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Overview of restructuring and insolvency activity

i Liquidity and state of the financial markets

Most of the measures implemented by the Spanish government to provide financial support to Spanish companies and individuals affected by the covid-19 pandemic have come to an end.

In addition, the majority of the loans backed by Instituto de Crédito Oficial (ICO) and Compañía Española de Seguros de Crédito a la Exportación (CESCE) provided to Spanish companies have already finished their grace periods (where only interests were due to financiers, but no repayment of principal amount was due) or are about to do so.

Likewise, the moratorium enacted by the Spanish government to protect and financially assist debtors during the covid-19 crisis, which was aimed at avoiding insolvency proceedings (the insolvency moratorium), finished on 30 June 2022.

As such, while certain measures aiming to respond to the economic and social impact of the war in Ukraine are still in place, the reality is that in Spain the vast majority of measures and regulations implemented during 2020 and 2021 to provide financial support and to mitigate liquidity pressures have been already terminated and that Spanish companies need to start repaying their loans in a context of increased interest rates and hight margin reductions resulting from the increase in the price of energy and other raw materials.

ii Impact of specific regional or global events and market trends in restructurings

In the global financial context described above, opportunities for distressed debt investors will continue to appear in the Spanish market despite the high amount of state-backed loans and cheap money financing injected during the covid-19 pandemic.

Such opportunities are expected to experience a very significant increase as the pandemic financial aid is being gradually withdrawn and will be highly encouraged now that all EU jurisdictions have transposed EU directive 2019/1023 of the European Parliament and the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (the Restructuring Directive).

The new restructuring framework will generally provide a more central role to distressed creditors, who will be able to benefit from more flexible pre-insolvency instruments with a broader scope, including is most cases the possibility of cramming down not only all types of creditors but also debtors and shareholders.

In Spain, the new Spanish insolvency regime was enacted through law 16/2022, of 5 September by which the Restructuring Directive was transposed and it came into force on 26 September 2022 (the New Spanish Insolvency Act). From its entry into force, the New Spanish Insolvency Act has provided new opportunities for debt restructuring players:

  1. it will provide a more central role to creditors, who will be able to benefit from more flexible pre-insolvency instruments with a broader scope, including the possibility of cramming down all types of creditors (financial, commercial and even holders of public law credits, subject to certain requirements) and also debtors and shareholders; and
  2. it will also benefit debtors and shareholders, which will be able to benefit from more flexible restructuring options from an earlier stage known as the likelihood of insolvency (when it is expected that the debtor will not be able to regularly meet its obligations due in the following two years).

In addition, the aim of the New Spanish Insolvency Law is to promote the purchase of business units by providing greater legal certainty with regard to its scope and effects, as further explained below (see Sections II and III).

Recent legal developments

i Introduction to the insolvency regime

The New Spanish Insolvency Act foresees a concurso (the full Spanish insolvency proceeding) for companies that are not able (or expect not to be able) to regularly pay their debts as they fall due. The directors of a company or the debtor must file for insolvency within two months of the date on which they became aware or should have become aware of the insolvency situation.

The New Spanish Insolvency Act determines the equitable subordination of those claims held by persons with a special relationship to the debtor (insiders or connected parties). Connected parties are:

  1. shareholders with a direct or indirect equity stake of at least 10 per cent (or 5 per cent in listed companies);
  2. directors (also de facto or shadow directors) and those who had that role within two years prior to the insolvency declaration;
  3. other group companies controlled by the same corporation or individual as the debtor company;
  4. shareholders who, despite not having the relevant stake in debtors' equity, have it in another group company; and
  5. assignees of any connected party within two years prior to the declaration.

Except in the case of directors and group companies, subordinated claims are only those accrued after the relevant fact or circumstance occurs. Equitable subordination affects any sort of claims, except in relation to shareholders (points (a) and (d) above), where only financial claims are subordinated. The main effects of the subordination of the claims are (1) the cancellation of any security interests granted by the debtor, (2) deprivation of voting rights (although the claim will be bound by the composition agreement ) and (3) subordination in terms of priorities in distribution (i.e., rank at the bottom of the payment waterfall).

