SPECIAL ISSUE PREVENTIVE RESTRUCTURING 16. The Preventive Restructuring Directive and the New Spanish Restructuring Plan

1. Introduction

The Law 16/2022 of 5 September 2022, transposing into Spanish law the Preventive Restructuring Directive 2019/1023 (PRD 2019),^[1] introduced a broad reform of the Spanish Insolvency Law. This included a new legal framework that is applicable to preventive restructuring proceedings (the new restructuring plan).

The purpose of this article is to highlight some of the most relevant provisions regarding this new restructuring plan.^[2] It starts with an overview of the pre-reform insolvency framework (Section 2), before discussing the transposition process of the PRD 2019 (Section 3). This is followed by a more detailed analysis of the new restructuring plan in Section 4. This includes key principles of the Spanish law reform, the process of opening negotiations with creditors, the minimum content of a plan. It also discusses the adoption of the plan by large majorities of creditors and the process for judicial confirmation. Furthermore, we will analyse the position of shareholder’s and the possibility of both consensual and non-consensual restructuring plans.

This article also deals with the ‘protecting shields’ (measures) in restructuring plans, which are available upon the commencement of a judicial insolvency proceeding, as well as the special rules for micro business and medium-sized companies. Furthermore, we will analyse how the legal practice has responded to the new restructuring plans, and what are the main legal issues that will likely deserve more attention by the judges and legal practice in coming years.

2. Where do we come from and where are we going with preventive restructuring?

2003 was an important insolvency year for Spain, since the Spanish Insolvency Law 22/2003 – the so called ‘Olivencia reform’ in memory of the president of the Special working group at the Spanish Ministry of Justice for the reform of Insolvency law – entered in force. This Law repealed the previous and outdated regulation that was contained in the Commercial Code of 1885.

Preventive restructuring tools were unknown in the original text of the Spanish Insolvency Law 22/2003, but they have been progressively incorporated into Spanish law by virtue of successive reforms since 2009. Hence, in comparison with other European countries, such as Germany, Spain introduced rules on pre-insolvency arrangements earlier, in particular, before the PRD 2019 was adopted by the European Union.

In fact, the first reform of the Spanish Insolvency Law 22/2003 by Royal Decree 3/2009 of 27 March 2009 introduced the so-called ‘refinancing agreements’. At this stage, the rules were rather simple. The idea was to introduce a contractual approach for dealing with the economic difficulties of enterprises, prior to the declaration opening an insolvency proceeding. It was based on the autonomy of parties, involved minimum judicial intervention and it was without any possibility of a cram-down mechanism as we see in current day preventive restructuring proceedings.^[3] As a result, certain Spanish companies with links to the United Kingdom (UK) were forced to apply for an UK schemes of arrangement with the courts of England and Wales to obtain cram-down to overcome minority of creditors blocking the restructuring (i.e. Cortefiel, la Seda, Metrovacesa, Orizonia, among others enterprises).

In 2011, a reform was passed that created the so-called homologación judicial (Judicial confirmation) as a way to allow for a cram-down of dissenting creditors. At that time, a cram-down could only affect ‘financial entities’ and not other types of creditors, such as suppliers. It was unclear whether professional lenders other than credit institutions, for instance funds, would fall under this category of financial entities. Under the Judicial confirmation, only a deferral of up to three years could be imposed on dissenting creditors, furthermore, secured creditors were excluded from a cram-down. In this framework the role of the Spanish commercial judges was crucial in landmark cases such as Celsa. These cases gave rise to more widespread judicial measures that were needed to allow companies to effectively restructure their debt, in comparison with the legal regulation.

In 2014, the mechanism of the Judicial confirmation was amended significantly in order to introduce rules on the so-called ‘protective shields’ for preventive restructuring arrangements. The protective shields entail measures to protect transactions when the restructuring plan agreed between a debtor and its creditors failed and judicial insolvency proceeding were commenced. The protective shields provide protection against, among others, claw-back actions. For instance, it would protect the interim finance and the new financing entered into in the context of a restructuring plan.

