SPAIN Law and Practice Contributed by: Miguel Cases, Toni Barios, Joaquín Fabré and David Navarro, Cases & Lacambra
7.4 Rescue or Reorganisation Procedures Other Than Insolvency Outside of an insolvency proceeding, there is a mech- anism that can be used in order to address the finan- cial difficulties of companies at a stage prior to the commencement of the insolvency proceeding. This mechanism is designed to help financially distressed companies address their difficulties and avoid an insolvency process. In this regard, in the event that there is a “likelihood of insolvency” of a debtor, the debtor may notify the commercial court of the existence of negotiations with its creditors or the intention to begin such negotiations in order to reach a restructuring plan to overcome its financial situation. The debtor and the creditors shall reach a restructuring plan within three months of the notification of the communications to the commercial court. This term may be extended up to three more months. In the event that no agreement has been reached in the term, the debtor must apply for the insolvency proceeding within the following month. The restructuring plan is a restructuring mechanism by which debtors suffering from financial difficulties and their creditors may agree on any type of procedure that is deemed sufficient to restructure the debtor’s business (this could include sales of the debtor’s assets or even part of, or the entire business). The effects of the plan can be imposed on most types of creditors and claims. The restructuring plan must have reasonable pros- pects of preventing the insolvency process and it must be formalised in a public deed. In certain cases, the restructuring plan must be approved by the commer- cial court. Once the restructuring plan is approved by the court, it will not be possible to request its ter- mination in case of a breach, unless the plan states otherwise. However, in the event that the breach is caused by the debtor’s insolvency, any person shall be entitled to file an insolvency petition against the debtor. 7.5 Risk Areas for Lenders Lenders should consider the remoteness of the bor- rower’s insolvency since certain transactions and security interests may involve a claw-back risk if they
Generally Privileged Claims Generally privileged claims are those paid after the repayment of specially privileged claims, but prior to ordinary claims. These claims, unlike specially privi- leged claims, are paid from the debtor’s assets rather than with the attachment or enforcement of a specific asset. If the debtor’s assets are insufficient to fully satisfy any of the generally privileged claims, creditors of the same subclass will be paid on a pro rata basis to the amount of their claims. Ordinary Claims Ordinary claims are those that are not privileged nor subordinate claims. Payment of ordinary claims shall be made after payment of credit against the state and privileged claims on a pro rata basis. Subordinated Claims Subordinated claims are those paid last and only if ordinary creditors have been paid in full. Notwithstanding the foregoing, before the insolvency creditors are paid pursuant to the order established above, certain creditors, called “creditors of the insol- vency estate”, are paid from the insolvency estate as they fall due. 7.3 Length of Insolvency Process and Recoveries According to the latest information published by the Spanish Judiciary ( Poder Judicial ) corresponding to the year 2022, the average length of an insolvency proceeding in 2022 was 33.6 months. Note that insolvency regulation has been recently amended by laws implementing the Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019, on frameworks for preventive restructuring, debt discharge and disqualifications, and on measures to increase the efficiency of debt restructuring, insolvency and discharge procedures. From the information available on the website of the Spanish Judiciary (Poder Judicial), there is a decrease in the length of bankruptcy proceedings, which has been reduced by 18.5 months from 2020 to 2022.
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