The new amendments carried out in the Bankruptcy Proceedings Act by virtue of the Royal Decree 4/2014, dated March 7, aims to introduce a viable restructuring of corporate debt, trying to streamline Bankruptcy Proceedings and prevailing primacy of will.
For such purpose, the new Section 5 bis allows that the initial communication of businesses to reach certain agreements, may hold, during the period foreseen for carrying them out, judicial executions of assets that are needed to continue the professional activities of the debtor, also allowing the suspension of other executions promoted by financial creditors that are mentioned in the fourth additional disposition, always providing that it is proved that at least a 51 percent of creditors have specifically supported the negotiations in order to sign the restructuring agreement and, also, that there is an “stand still” or commitment not to initiate or continue individual executions during these negotiations.
On the other hand, foreclosure proceedings are still allowed to be performed, which may fail the purpose of the amendments, and may also accelerate the execution in detriment of the debtor who is trying to avoid bankruptcy.
Section 56 of the Bankruptcy Law is amended to limit the cases where the execution is interrupted in case security rights on those assets that are considered necessary for the continuity of their business or profession. Those not necessary for that continuity, the shares of project companies, or those that make the sale of those kinds of companies easier could be viable outside the group.
With regard to reinstatement actions, Section 71 bis distinguishes a first section including those cases that were previously regulated in Section 71.6, in which an independent expert report is no longer requested, replacing this for an auditor certification what has been introduced as a novelty.
A new assumption is introduced in the second section that establishes that certain agreements are not cancellable even if they do not achieve certain majorities, if they imply a clear improvement in the financial position of the debtor. Even though it introduces more requirements it does not require the majority of 3/5 that the other assumptions require.
As a measure to encourage “fresh money”, for two years from the entry into force of the new Act, the credits that create new revenue for the cash including those which are brought into a refinancing agreement and those made by the debtor or persons related with the debtor, shall be considered as credit against mass, excluding the capital increase operations.
Those who have acquired the status of partners in a restructuring agreement will not be considered as a person related with the bankruptcy proceedings in order to classify the financing granted as a result of the mentioned capitalization as subordinated.
Regarding Court approval of the agreement, important novelties are undertaken in the fourth additional provision, by virtue of which the proceedings are simplified.
All types of creditors of financial liabilities, except for trade creditors and creditors of public law, are allowed to sign those agreements.
In case of secured creditors, unlike the previous consideration, they can be affected by a particular agreement. For this purpose, the concept of “real value” is created, so the part of the creditor’s claim that is not covered by warranty will receive the same treatment is created for unsecured creditors.
New measures are created to promote the transformation of debt in capital, establishing a presumption of guilt in that debtor who refuses to implement a recapitalization agreement, modifying the liability rule and linking such liability to the extent that the conduct that determined his liability generated or aggravated insolvency. Transfers of property or rights to payment or repayment of debt are also regulated.
Finally, and in order to facilitate the approval of certain agreements, new rules for weighting the required percentages are set to adopt certain syndicated financing arrangements in which minority creditors may be involved.
In conclusion, the purpose of the approved measures is to promote refinancing to those debtors aimed to make the company viable and thus supporting the continuity of such company.