Vol 3 (2006) - Issue 2

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Spain: Understanding the New Insolvency Law

I. Introduction
In the previous issue of International Corporate Rescue (Volume 2, Issue 4, 2005) we summarised the most significant changes in Spanish insolvency law as a result of the new Law 22/2003, of 9 July 2003, which entered into force as of 1 September 2004 (the ‘Insolvency Law’).
In the next issues of International Corporate Rescue we will elaborate on some of those changes in more depth and we will comment on significant judgements and other important issues which may help shed some more light on the Insolvency Law in more practical terms. In this issue, we will comment on two particular aspects of the Insolvency Law which have dramatically changed the way insolvency proceedings work in Spain.
II. Claw-back provisions
As we said in the previous issue of International Corporate Rescue, the claw-back provisions of the new Insolvency Law have reduced legal uncertainty to a great extent, in particular because now there is a clear claw-back period of two years prior to the declaration of insolvency; therefore, acts carried out before that period cannot be challenged on the grounds of the Insolvency Law.
However, the new regime is far from being clear, as a recent judgement of a Spanish commercial court has proven.
The findings of this judgement must be borne in mind in any refinancing transaction or when restructuring the debt of a group of companies and, in particular, in the steps affecting the debt restructurings that normally follow a LBO transaction.
In our opinion, the judgment goes too far in the application of article 71 of the Insolvency Law. However, it is an important judgement because it is the first (or at least one of first) in which a refinancing deal is analysed under the Insolvency Law. It also reveals a fact that is often disregarded by transactional lawyers: judges tend to apply the law with ‘common sense’ rather than using sophisticated theories that might sometimes make it very difficult to identify the real risks that some complicated deals entail.