Unlike the US Bankruptcy Code, debtors (or creditors) do not have to make a decision between reorganisation (Chapter 11) or liquidation (Chapter 7) upon seeking judicial protection. Every insolvency proceeding begins with the common phase, which, however, may be coupled with other actions if the debtor requests the opening of the liquidation stage of the insolvency proceeding, or if the debtor's filing attaches, for instance, a proposal of composition agreement or a binding offer to acquire the business as a going concern. The common phase starts with the judge appointing an insolvency administrator (an independent third party – creditors have no say), who will be in charge of determining the debtor's estate and list of creditors (by producing the draft insolvency report). The insolvency administrator also oversees management of the debtor's business (default rule in voluntary cases) or steps into the shoes of the directors if so determined by the court (default rule in involuntary cases).

Creditors, the debtor, or any interested party may challenge the estate or the list of creditors drafted by the insolvency administrator. However, in order to speed up the insolvency proceedings to reduce the length of the proceedings and preserve the value of the assets, the common phase will end 15 days after the draft insolvency report is filed by the insolvency administrator. Unless a proposal for a composition agreement has been presented, the proceeding will move on to the liquidation phase as a default rule.

The Law 16/2022 introduced a fast-track insolvency proceeding for small businesses (i.e., those that employed an average of less than 10 workers during the year preceding the insolvency declaration and those with turnover lower than €700,000 or liabilities lower than €350,000 according to their latest annual accounts). Special proceedings for small businesses are largely processed via the internet and rely on legal forms to be completed directly by the debtor, whereas the intervention of an insolvency administrator and lawyers assisting the interested parties is generally non-mandatory (these proceedings for small businesses are similar to the one foreseen by the proposal for a new insolvency Directive unveiled by the European Commission on 7 December 2022).

ii Pre-insolvency notice (automatic stay) of Articles 585 to 610 of the New Spanish Insolvency Act

Under Spanish insolvency law, directors must file for concurso within two months from directors' actual or due awareness of the debtor's inability to regularly pay its obligations as they are due. Failure to comply with this duty might have negative consequences for directors if they are found to have wilfully or grossly and negligently created or deepened insolvency (a late petition is a rebuttable presumption thereof). Directors' liability is analysed within the frame of the insolvency classification section, which kicks in upon the finalisation of the common stage of the insolvency proceeding. In particular, in the event of liquidation, directors may be liable for the impaired claims accrued from the onset of insolvency.

Debtors may earn an additional period of up to six months (three months extendable for an additional three months) to continue negotiating a refinancing agreement out of court, an out-of-court payment scheme or a prearranged composition agreement. The First Title of the Second Book of the New Spanish Insolvency Act establishes the proceeding to earn this safe harbour for directors. The debtor must serve notice with the court that would entertain concurso within two months from the onset of insolvency. The debtor's notice is a comprehensive document whereby several formal requisites concerning relevant information on the debtor's status need to be fulfilled. The court analyses whether the formal requisites established by law are fulfilled and orders its publication in the Insolvency Register (unless the notice is confidential). Creditors can challenge only specific aspects of the court's resolution accepting the debtor's notice (concerning fulfilment of certain formalities and issues relating to enforcement of guarantees and executory contract performance). The debtor has three months to continue negotiating, as a concurso petition must otherwise follow during the fourth month. Thus, considering that the debtor has two months to file for concurso or serve a pre-insolvency notice, borrowers have six months from the onset of insolvency to negotiate out of court instead of filing for concurso. This period, as is indicated above, can be extended for an additional three months when certain requisites are met. In practice, as long as suppliers and workers are supportive or controlled, debtors may extend this period through standstill agreements (even seeking homologation thereof to bind dissidents as in the first Abengoa case; however, this remains highly controversial).

