Urgent measures regarding refinancing and restructuring of corporate debt

In the BOE of March 8, Royal Decree-Law 4/2014 was published, whereby urgent measures are taken in the matter of refinancing and restructuring of corporate debt, which is intended to improve the pre-bankruptcy legal framework of refinancing agreements in Those who, through a consensus between the debtor and the creditors, seek to maximize the value of the assets and reduce or defer the liabilities of the debtor in order to avoid their bankruptcy.

Urgent measures regarding refinancing and restructuring of corporate debt


As you know, today there are numerous companies that, although they are operatively solvent, have been dragging excessive financial debt that balks their results and leads them without remedy to the bankruptcy, and in their case, many times, to the liquidation.

Frequently, companies that are really viable from an operational point of view (that is, susceptible to generating profits in their ordinary business) have become unfeasible from a financial point of view.

Given this situation, there are two alternatives: either to liquidate the company as a whole or to sanitize it from a financial point of view, so that the remaining debt is bearable, thus allowing the company to continue serving its commitments in economic traffic.

Well, in this context the Royal Decree-Law 4/2014, of March 7, is framed, by which urgent measures are adopted in the matter of refinancing and restructuring of corporate debt (BOE, 08-03-2014), which entered in force in general on March 9, 2014, whose objective is to streamline and make these processes more flexible, for which it tries to guarantee the survival of companies that have accumulated an excessive financial burden, but are viable from an operational point of view, through an orderly and balanced system of agreements with creditors and a wider range of refinancing formulas.

The reform includes a complete and novel regulation of the refinancing agreements included in the Bankruptcy Law and subject to judicial approval, expanding its possible content (which is no longer limited to a waiting agreement) and clarifying the rules of extension of its effects to non-signatory or dissident creditors, which will even reach creditors who enjoy real collateral in certain circumstances.

Modifications of the Bankruptcy Law


Among the most important aspects that modify Royal Decree-Law 4/2014, which must be validated by Congress, the new regime of judicially approved refinancing agreements, which may include debt removal and capitalization, in addition to deferrals in your payments, better known as waiting in bankruptcy jargon.

These agreements may extend their effects to dissident creditors when the majorities established in each case concur. These are the main changes that will make from now on the heavy yoke of debt for a few companies.

Thus, we can point out the following modifications in the Bankruptcy Law:

Individual refinancing agreements

The possibility of reaching refinancing agreements with one or more creditors is introduced, provided they improve the debtor’s equity position and without the need for major liabilities. These agreements are only expendable by the judge at the request of the bankruptcy administration, if you understand that the requisites required do not meet.

Collective refinancing agreements not legally approved

  • These agreements are simplified by eliminating the requirement of the independent expert report appointed by the Commercial Registry, although both the debtor and the creditors may request the appointment of an independent expert to the Mercantile Registry of the debtor’s domicile to report on the feasibility plan, the proportionality of the guarantees or any other circumstance that may be relevant.
  • It is replaced by the auditor’s certification accrediting the concurrence of the required liability majorities. In order to guarantee legal certainty, these agreements may no longer be subject to subsequent termination (unless they fail to meet the requirements), if the company enters into bankruptcy proceedings. This corrects the current situation, where agreements are usually terminated because they are considered harmful to the active mass of the contest.
  • In the event that in the collective agreement a capitalization of credits is raised, and to enhance this figure, the presumption of guilty of the contest is established if the debtor had refused to do so without reasonable cause. For this purpose, it will be understood that there is a reasonable cause if this is stated by means of a report issued by an independent expert. It will also be necessary for the proposed agreement to recognize in favor of the debtor’s partners a preferential acquisition right over the shares subscribed by the creditors, as a result of the capitalization, in case of the subsequent disposal of the same. The partners who have refused to capitalize or issue convertible instruments and the debtor’s representatives that have hindered it may be considered complicit.

The new regime will be applied to the “collective” refinancing processes opened before the entry into force of Royal Decree-Law 4/2014 (that is, March 9, 2014) in which the Commercial Registry has not yet been requested. Appointment of an independent expert. Otherwise, the previous regime will be applied, unless the parties expressly opt for the new regime in the refinancing agreement.

