Urgent measures for refinancing and restructuring of business debt introduced by Royal Decree-Law 4/2014, of March 7, 2014

Restructuring and Insolvency Work Commentary 1-2014


On Saturday, March 8, the Official State Gazette published Royal Decree-Law 4/2014 adopting urgent measures on business debt refinancing and restructuring.

The main purpose of this new legislation is to broaden and make the provisions on refinancing agreements more efficient to help lighten the financial burden of, and deleverage, potentially viable businesses from an operating standpoint, with maximum respect for the lawful expectations of the creditors who are encouraged to take an active part in these financial turnaround processes. Before we enter into a more in-depth analysis, below is a list of the key components of the reform:

  • Article 5 bis of the Spanish Insolvency Law (“LC” - Ley Concursal) has been amended to allow the filing of the notice of the start of negotiations to reach certain agreements to interrupt, for the time period envisaged to bring the negotiations into effect, any court enforcements against assets that prove to be necessary for the continuity of the debtor’s economic activities; any enforcements against other assets, except for those originating from public law claims, may also be interrupted where at least 51% of the creditors holding financial claims against the debtor have expressly supported the start of the negotiations.
  • Safe harbor protection against a future insolvency proceeding on the company for any separate bilateral or multilateral refinancing agreements improving the debtor’s financial position and solvency that might have had been reached between the company and one or more of its creditors.
  • An inducement has been given to the provision of fresh money to the debtor in the context of refinancing agreements executed until March 2016, by determining that the whole amount of any such fresh money will be treated as post-insolvency order claims in a potential later insolvency proceeding, even if that fresh money is provided by persons having a special relationship with the debtor (insider creditors); this is only a temporary measure in force for two years after the fresh money is provided.
  • The new provisions on the court approval procedure for refinancing agreements have broadened significantly the parties to which they may be applied and the allowed terms in the refinancing agreements that can be approved by the commercial court judge. Their effects can now be made to apply to creditors that have not adhered, or have expressed their objection, to those agreements. The terms that can be made to apply vary according to the majorities obtained for them, ranging from a simple deferral shorter than five years to deferrals of up to ten years, releases, debt for equity clauses, etc.

    Additionally, those effects can also be made to apply to creditors holding collateral in relation to the portion of their claims that the value of the collateral provided does not cover (in cases of collateral shortfalls) and, where determined by majorities of this class of creditors set by reference to the value of such collateral, those effects can also be made to apply to the other claims covered by the collateral, although these majorities are quite highly qualified.

This royal decree-law entered into force the day after its publication in the Official State Gazette.

The most important new legislation is summarized below:

1. Amendment of article 5 bis LC

2. New refinancing agreements (art. 71 bis LC)

  • 2.1 Refinancing agreements adopted by 3/5 of the unsecured creditors and made in response to a viability plan
  • 2.2 Separate agreements not subject to clawback because they clearly improve the debtor’s financial position (“safe harbor”)

3. Refinancing agreements able to be approved by the courts (Additional provision four LC)

4. Halt in the insolvency proceeding to the enforcement of collateral

5. Fresh money injected under refinancing agreements

6. Claims not subordinated in the case of debt for equity stipulated in refinancing agreements

7. De facto directors: new non eligibility scenario

8. Consequences, on assessment of the debtor’s insolvency, of the refusal to exchange debt for equity

  • 8.1 New presumption of serious wilful misconduct or fault for assessment of the insolvency proceeding as fault-based
  • 8.2 Determination of new parties that could be affected by the assessment and their liability for the insolvency proceeding

9. Tax incentives for refinancing agreements


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