The Royal Decree-Legislative 1/2020 (recast) of 5 May 2020 was enacted to restate and improve the previous legal framework governing insolvency in Spain.

3. The transposition of the PRD 2019: the reform of the Spanish Insolvency Law

In September 2018, the Spanish Ministry of Justice set up a special working group within the General Law Commission for the reform of the Spanish insolvency and pre-insolvency law. It was established in relation to the transposition of the PRD 2019 and was composed of leading experts, including academics, lawyers and economist.^[4]

After more than three years of work and complying with public consultation, the Law 16/2022 transposing the PRD 2019 was passed on 5 September 2022. It was published in the Spanish official Gazette on 6 of September 2022. The Law 16/2022 entered into force by 26 September 2022, with certain exceptions. This new Law amends the Royal Decree-Legislative 1/2020 (recast) of 5 May 2020 in order to implement the PRD 2019.

Law 16/2022 introduced, amongst other reforms in the Spanish Insolvency Law, a new pre-insolvency regime. It was drafted by considering not only the provisions of the PRD 2019, but also the transposition made by other EU Member States, in particular, Germany and the Netherlands. There are now two pre-insolvency proceedings in Spanish Insolvency Law. They are autonomous proceedings that are functionally linked: (i) the communication to the court on the opening of negotiations with creditors (when the debtor obtains a moratorium or stay) to facilitate the negotiations of a restructuring plan between the debtor and its creditors, and (ii) the confirmation of a restructuring plan by the commercial court (judicial homologation). Both requests are independent in the sense that the judicial confirmation of a plan can be requested without prior communication. In practice, it is relatively common for the debtor not to request such a communication (the moratorium), particularly in the case of large companies where a voluntary standstill agreement with its main financial lenders is sufficient. The other way around, after the court has been notified of the commencement of negotiations, it is possible that court approval of the restructuring plan is not requested, for example, because the creditors did not approve the restructuring plan with the legally required majorities, which is a ’condicio sine qua non’ for requesting court approval of the plan.

Therefore, both proceedings will be included as independent insolvency proceedings in Annex A of the EU Insolvency Regulation (recast) (EIR 2015), only the so-called ‘confidential moratorium’ and group restructuring plan will not be included on the Annex^[5].

4. Main features of the restructuring plan

4.1 The key principles, objective and scope of the Spanish Insolvency law Reform

Underlying the reform introduced by Law 16/2022 are the following four main principles: (i) minimum judicial intervention, (ii) qualified majority, (iii) flexibility and (iv) debtor in possession.

• The principle of minimum judicial intervention: this principle means that the judicial intervention is restricted to what is strictly necessary to protect the rights of the debtor, its shareholders, and the affected creditors. In this sense, we could say that the Spanish preventive restructuring law opts for a hybrid proceeding. It means that, on the one hand, the negotiation and the formation of classes and voting on the plan take place out-of-court and the court only intervenes at the end of the process. This happens when a court is requested to extend the effects of a restructuring plan to the dissenting minority or to dissenting classes and to verify that certain rules on the distribution of the company’s value have been respected under the plan. On the other hand, courts have an important role to guarantee certain legal protection and privileges to the debtor, in particular if the restructuring plan fails and a formal judicial insolvency proceeding is opened. Legal protection is conditioned on the plan having been sanctioned by the court (clawback protection, privilege of fresh money for the funding given during the negotiation (interim finance) and implementation of the plan (new financing).
• The principle of qualified majority: as the counterpart of the principle of limited judicial intervention, this principle mainly attributes the decision-making on a restructuring plan to the majority of the affected parties. While this is subject to control by the court through the confirmation process, eventually dissenting creditors and shareholders may still appeal (challenge) the judicial confirmation. The underlying idea is that if a qualified majority of the affected creditors votes in favour of the restructuring plan, this will very likely be the case because the business is viable, so the restructuring is preferred to ensure its continuity, instead of other alternatives such as formal judicial insolvency proceedings.^[6]
• The principle of flexibility: in essence, the Spanish restructuring plans are not a regulated process. Instead, without legally determining its formalities, it is primarily based on the autonomy of the debtor, its creditors and shareholders, if they are in the money. In this sense, we could state that a restructuring plan in Spain is not a proper ‘proceeding’, except when parties have raised objections to the plan and a formalised process will take place. In terms of legislative competition between countries, minimum judicial intervention and flexibility are a competitive advantage in comparison to other countries, such as Germany where restructuring processes are judicial proceedings.
• The principle of the debtor in possession: the Spanish legislator tried to incentivise the use of the preventive restructuring mechanisms by granting debtors the right to remain in control of their assets and the day-to-day operation of the business. An independent restructuring expert, who may be appointed by the court, is an important novelty introduced by the reform of the Spanish Insolvency Law. This is not a traditional insolvency practitioner and does not replace the debtor. His functions are limited to preparing and submitting to the court the various reports required by law.