Collective refinancing agreements judicially approved

Collective refinancing agreements judicially approved

Royal Decree-Law 4/2014 substantially reviews the mechanism for judicial approval by extending its effects vis-à-vis non-participating or dissident creditors without collateral and clarifying its scope vis-à-vis creditors with collateral.

Although for the first time, the judicial approval of the refinancing agreement signed by creditors representing only 51% of the financial liability is allowed, support of 60% of the financial liability will be necessary to extend to the dissident creditors the waiting for an equal term or less than five years or the conversion of credits into participatory loans.

If the debtor achieves that 75% of its financial liabilities support the refinancing agreement, the possibility of imposing on non-signatory or dissident creditors opens: you wait for more than five years (although never exceeding ten years), you remove in the amount due, capitalization of credits or conversion of them into participatory loans, transformation of the debt into any financial instrument of rank, maturity or characteristics other than the original debt, and assignment of assets or rights to creditors in payment of all or part Of the debt.

Specifically, the modifications can be summarized in the following

Specifically, the modifications can be summarized in the following

  • In order to facilitate the speed and flexibility of these agreements, the judge will only have to verify the concurrence of the required majorities and the formal requirements to agree on their approval. The agreements, once judicially approved, may not be subject to subsequent termination if the company enters into bankruptcy proceedings.
  • As in the non-approved collective agreements, the requirement of the independent expert report is eliminated. It is also replaced by a certification of the auditor accrediting the concurrence of the required liability majorities.
  • The majority required to judicially approve the agreement goes from 55% to 51% (simple majority). This majority is not computed, as until now, with respect to the liability owned by financial entities, but with respect to all creditors of financial liabilities. The holders of any financial indebtedness are understood as such (excluding, consequently, the creditors for commercial operations and the creditors of public law liabilities, such as Finance and Social Security), regardless of whether or not they are subject to financial supervision. However, the possibility of other creditors, not of financial liabilities or public law, adhering to the agreement is contemplated.
  • Also as a novelty, when part of the financial liability includes syndicated loans, it will be understood that all creditors holding the syndicated loan adhere to the refinancing agreement if they vote for 75% of the liability represented by the loan or the lower majority that, in there, In this case, it would have been agreed in the syndicated loan agreement. This measure can have a very significant impact on the practice since the possibility of dissenting minority creditors in a syndicate would be eliminated and agreements for majorities greater than 75% appear to be sterile for this purpose.
  • If 60% of the creditors of financial liabilities have agreed on waits (deferrals) up to five years and the conversion of credits into participatory loans for the same term, these measures will be extended to dissident creditors without collateral. If the agreement has been signed by 75% of the creditors of financial liabilities, they will be extended to the dissident creditors: you wait between five and ten years, you remove, conversion of credits into shares or participations of the debtor, or participatory credits, debt transformation in any other financial instrument of different characteristics and transfers of assets in payment of debts.

Currently, approved refinancing agreements do not extend their effects to loans with collateral (mortgages, pledges, etc.). With the reform, these credits are also affected by the approved agreement, as follows:

– In the part of the credit that exceeds the value of the guarantee: The effects of the agreement foreseen in the previous point (waiting, conversion of credits, etc.) are extended in the same terms as to unsecured loans and with the same majorities.

– Up to the value of the guarantee: The effects of the agreement provided for in the previous point are extended, when agreed by the same majority of 65% and 80%, computed according to the value of the guarantees of the accepting creditors.

  • On the other hand, the possibility is recognized that the approved refinancing agreements include (and extend to dissidents) the conversion of debt into capital. The agreement of the board of partners required in this regard is the simple majority and an alternative is taken away from the dissident creditor, which will remain at your choice.
  • Likewise, and as in non-approved agreements, the presumption of guilty of the contest is established if the debtor had refused without reasonable cause to capitalization.

Common measures for homologated and non-approved collective agreements

The stoppage of the singular executions of assets necessary for the continuity of the professional or business activity is foreseen, from the moment in which the beginning of the negotiations with the creditors is communicated to the court. The stoppage would occur for a maximum period of four months from the debtor’s communication.

The objective is to allow the negotiations of the agreements to come to fruition and there is no accumulation of singular executions by creditors not willing to negotiate.

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