The Spanish Congress of Deputies has recently approved Law 16/2022, of the 5th of September, on the reformation of the Spanish Insolvency Law – specifically, those policies regarding preventative restructuring frameworks, debt relief and measures to increase the efficiency of restructuring proceedings, insolvency and debt relief.
The Law introduces various new points. One of these worth highlighting is the creation of pre-insolvency mechanisms which have been made with the aim of directly increasing the effectiveness of the insolvency system, by facilitating an early and rapid restructuring.
This reform has the aim of mitigating the high number of liquidations in insolvency proceedings, instead prioritising agreements with creditors and introducing a restructuring process. This process consists of a pre-insolvency instrument that permits intervention if a company finds itself in a difficult phase prior to insolvency, and, therefore, the opening of negotiations or ratification of a restructuring plan, when the debtor finds themselves in a probable state of insolvency, be it either imminent or current.
The key point is to implement this process with the least judicial intervention possible, the professionalisation of Court assistants, and debt relief. Proceedings carried out through online means, standardised forms and oral pleadings are also all expedited.
In this regard, one of the new points is the creation of an “early alert of insolvency”. This is intended to serve as a mechanism through which companies, with the help of the Spanish Treasury (Ministerio de Hacienda) are able to detect their probability of insolvency, and may be able to adopt adequate measures to avoid the situation of insolvency if they find themselves in a probably imminent state of insolvency.
A state of insolvency shall be considered probable when it is objectively foreseeable that, without a restructuring plan, the debtor will not be able to regularly meet the obligations that they are due to face in the next two years.
Companies will be obliged to publicly declare their state of insolvency – this is something that was previously avoided in order to preserve a company´s image. However, there remain serious doubts on the effectiveness of this new mechanism, due to the possible reticence of companies in publicising such situations.
Preventative restructuring has also been introduced, the aim of which is that companies may negotiate restructuring plans more easily, and thereby avoid having to resort to insolvency. A new position has been carved out for this role: the restructuring “expert”, who assists parties in negotiations and requests that the judge delay the insolvency proceedings in the case that said negotiations are still ongoing during the three (3) months following the judge being informed that they have begun.
The reform facilitates the granting of debt relief, the only condition being the existence of a debtor in good faith. Out-of-court payment agreements are eliminated, thus improving the deadlines for exoneration.
Oscar Vilá
Vilá Abogados
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23rd of September 2022