Furthermore, as a principle, company law should not jeopardise the restructuring process of a viable company when its value as a going concern is higher than its value in a liquidation process. Related to the goals of the reform, the amended Spanish Insolvency Law incentivises an economic approach to dealing with financial distress. The reform facilitates consensual solutions when a company is economically viable and promotes the adoption of pre-insolvency tools, rather than court insolvency proceedings when a viable company is facing financial difficulties.

4.2 Criteria for opening preventive restructuring proceedings: the economic grounds

The underlying idea according to the PRD 2019 is that debtors should be able to address their financial difficulties at an early stage, at a time when it appears likely that insolvency can be prevented, and the viability of the business can be ensured. According to this objective, the Spanish Insolvency Law distinguishes between different stages of insolvency, which are relevant for the communication of the debtor when opening the negotiations on a plan, as well as to the confirmation of restructuring plans.

In this sense, the Spanish Insolvency Law distinguishes between the following three situations:

• Current insolvency: when the debtor is unable to regularly pay its obligations as they fall due. In a current insolvency scenario, directors find themselves in a difficult dilemma. On the one hand, they have to comply with their legal duty to file for a judicial insolvency proceeding within two months of becoming aware (or date when it should have become aware) of its insolvency status. On the other hand, they have to apply for a restructuring plan, which can entail severe consequences in terms of directors’ liability. This may arise if in the end a subsequent judicial insolvency proceeding is opened and the company is wound-up and the judge holds that the choice to pursue a restructuring of the debtor has aggravated the insolvency situation (in the so-called Spanish qualification section). This risk might be less relevant when the company is not in a situation of current insolvency but in a situation of likelihood of insolvency, given that in the latter there is no directors’ legal duty to file for insolvency.
• Imminent insolvency: the debtor may file for voluntary judicial insolvency or apply for a restructuring plan if its insolvency is imminent. A debtor is in imminent insolvency when it foresees that he will not be able to timely and regularly pay its obligations in the next three months.
• Likelihood of insolvency: a debtor may only apply for a restructuring plan and cannot file for a voluntary judicial insolvency proceeding, when it finds itself in a situation of likelihood of insolvency. This is a situation that is prior to the stage of imminent insolvency. It takes place when the debtor foresees that he may be unable to meet its obligations as they fall due over the next two years in the absence of the implementation of a restructuring plan.

In the Spanish regime, it was necessary to define the difference between imminent insolvency and likelihood of insolvency because the former is the same economic ground that can be used for the opening of a judicial insolvency proceeding. In order to adequately implement the PRD 2019, it was necessary to introduce a separate entry criteria for a pre-insolvency proceeding, to prevent the opening of a judicial insolvency proceeding.