During this four-month period, the court shall not admit petitions for involuntary concurso (the debtor has preference to file voluntarily until the end of the fourth month). The same rule shall apply if this period is extended.

A pre-insolvency notice also establishes an automatic stay, though this is limited to enforcement actions (e.g., security interests, monetary judgments – not payment, set-off, etc.) over assets necessary to continue the ordinary course of business. Public claims (taxes and social security, etc.) are not affected by this automatic stay. Security interests governed by the financial collateral special regime or perfected on assets not located in Spain also escape this automatic stay (if the collateral is located outside the EU, the ability to escape the automatic stay shall rely on local insolvency law). Finally, the state can also affect securities granted by companies within the same group, even if they have not filed the pre-insolvency notice, when its enforcement could result in the insolvency.

The New Spanish Insolvency Act also foresees the stay of the right to modify, terminate or accelerate an executory contract that is deemed necessary to the continuity of the business activity of the debtor during the period of effects of the pre-insolvency notice. Debtors' counterparties may challenge this effect of the pre-insolvency notice on the grounds that their contract with the debtor is unnecessary to the company's ongoing business.

The debtor is allowed to file one pre-insolvency notice per year. This is consistent with the New Spanish Insolvency Act goal of promoting restructuring alternatives to concurso, as long as the restructuring alternatives are actually suitable to remove financial distress.

Lastly, one of the main changes to the pre-insolvency regime introduced by Law 16/22 consists of the right of creditors representing the majority of claims that may be affected by a restructuring plan (or, when appointed, the restructuring expert) to request the insolvency court to suspend the debtor's filing for insolvency for a period of one month insofar as they prove that a restructuring plan that is likely to be approved has been presented.

iii Clawback actions (avoidance)

According to Article 226 of the New Spanish Insolvency Act, a debtor's acts and contracts detrimental to the estate that were performed within the two years prior to the request for the declaration of insolvency, and those between such a request and the date when insolvency was declared, may be avoided, even in the absence of fraud or intent (this period also extends to the period following a pre-insolvency notice that is not followed by a successful court-sanctioned restructuring plan). The New Spanish Insolvency Act establishes certain rebuttable and non-rebuttable presumptions of detriment to the estate.

The New Spanish Insolvency Act also establishes certain safe harbours, mainly:

  1. acts and contracts pertaining to the ordinary course of business and at arm's length terms;
  2. acts within the scope of special regulation over payment and clearing and liquidation systems for securities and hedging instruments;
  3. security interests granted in favour of the salary guarantee fund or in connection with credit claims subject to public law;
  4. operations through which resolution measures of credit institutions and investment services companies are implemented;
  5. restructuring plans gathering specific requirements; and
  6. acts or transactions subject to foreign law that are unavoidable under the circumstances.

Should the clawback action be successful, the act or contract will be rescinded. Concerning bilateral contracts, parties shall then return the consideration, having the non-insolvent party right to a pre-deductible claim (or subordinated if found to have acted in bad faith). As to avoided acts and contracts other than bilateral contracts, the creditor gets a claim (e.g., regarding debt-to-asset swaps, the asset must be turned over and the creditor gets a reinstated pre-petition claim).

To avoid clawback risk, restructuring plans and, in particular, the security interests taken can be ring-fenced from clawback through homologation and notarisation with certain additional requirements, as explained in the next subsection.

In addition to the insolvency law clawback action, generally applicable fraudulent conveyance actions, which require intent and have a four-year reach-back period, also work in concurso. Pursuant to the Spanish Supreme Court case law, intent is found to occur when a diligent creditor could not ignore that the act or contract at issue was detrimental for the estate or the rest of the creditors. This general fraudulent conveyance action is the only one applicable to unwind security interests subject to the financial collateral regime.

iv Formal methods to restructure companies in financial difficulties (within insolvency proceedings)

Insolvent companies have the following mechanisms available under the New Spanish Insolvency Act to restructure their debts.

