once the Restructuring Plan has been approved, another one may not be requested in respect of the same debtor until one (1) year has elapsed from the date of the request for approval of the previous plan. If this provision is maintained in these terms, the tardiness of the courts and hearings, as well as their failure to meet the deadlines for issuing a ruling, will probably make this waiting period illusory.
  • Once the Restructuring Plan has been approved, it will not be possible to request its resolution due to non-compliance, nor – consequently – the disappearance of the extinctive or novation effects of the affected credits, unless the plan itself provides otherwise. If the non-compliance with the plan is the cause of insolvency, any legitimised person may request the declaration of insolvency proceedings.
  • As a provisional assessment of this restructuring mechanism, it could be said that (i) it has powerful leverage against creditors and shareholders opposed to the implementation of the restructuring, (ii) that one of the methods of restructuring consists of forcibly granting creditors the ownership of the company; and (iii) that once again, the problem that hinders any insolvency procedure, which is the shielding of public credit, remains untouched.

Leave a Reply

Your email address will not be published. Required fields are marked *