Spain’s long-awaited insolvency reform finally entered into force last Monday and is set to bring about deep structural changes to the nation’s existing legislation.

In a country where around 90% of companies that enter insolvency end up in liquidation, the government’s goal is clear: encourage the early restructuring of viable businesses, so that jobs can be saved and value preserved for all stakeholders. In this context, major changes are being introduced to make pre-insolvency proceedings more flexible, agile and efficient.
 
The changes come at a timely juncture for companies and their stakeholders as record inflation, higher borrowing costs and a looming recession weigh increasingly on balance sheets globally.
 
So what are the changes being introduced and how can shareholders and creditors prepare to use the new tools in a resourceful and effective way, especially as the economic outlook darkens?

1. Pre-insolvency prominence: One significant change is the increased prominence of the pre-insolvency instrument within restructuring proceedings. It is now possible to apply for the pre-insolvency procedure long before insolvency is imminent. This enables creditors and debtors to act at an earlier stage compared to what was set out in the previous legislation, thus increasing the likelihood the restructuring will succeed. In addition, restructuring is now extended to more types of creditors, including commercial creditors, and the time frame for the process can be lengthened by a further three months, if necessary.

2. A more ambitious restructuring plan: The scope of Restructuring Plans has been significantly broadened to include several actions that were not included in previous legislation. For example, plans may now include the sale of business units or of the whole company, the capitalization of credits and cancellation of debt as well as operational changes needed to ensure the firm’s viability. There is also the possibility to freeze or terminate contracts and cancel guarantees. Additionally, the new law asserts that creditors must be grouped into classes that share the same common interests. The restructuring plan is then voted on by the different credit classes.

3. Greater power to creditors: The new law has granted greater power to holders of debt, which can now impose the restructuring plan on dissident classes of creditors and even on the shareholders. With non-consensual restructurings now a possibility, shareholders must be proactive and take action at the earliest possible sign of trouble. By engaging in conversations with creditors, offering solutions and drafting restructuring plans sooner rather than later, they can take the lead instead of being led in the insolvency process. The introduction of a restructuring expert will also assist parties in negotiations.

How can A&M help?

A&M’s Restructuring & Turnaround practice in Spain has the expertise to help creditors and debtors capitalise on the innovations brought about by the new insolvency law. With over 20 years of restructuring and transformation expertise across different industries and jurisdictions, our team understands the nuances of the new mechanisms and can help stakeholders navigate them in a timely manner to achieve a successful restructuring.