This was achieved by introducing the concept of likelihood of insolvency, which is defined by a time horizon of two years. It must be more likely than not that if a debtor is not effectively restructured, the debtor will default on its obligations within the above-mentioned time period. This is much longer compared to the three-month horizon that applies to imminent insolvency.

The economic grounds will be tested ex post at the stage of court confirmation or approval of the plan by majority of the creditors. In addition, dissenting creditors and shareholders may dispute the economic situation of the debtor by objecting to the confirmation of the restructuring plan, or by challenging, the confirmation order before the court of appeal.

The proceedings available to a Spanish debtor depend on whether it is a scenario of current, imminent, or likely insolvency. In this sense, a restructuring plan can only be imposed on shareholders (even if the plan is not approved by the general shareholders’ meeting with the relevant majorities set out in Spanish corporate laws) if the debtor is in a situation of current or imminent insolvency, but not in the event of likely insolvency, as we will analyse in further detail later in this paper.

4.3 Affected parties

In principle, a restructuring plan under the Spanish Insolvency Law is potentially collective, in the sense that all claims may be affected by the plan. Therefore, the Spanish reform introduced the possibility to cram-down financial and non-financial creditors. The law does not determine a compulsory scope of affected claims. In the end, a debtor will determine the scope of the restructuring plan. Therefore, the effects of a restructuring plan can be imposed on either financial or non-financial creditors, as well as contingent and litigious claims. Nevertheless, in practice it is quite common for the restructuring to be focused and even restricted to financial liabilities, since the inclusion of commercial liabilities may harm the future operation of the business. In this sense, the Spanish Insolvency Law includes a fairly broad list of what should be understood as financial liabilities, which includes bondholders and commercial claims that have been assigned to a financial institution (e.g. factoring).^[7]

Nevertheless, it is important to note that, on the one hand, the Spanish Insolvency Law excludes from the scope of the restructuring plan, among others, labour claims, except for claims related to senior management and future claims arising from derivative/swap agreements. Any amendment or termination of the employment relationship that takes place in the context of the restructuring plan will be carried out according to the applicable labour legislation including, in particular, the rules of information and consultation of the workers.

On the other hand, the Spanish Insolvency Law introduce a special and controversial regime in relation to creditors holding claims governed by public law. In this sense, claims governed by public law cannot be subject to a debt-for-equity swap, change of debtor or change of governing law. According to this special regime, as a rule, their maturity can be extended, in general, up to twelve months after the confirmation decision and up to six months after the confirmation decision if a deferral or division in instalments of such debt has been agreed with the public administration.^[8]

It is a controversial topic in Spain whether this special treatment of public creditors would fit into the PRD 2019. In addition, it entails an undesirable contagious effect in relation to the treatment of other creditors with the same ranking as public creditors. In this sense, according to the fair and equitable treatment of creditors that has to be provided to each class, all creditors must receive the same treatment. This would entail that all creditors would be subject to the same rules as public creditors and cannot be subject to a debt-for-equity-swap (this is the so-called contagion effect). As a conclusion, in practice the solution is to exclude public creditors in the restructuring process and arrange with them tax deferrals or instalment payments, according to tax law.

As regards third parties guarantees, in principle, the plan may not impair them, apart from guarantees given by other companies of the debtor’s group. This is the case when the enforcement of such guarantees could jeopardise the restructuring of the business and there is a potential correlation between the insolvency risks of the main obligor and the guarantor.^[9] Nevertheless, if the guarantor is not affected, the plan may affect claims derived from recourse actions, i.e., the recourse claims of any third party guarantor that has satisfied the original creditor. However, if the guarantor has not satisfied the main obligation when the plan is confirmed, any future recourse action will be affected the same as the main claim is by the restructuring plan.

4.4 Stay: the communication of opening negotiations with creditors

As mentioned above, a debtor may communicate the opening of the negotiations with its creditors, or the intention to initiate them immediately, with the court whenever he is subject to actual, imminent or a likelihood of insolvency (the Communication). The debtor must justify the submission of such a Communication, indicating the status of negotiations, providing a list of creditors with whom negotiations have started or are due to start (with a breakdown of their claims), and a list of essential assets and contracts for the viability of the business. Also, the debtor may request the appointment of a restructuring expert.

