Publications

The government adopted the reform by passing a royal decree-law which has hardly had any publicity. This Royal Decree Law 11/2014 can be read here:BOE.

The main elements of this reform are bulleted below:

• New legislation on arrangements with creditors

Flexibility added to allowed terms in creditors‘ arrangements: the limits on the allowed releases and deferrals have been broadened (up to 10 years), and among its alternative terms, the arrangement can propose the sale of production units to specific individuals or legal entities. All accompanied by a fresh regime on the supporting majorities: basically, the affirmative vote of 50% of ordinary/unsecured liabilities is required for ‘soft’ arrangements, or 65%, for ‘hard’ arrangements.

Binding effects of creditors’ arrangements for preferred creditors: arrangements may be binding on preferred creditors also, even if they have not voted for them. They can be made binding for the preferred creditors in a given ‘class’ if certain majorities within that class voted for the arrangement. Four classes of creditors have been established within each category of preferred creditor: employment law creditors, public creditors, financial creditors and other creditors.
 
Value of collateral: ‘specially preferred’ status will now only be conferred on the portion of the claim that does not exceed the ‘fair value’ recognized in the insolvency proceeding for the respective collateral. The amount of the claim over and above that value will be characterized according to its characteristics. The collateral’s value will amount to nine-tenths of the fair value of the asset or right provided as collateral, which will be determined using the method set out in the law.

Majorities required to make the arrangement binding on preferred creditors: the portion of the preferred claim covered by the fair value of the collateral may be subject to the arrangement if the following majorities are achieved:

   a) A 60% majority of the creditors belonging to the same class, in the case of an arrangement with a release below 50% or a deferral for under 5 years, or the conversion of debt into participation loans for the same term;

   b) A 75% majority of the creditors belonging to the same class, in the case of an arrangement with a release higher than 50% or a deferral for under 5 years, or the conversion of debt into participation loans for the same term, or any of the other alternatives in article 100.
These new majorities thus allow some classes of preferred creditors to make the arrangement binding on certain preferred creditors in the same class who do not hold more than 40% or 25% of the claims in that class.

Creditors subject to a pooling (syndicated) agreement or regime: if 75% of the claims in respect of financing subject to a pooling regime vote for the arrangement, all the claims in respect of that financing will be deemed to have voted for the arrangement, unless the provisions governing the pooling regime require a lower majority, in which case that lower majority will apply. 

Right to vote following a post-insolvency order acquisition of claims: it has been acknowledged that those acquiring claims after the insolvency order can vote on the arrangement (provided they are not a specially related party of the insolvent debtor), even if the transferee is an entity under financial supervision.

• New legislation on liquidation

Sale of production units and business continuity: the reform’s new measures concerning liquidation are geared towards securing business continuity, by making it easier to transfer the debtor’s production unit or units, and enabling automatic subrogation of the new transferee in the agreements signed by the transferor and in any administrative permits held by the transferor. New legislation has also been added on the transfer of assets to creditors in or for payment, along with supplementary rules on the disposal of production units, on releasing or keeping any potential real security interests in the assets contained in those production units, and on the necessary terms of purchase offers for production units.

• Others

Transitional regime: the new reform is subject to a complicated transitional regime. It is stated in the Royal Decree Law the possibility for those arrangements with creditors that were approved following the previous regulation to adapt to this brand new reform under certain circumstances and only in those cases in which the arrangement with creditors had been declared in breach within the following two years since the approval of Royal Decree Law 11/2014.

Option to join insolvency proceedings on concession holders for public works and services, or on contractors for public authorities to be conducted at the same court: this option is allowed where proposals for arrangements are made affecting all of them, and they may condition each other. Additionally, the proposals for arrangements in those proceedings may be made by public authorities, including any agencies, entities and commercial companies related to, or dependent on, them.