Composition agreements

An insolvent debtor may restructure the company's debt by entering into composition agreements with its creditors.

A proposal for a composition agreement can be filed at any time between the declaration of insolvency and 15 days after the filing of the preliminary insolvency report by the insolvency administrator. Otherwise, the insolvency court shall open the liquidation stage of the insolvency proceeding. The proposal can be filed both by the debtor and by creditors whose claims, individually or jointly, exceed 20 per cent of the total liabilities of the company. Composition agreements include term extensions (up to 10 years) or haircuts (or both). They may also establish corporate restructurings such as mergers, the sale of assets or business units as a going concern (with the same rules described in Section II.ii), debt-to- asset swaps, and conversion into subordinated loans (PPL) or into any other debt instrument. Other alternatives are also available. These measures, other than haircuts and term extension, cannot affect public creditors. Moreover, under no circumstance can composition agreements determine the global liquidation of a company. The proposal for composition agreements shall include a repayment schedule and a business plan (if the debtor expects to repay the debt with the ordinary course cash flows). For voting and recovery purposes, claims are classified into secured, generally privileged (unsecured but with priority in distribution), ordinary unsecured and subordinated claims. Secured and generally privileged claims are also classified into financial, trade, public and labour claims. Secured claims are stripped down in accordance with the security interest value (nine-tenths of collateral fair value). The deficiency claim is classified according to general rules.

Concerning voting, there is no cross-class cramdown or absolute priority rule. Spanish insolvency law relies on cram-in rules. Moreover, in spite of valuation, subordinated creditors, which have no voting rights, are entitled to the same treatment as ordinary unsecured claims (although deferred – if the composition agreement includes debt deferrals, each year deferred will amount to a three-month deferral for unsecured claims counted as from the expiry of the forbearance period of ordinary creditors). Finally, yet importantly, there are no equity cramdown mechanisms. The debtor can bargain with the right to petition for liquidation at any point in time (even if the composition agreement proposal comes from creditors and obtains the relevant majority thresholds).

A composition agreement can be modified two years after its entry into force. The modification needs to be essential for the continuity of the company's business and the risk of breach of the composition agreement must be unattributable to the debtor. The petition for modification needs to fulfil several formalities, including attaching a payment and a viability plan.

Composition agreements with haircuts of up to 50 per cent or term extension (or conversion into PPL) of up to five years require a majority of 50 per cent of ordinary unsecured claims. Any other content requires a 65 per cent majority threshold for ordinary unsecured creditors. A simple majority is sufficient if there is full payment within no more than three years or immediate payment with a haircut lower than 20 per cent. A specific voting rule is established for syndicated creditors. The whole syndicate accepts the composition agreement if 75 per cent of participants favour the proposal, unless a lower majority is provided in the syndicated agreement.

Sale of business unit (pre-pack sales)

Pursuant to the New Spanish Insolvency Act, the business unit can be sold off at any time during the insolvency proceedings with the authorisation of the insolvency administrator and court approval (usually through online auctions, although direct sales or sales through a specialised entity are also possible). Moreover, the New Spanish Insolvency Act provides a specific type of accelerated pre-packaged sale when a debtor, together with its request for insolvency, files a binding offer by a creditor or third party for the purchase of one or several business units.

The offeree needs to assume the obligation to continue or resume the business activity pertaining to the business unit during, at least, three years. Breach of this duty can entail damage claims by any affected party.

An important aspect of the sale of business units or pre-packaged sales is that the purchaser can assume or reject (without having to pay damages) executory contracts, licences and administrative permits. The purchaser can also leave behind the debtor's debts (both insolvency claims and administrative expenses) except for labour claims and social security claims (however, an important change has been introduced in the New Spanish Insolvency Act, as only the insolvency court can establish the business unit). Cherry-picking certain claims (normally for business reasons) is also permitted. Importantly, no taxes or tax contingencies are transferred to the purchaser. In practice, however, the deal structure becomes paramount to minimise the accrual of taxes relating to the very sale of the business unit.

