Vol 11 (2014) - Issue 5

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Captain Pescanova Eludes Liquidation and Agrees In-Court Restructuring Agreement

1. General background
At the end of the 1990s Pescanova created a character called 'Captain Pescanova', a young boy with a yellow raincoat, to market its products. Captain Pescanova was a popular character and Pescanova’s products achieved great success. Unilever tried to challenge the character alleging that it was similar to Unilever’s own Captain Igloo, but Pescanova won that trademark battle. Now Captain Pescanova had to fight a more difficult battle. Not just its name but its own existence were in danger. However, Pescanova has managed to elude liquidation at the very last minute by reaching an incourt agreement with its creditors within its insolvency proceedings.
Pescanova is a leading publicly listed Spanish company dealing in the production and sale of frozen fish, fish farming and seafood (especially, 'vannamei' prawns, hake, turbot and salmon). Pescanova is the holding company of a group composed of approx. 120 companies with a presence in more than 20 countries (particularly Europe and South America), selling products worldwide (81% of which are placed on markets in Spain and the rest of Europe, the US and Japan) and which employs around 12,000 people (120 of whom work for Pescanova). Operatively, it is a vertically integrated group since the subsidiaries, and not Pescanova, hold the most relevant sources of income (e.g., vessels, fishing rights and the aquaculture assets) and sell the products to the market.
A dispute between former directors representing the major shareholder and the Spanish Stock Exchange Commission in relation to the execution and approval of the 2012 annual accounts ultimately resulted in Pescanova being declared insolvent on 25 April 2013 by the Commercial Judge No. 1 of Pontevedra, on the basis of its inability to regularly pay its due and payable debts. The Judge removed managing powers and entrusted them to the receiver. Directors who were linked to the major shareholder were dismissed and replaced by new independent directors.
This was just the tip of the iceberg since a forensic audit in 2013 discovered double accounting and unregistered bills that resulted in significantly higher indebtedness than that previously recognised.
Pescanova insolvency is the largest to date for a non-real estate company in Spain, with an approximate indebtedness of EUR 4.6 billion and more than 1,000 creditors worldwide (including major Spanish banks, important foreign banks and bondholders subject to English law and listed in Luxembourg). As we will explain below, it has been far from easy to reach an in-court composition agreement and there is still a lot to do until the restructuring of the whole group is completed next year. Only the first step has been taken (i.e. the approval of a composition agreement by Pescanova’s creditors and the Commercial Judge), but this has been a critical one that may lead to the beginning of the end.

2. A complex rescue
Avoiding Pescanova’s liquidation, which would result in a disorganised sale of assets, became the primary goal, so the approval of a composition agreement by creditors representing more than 50% of the ordinary claims was required. According to the legal terms, the composition agreement had to be submitted on or before 3 March 2014, which implied significant timing constraints.
New money to finance the continuation of the business until the composition agreement was approved was also critical, confronting Pescanova with the same problems suffered by companies in insolvency since creditors are usually reluctant to provide new money (and event grant mere payment deferrals) to finance their working capital, due to their doubts about full repayment (in addition to accounting reserves requested to Spanish banks by the Bank of Spain).