Recent piece-meal amendments to the Spanish Insolvency Act 2003 seem to have cumulated into a restructuring solution that is starting to be considered predictable, quick and fair, especially when compared to the pre-amendment system. With its new restructuring approach, which shares many of the same characteristics as an English Scheme of Arrangement, Spanish companies have finally been given much-needed space and time to develop an appropriate restructuring strategy.
Under Spain’s old system, a struggling debtor would invariably find itself needing to file for insolvency and there were no incentives to provide fresh money to the distressed company.
The new system takes away the stigma of formal insolvency and enables the company to remain operational. It gives a debtor additional ‘Safe Habour’ privileges, providing the company with immunity to claw back risk and a greater ability to cram down dissenting creditors. It also imposes a burden on debtors not to unreasonably deter debt equity transactions; a real paradigm shift for the Spanish market.
Abengoa, the Spanish renewable energy group, took the brave step recently and won approval from 75 per cent of its creditors to push through its own restructuring plan. Crucially, Abengoa then achieved U.S. Chapter 15 protection in April this year with the U.S. Bankruptcy Court recognising the Spanish proceedings, despite creditor opposition.
The path of reform is likely to continue in Spain; limitations still exist. At present it only classes creditors as secured and unsecured, and does not provide a further distinction to pinpoint where creditors actually sit in the debt structure. Its valuation process (which impacts the voting calculation) is cumbersome and requires finessing. Furthermore, currently those wishing to challenge a court’s decision can only do so before the same court. Naturally, it is unlikely that a court will reconsider a decision it has already taken. Above all, what debtors and investors alike still need is confidence in the system and with the courts’ application of it. This can only occur by way of precedent-setting, the recent Abengoa case being a great example to build on.
So far, smaller and medium-sized companies have principally used the new Spanish scheme, but Abengoa’s successful use of it may well encourage more Spanish enterprises to use this model. While many Spanish companies might have traditionally looked to the flexibility and certainty of the English Scheme of Arrangement system, they now have the option of using their own vastly improved national model.