The business unit can also be transferred free of any liens and security interests (although the purchaser may elect to assume secured financial contracts, in which case the security interest is not cancelled). The statutory rule is that secured creditors that fail to enforce the security interest ahead of liquidation temporarily lose control over the collateral, although they maintain the right to receive part of the price equivalent to the weight of the collateral in the estate. The New Spanish Insolvency Act foresees a veto right for secured creditors, although its scope and how it can be override are currently under discussion.

The New Spanish Insolvency Act foresees (following the practice established by some Spanish court who elaborated protocols envisaging the pre-pack sale of business units) the appointment of a pre-insolvency expert whose purpose is to gather offers for the purchase of the business unit and who, ultimately, may be appointed as insolvency administrator and issue a report favouring a specific binding offer.

v Taking and enforcement of security in SpainTaking security

Under Spanish law, obligations can be secured by in rem rights (e.g., mortgages over real estate or pledges (with or without transfer of possession) over movable assets) where a specific asset secures fulfilment of an obligation, or in personal guarantees, where a person guarantees fulfilment of an obligation. There are also material differences in proceedings for their enforcement (as explained below) and their treatment during insolvency under the New Spanish Insolvency Act where creditors with collateral over specific property or rights (e.g., mortgage or pledge) or equivalent rights (e.g., finance lease agreements) are classified as privileged creditors and are bound by the composition only if they accept it voluntarily or through cram-in mechanisms.

Real estate mortgages cover not only land and buildings built on it but also, automatically, proceeds from the insurance policies relating to the property, improvement works and natural accretions. Parties may also agree to extend the security interest over movable items located permanently in the mortgaged property for its exploitation, proceeds of the mortgaged property and any outstanding rent. They must be granted by means of a public deed before a public notary and filed at the relevant land registry.

Obligations can also be secured by means of a chattel mortgage. This particular type of mortgage can cover the whole business of the grantor (including leases, fixed installations, equipment, intellectual and industrial property, and raw materials and finished goods, if certain requirements are met), motor vehicles and aircraft. Industrial machinery and intellectual property rights can also have their own separate type of security. These mortgages must be executed by means of a public deed before a public notary and entered on the chattel registry.

Since March 2016, aircraft equipment can also be subject to international interest under the Cape Town Convention on International Interests in Mobile Equipment. The only requirements are to be set out in writing (identifying the object and the guaranteed obligations) and the guarantor's title to dispose of them. Entry on the International Registry of Guarantees is a requisite for enforceability against third parties. International interests have priority over any state security regulated by domestic law, even where the state security was created before, and are enforceable in insolvency proceedings if they were registered before the proceedings began (the international interest would be treated in the insolvency as a national in rem security).

For movable assets that cannot be the object of a chattel mortgage (because their specific identity cannot be registered) or of an ordinary pledge (given the legal or financial impossibility being transferred), Spanish law regulates the non-possessory pledge. Movable assets that may be involved in this sort of pledge are row materials and stock and machinery. Claims not represented by securities or considered financial collateral (under the Collateral Directive and its transposition under Spanish law) can also be used in a non-possessory pledge. The law requires entry on the chattel registry as a condition for validly creating the pledge.

Pledges can also be granted with transfer of possession to the creditor or a designated third party. For the pledge to be enforceable against third parties, a notarised agreement or a public deed must be created. The most common type of ordinary pledge is given over shares and credit rights (such as bank accounts, receivables, relevant agreements and insurance policies).

In Spain, a personal guarantee may be granted by means of an ancillary guarantee or by means of an aval or a first demand independent guarantee. The aim of a first demand guarantee is to provide the beneficiary with faster and summary means of enforcement, avoiding unnecessary costs and delays derived from certain benefits and privileges conferred by Spanish law to any guarantor under an ordinary guarantee or aval (i.e., exhaustion of remedies against debtors, division between several guarantors or main debtor and guarantor, and requesting payment only after seeking first from the main debtor). In terms of enforceability of first demand guarantees, the court should not analyse the guaranteed obligation because the first demand guarantee is an abstract, independent and autonomous obligation in respect of the loan agreement.

