REFORM OF THE INSOLVENCY ACT: Royal Decree-Act 11/2014
(passed on 5/9/2014; in force since 6/9/14)
WHO DOES IT AFFECT? HOW?
Debtors faced by imminent insolvency, or already insolvent and awaiting the insolvency receivers' report, or if the liquidation phase has not commenced, or the proposed creditor's arrangement is yet to be subject to vote: debtors may be assisted in overcoming their insolvency and continuing their business by the approving of a creditors' arrangement (which (i) may also apply to dissident privileged and secured creditors and (ii) may overcome the previously applicable limits for haircuts -50%- and stays -5 years-).
Debtors that in the next two years breach the creditors' arrangement reached within their insolvency proceedings prior to this Royal Decree-Act: debtors will not necessarily have to undergo liquidation, given that the arrangement may be amended if requested, provided certain majorities of creditors are verified and it is approved by the court.
Privileged creditors (employees, Tax Authorities, Social Security, etc.) and secured creditors: may be "forced into" an arrangement with creditors (kind of "cramdown", if certain majorities are verified (60% or 75%, depending on the terms of the arrangement) within the relevant "type" of creditors (employees / public entities / financial creditors / other).
Privileged (other than public entities) and secured creditors of debtors with which an arrangement has been reached, but it is later breached within a period of two years: these creditors may also be "forced into" a new arrangement, given that it is now possible that an amendment of the previous arrangement is reached, provided certain qualified majorities (65% or 80%) are verified and it is passed by the court.
Secured creditors: in insolvency liquidation proceedings they can be paid a lower amount than that of the security's value, as it is now possible that they are paid the proportional amount of the price received by the debtor for the transfer of the relevant business unit to a third party, in the event that the relevant security is not maintained after such transfer (provided 75% of the relevant secured creditors agree).
Syndicated creditors: the entire syndicate will be deemed to have voted in favour of the creditors' arrangement if at least 75% do so; dissenting or non-participating members shall be also bound by the arrangement, if finally approved.
Creditors in general: the previously applicable limits for haircuts (50%) and stays (5 years) can be overcome; the creditors' arrangement can now contemplate the assignment of certain assets belonging to the insolvent company in payment of the creditors' claims, provided such assets are not necessary for the business to continue.
CONTRACTUAL COUNTER PARTIES
Companies whose contractual counterparty is subject to insolvency proceedings, when the contract is necessary for the insolvent company's business to continue: in the case of insolvency liquidation and transfer of the entire business unit, the insolvent party's contractual position shall be automatically assigned to the acquirer (unless it expressly refuses subrogation), without the need for the counterparty's consent.
Companies with an indirect share in the capital of an insolvent company: they are now expressly considered to be "especially linked" to the insolvent company (which implies the application of certain claw-back presumptions and the subordination of their claims) (until now, the debate was whether or not it was only applicable to direct shareholders).
Companies that plan to acquire the business of an insolvent group company: from now on, they will undertake the obligation to pay the claims held by the creditors of the insolvent group company (both pre-filing and post-filing claims).
Companies interested in acquiring an insolvent company's assets in liquidation: an electronic access website is to be created with information on such companies in liquidation.
Companies controlled (according to art. 42.1 of the Commercial Code) by a private individual subject to insolvency or by the spouse of an individual subject to insolvency, or companies in whose group there exists a company controlled by such persons: they will be now considered as persons "especially linked" to the insolvent party (which implies the application of certain claw-back presumptions and the subordination of their claims).
Companies in which one of the directors is a private individual subject to insolvency or whose spouse is insolvent: now considered as persons "especially linked" to the insolvent party (which implies the application of certain claw-back presumptions and the subordination of their claims).