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New Tools for Restructuring in Spain: A Leap Forward for Quick Restructuring and Some Fine Tuning Changes
Ángel Alonso, Partner, Uría Menéndez, Madrid, SpainI. Introduction
In this fast moving world needing urgent solutions to big cash-flow and debt problems that may jeopardise the existence of business, it is essential that restructuring and insolvency rules help to achieve quick restructuring results and to avoid business wreckage.
The old Spanish insolvency system had already been totally reshuffled in 2003 through the enactment of the Spanish Insolvency Act1 and some changes were carried out in 2009 (the '2009 Reform'). Finally, the Spanish Parliament passed in October 2011 a vast reform of the Spanish Insolvency Act (the '2011 Reform') that will come into force in full by the time this article is published.
The 2011 Reform aims are basically the following: (i) to reinforce alternatives for out-of-court restructuring already introduced by the 2009 Reform, including now the introduction of some kind of 'scheme of arrangement' tool that may, however, fall short on its effects in practice in many cases, as explained below; (ii) to favour the survival of business either through a quick in-court creditors’ agreement or a quick liquidation that may include similar effects to 'pre-pack' structures; and (iii) to simplify and speed up process and, in general, to update the Spanish Insolvency Act in light of case-law and practice during the last few years.
Some of the amendments introduced by the 2011 Reform, as well as their capability to accomplish the legislator’s purposes, will be analysed in this article.
II. Buying time for reaching an agreement with creditors
Experience showed that the term established by the Spanish Insolvency Act to agree an early composition agreement (convenio anticipado), which is a form of in-court restructuring, was not enough for such purposes (although other additional issues were hindering such alternative).
For this reason, the 2009 Reform introduced an exception to this general rule offering the possibility for debtors, once they were in actual insolvency (i.e. when a debtor cannot meet his debts when they are due and payable), to notify the competent Judge at the beginning of negotiations with their creditors to seek support for an early composition agreement. With that notification debtors have (i) an additional term of three months for negotiations and an additional one for filing for insolvency (the '3+1 rule'); and (ii) protection against creditors’ application for insolvency (but not against other situations like enforcement or set-off).
This alternative has been used quite frequently, even if negotiations do not seek support for an early composition agreement, but for an out-court restructuring. These latter situations implied some risks and uncertainties for debtors because the legal provision was only referring to the early composition agreement and not to other types of negotiations. The 2011 Reform clears up this situation and allows debtors to benefit of the 3+1 rule not only in case of negotiation of in-court agreements, but also out-of-court restructuring agreements.
Moreover, as the Spanish Insolvency Act includes the possibility (not the obligation) to the debtor to apply for insolvency when it is imminent (i.e. when a debtor foresees that payment of debts will not be possible in the near future) the 2011 Reform has also introduced the possibility of allowing communication with the Judge informing of the start of negotiations with creditors not only when insolvency is actual but also when it is imminent. This in principle would allow debtors to anticipate the whole process and to buy additional time to negotiate restructuring (to be implemented either in or out of court) with creditors.
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