The most common types of security given in Spanish practice are personal guarantees and pledges over assets (i.e., shares) and claims because they are not subject to registration (and therefore not subject to registration fees or taxation). Stamp duty can be triggered when granting or assigning security if granted by means of a public deed and subject to public registration.

Property mortgages are also a very usual security when the value of the property justifies the payment of the stamp duty and other related costs. More recently, floating mortgages (Article 153 bis) have become popular because they can secure several financial obligations and, consequently, prove cost efficient, but they are available only to regulated credit institutions, hence are not a valid protection mechanism for non-regulated funds acting as direct lenders. Other securities also subject to registration (such as mortgages over machinery or trademarks and pledges without transfer of possession over stock or raw materials) are less common because of the stamp duty and costs involved.

Pledges over shares and bank accounts could be granted according to Royal Decree-Law 5/2005, which implemented the EU Directive on financial collaterals in Spain. As a result, such security could be enforced through straightforward proceedings and are ring-fenced against any stay under the New Spanish Insolvency Act.

Lastly, some Spanish autonomous regions, particularly Catalonia, have approved local regulation on security interests that applies primarily to pledges and differs from Spanish common law in key aspects.

Enforcing security

Under Spanish law, mortgages and pledges can be enforced in judicial or notarial proceedings. In judicial proceedings, the asset can be realised by direct sale, by a specialist entity or through an auction. Notarial proceedings can be carried out only by auction. In both proceedings, auctions must be carried out through an electronic auction held on the official gazette of the Spanish state's auctions portal. Pledges over credit rights are usually enforced by offsetting or direct transfer. Direct sales are still controversial but (as confirmed by a recent resolution issued by Dirección General de Seguridad Jurídica y Fe Pública on 10 March 2022, following the criteria explained under resolutions dated 27 October 2020 and 15 March 2021) should be acceptable if they are executed at fair value, include escrow mechanisms for junior creditors and are freely agreed by the parties, which are acting in good faith.

Personal guarantees can be enforced through either declaratory civil proceedings or summary executive proceedings, the latter when certain conditions are met (granted by means of a public deed where the secured obligation is clearly specified). Summary executive proceedings are faster and more effective, whereas the declaratory civil proceedings are more time-consuming.

At pre-insolvency stages, the New Spanish Insolvency Act limits the ability to enforce collateral required for the continuity of debtors' professional or business activities (with the exception of financial collateral). In addition to the pre-insolvency notice (see Section II.ii), upon insolvency declaration, enforcement may not commence until a composition is approved (which does not affect that entitlement) or one-year elapses without composition or liquidation (with the exception of financial collateral). For this purpose, the law extends the treatment to the recovery of movable property sold by instalments and those assigned by financial leases, as well as to the cancellation of real estate sales owing to failure on payment of the deferred price.

Significant transactions, key developments and most active industries

Below we describe the most significant transactions closed during the first semester of 2023, governed by the New Spanish Insolvency Law.

i Grupo Ezentis: restructuring plan and court homologation

Cuatrecasas advised on the restructuring of Grupo Ezentis, an industrial group listed on the Spanish stock exchanges, is one of the first restructurings carried out under Law 16/2022 of 5 September of amendment of the consolidated text of the Spanish Insolvency Act (SIA); it being one of the first restructurings to be financial debt backed by the Spanish State Finance Agency (ICO) has been restructured.

The most relevant aspects of the transaction are outlined below.

