The recently-approved Royal Decree Law 4/2014 (RDL), dated March 7 and published March 8 in the Official State Gazette (BOE), has the main goal of addressing measures to ensure the feasible restructuring of corporate debt, encouraging a relief of financial burdens for companies which, despite high debt levels, are still feasible from an operational viewpoint.

The aforementioned law focuses on the improvement of the legal framework preceding bankruptcy procedures, amending a series of aspects of Law 22/2003 on Bankruptcy (LC), dated July 9, allowing the financial restructuring of companies, in order to ensure that the remaining debt is bearable, thus permitting companies to continue to honour their business commitments, generating wealth and creating employment.

Summary of Significant New Measures of the RDL

Firstly, RDL allows submission of a notice on negotiations started to reach certain agreements to suspend, for the term expected for such negotiations, court foreclosures of assets which are necessary to continue professional or business activities of debtors.

It further allows the suspension of other individual foreclosures fostered by financial creditors whenever it is proven that a percentage not less than 51% of financial liabilities supported the start of negotiations leading to the execution of a refinancing agreement.

The RDL restricts the scenarios of suspension of foreclosures of assets with a real guarantee to cases where these are required to continue professional and business activities, establishing that shares or holdings in companies devoted exclusively to holding assets and liabilities necessary for financing are not considered necessary for the continuity of business activities.

Meanwhile, reintegration actions set forth in 71 LC are again systematically regulated. In Article 71 bis there is a description of the special system for certain refinancing agreements, with a clarification of the extent of such agreements and the removal of the requirement to request a report from an independent expert, replacing the requirement with a certificate from an account auditor proving the existence of the majorities required for such agreement to be adopted.

Furthermore, there is a new scenario where agreements adopted cannot be terminated, and there is no requirement to attain certain majorities of liabilities, whenever the agreements also involved a clear improvement of the equity position of debtors.

Additional provision two of the RDL establishes an extraordinary system, valid for a term of two years from the entry into force of the regulation, attributing the category of claims against the estate to any loans providing new treasury income (ex-Article 84.2.11 LC) as a result of a refinancing agreement and agreements reached by debtors themselves or with specially related parties.

In addition, section 2 of Article 92 of the LC is amended to provide an exception from the category of “specially related party” for the purposes of classing debt as subordinate, for creditors who capitalised all or part of their debts under a refinancing agreement.

Finally, the RDL undertakes a review of the system for judicial approval of refinancing agreements set forth under additional provision four of the LC, consisting of the following:

  1. The subjective scope is widened, and the agreement may be executed by all manner of creditors of financial liabilities.
  2. It can be extended to dissident creditors or creditors not partaking of other measures agreed amid refinancing agreements, in addition to postponement (release, debt capitalisation and assignment of assets in payment or for payment).
  3. The effects of refinancing agreements can be extended to certain creditors with real guarantees.
  4. The judicial approval procedure is simplified to guarantee the expeditiousness and flexibility of this pre-bankruptcy stage.