Not only the debt of the Spanish companies of the group has been restructured, but also the debt of the Luxembourgish subsidiaries. The Commercial Court of Seville has assumed jurisdiction on the restructuring of the debt of these subsidiaries pursuant to a new provision included in the SIA whereby Spanish courts may assume jurisdiction in the restructuring of subsidiaries of Spanish companies whose COMI is outside Spain provided that the following requirements are met: (1) the Spanish parent company to be subject to the restructuring plan; (2) the court-sanction of the restructuring plan having been requested as 'reserved' in relation to these subsidiaries (meaning that neither the communication of the beginning of negotiations with creditors, nor the court decision on the sanction of the restructuring plan in respect of these subsidiaries shall be published in the Spanish Public Register of Insolvency); and (3) the assumption of jurisdiction over the subsidiaries being necessary to ensure the successful implementation of the transaction.

In those cases where there hasn't been an approval of the restructuring plan by all classes of credits, the restructuring plan has been approved by a simple majority of the classes (one of them being a class that would have been classified as privileged in insolvency) pursuant to Article 639.1º of the SIA. In this regard, a mechanism for notification and delivery, upon court-sanction of the restructuring plan, of the documentation granted in execution of the Restructuring Plan to which dissenting creditors are deemed to be a party has been structured.

The application of the decision-making process set forth by the ICO in relation to the effects to be imposed to the credits backed by it. Distinction between non-guaranteed debt (30 per cent) and guaranteed debt (70 per cent) under the ICO facilities, with the financial entities being able to cast one vote for each kind of debt (the guaranteed debt being subject to the express approval of the Spanish Tax Agency in order for the financial entities not to 'lose' the ICO guarantee in case the effects to be imposed to the credits backed by the ICO are not pre-authorised under the Spanish regulation on ICO facilities).

The financial entities have undertaken to transfer to the ICO the corresponding portion of the amounts recovered through convertible obligations issued in exchange of non-sustainable debt for the purposes of them continuing to be pari passu with the ICO (to the extent that, under the Spanish regulation on ICO facilities, the conversion of credits into equity, PPLs or credit with different features or ranking cannot be imposed on ICO facilities).

ii SVENSON: acquisition of business unit

Cuatrecasas advised a well-known Spanish investment firm, on the acquisition of the business unit of SVENSON SLU, a multinational specialised in hair treatments, one of the first transactions carried out using the new rules of the New Spanish Insolvency Act.

The authorisation granted on 5 May 2023 by the Commercial Court 7 of Madrid is a remarkable example of the new system of sale of business units introduced by the New Insolvency Act. The ruling, issued only two and a half months after the declaration of bankruptcy of SVENSON, SLU, shows the agility and efficiency of the procedure that allows the debtor to present, together with the insolvency petition, a binding offer from a creditor or a third party to acquire one or more business units.

The offer approved includes the acquisition of the main assets and liabilities of SVENSON, SLU, including its trademarks, patents, contracts, licences and employees. The offer also assumes the entire debt with customers, totaling €6.5 million, which represents a significant relief for the bankruptcy estate and the creditors. Moreover, the offer guarantees the continuity of the business activity and the preservation of more than 90 per cent of the workforce.

One of the main challenges of the sale of the business unit was to deal with the privileged creditors that had a mortgage on the trademarks, which were considered essential for the viability of the business. The offer proposed to pay them the amount obtained from an expert valuation (which considered the current value of the trademarks). However, two of the privileged creditors argued that the value of the guarantee was higher than the one offered based on the amount established in the deed where the mortgage was granted. The court, however, approved the sale, following the report of the bankruptcy administrator which agreed the valuation filed by the investor. The court also considered that the sale was in the interest of the bankruptcy, as it ensured the continuity of the business unit and the preservation of the jobs, as well as the best and fastest satisfaction of the creditors' claims.

The ruling of the Commercial Court 7 of Madrid is a clear demonstration of the advantages of the new system of sale of business units, which aims to facilitate the restructuring of viable businesses, the maximisation of the value of the assets, the satisfaction of the creditors, and the maintenance of the employment. The case of SVENSON, SLU is likely to set a precedent and encourage other debtors and investors to use this mechanism in the future.