The Communication can be submitted individually or jointly by companies belonging to the same group and may include some or all of the companies within this group. In the case of a joint Communication, the notice must include a specific section on existing intragroup credits and guarantees.^[10] Once the Communication has been filed, if the negotiation between the debtor and its creditors failed, the debtor will not be entitled to file another one within a year from the previous filing date.^[11] The purpose of this provision is to prevent the debtor from using the Communication to simply delay the opening of insolvency proceedings or benefit of a stay of individual enforcements actions.

The filing of the Communication has, inter alia, the following main effects on:

• Credit rights and third-party guarantees: pre-insolvency does not by itself cause the acceleration or maturity of claims. Contractual ipso facto provisions amending or accelerating the maturity of claims in case of pre-insolvency shall become ineffective. As a rule, creditors may still enforce a guarantee or in rem security interest granted by a third party, even if the principal claim is affected by the Communication, provided that the claim is due and payable. However, if requested by the debtor, the Communication will suspend the enforcement of guarantees or in rem security interests granted by any other group company that did not file a Communication. In this case it must be evidenced that the relevant enforcement action may cause the insolvency of both the relevant affiliate and of the entity that filed the Communication.^[12]
• Contracts: any contractual provisions resulting in the suspension, amendment or early termination of a contract in case of pre-insolvency or analogous proceedings shall be rendered ineffective (ipso facto clauses). In case of contracts essential for the viability of the business, the relevant counterparties will not be entitled to suspend, amend, or early terminate such contract for contractual breaches that have occurred prior to the Communication, but only for subsequent breaches.^[13] Nevertheless, the law includes an exception for financial contracts (e.g. derivatives) and financial collateral arrangements subject to RDL 5/2005. This law transposes the financial collateral directive into Spanish Law. The main advantage of RDL 5/2005 is that it allows creditors to enforce pledges over shares by appropriating the shares as collateral. This is an exception under Spanish law which, as a general rule prevents creditors from appropriating the asset given as collateral. Therefore, financial contracts and financial collateral arrangements enjoy a privileged regime and, in this case, any ipso facto clauses remain valid and effective.^[14]
• Enforcement actions: upon submission of a Communication (i.e., initially, three months), creditors may not initiate new enforcement actions and the courts shall suspend any ongoing judicial or extra-judicial enforcement actions, over essential assets that are necessary for the viability of the business. Initially, a stay is granted automatically for three months, and may be extended up to three additional months if the debtor has the consent of a majority of creditors and it is necessary to ensure the successful completion of the negotiations, also necessary in these cases is the favourable opinion of the restructuring expert, if he has been appointed.^[15] The suspension may be extended by the judge, subject to a favourable report of the restructuring expert (if appointed), to the rest of the debtors’ assets (vis-à-vis certain creditors or classes or creditors) to the extent that such suspension is considered necessary to ensure the successful outcome of the negotiations. Creditors holding security over the debtor´s assets (even if the underlying claim is against another company belonging to the same group as a debtor that has not submitted a Communication) may initiate enforcement actions over the encumbered assets, but the judge may suspend such actions if the assets are deemed essential for the viability of the business.^[16]
• The directors’ duty to wind up the company: while the effects of the Communication are in force, the directors’ legal duty to wind up the company in the event of a capital impairment situation is suspended.^[17]
• The directors’ duty to apply for a judicial insolvency proceeding: as a rule, in the Spanish regime, a debtor must file for insolvency within two months of becoming aware (or the date when it should have become aware) of its current insolvency. However, as long as the Communication is effective, the debtor is not obliged to file for insolvency and insolvency petitions filed by creditors, will not be processed until the expiry of a month following the termination of the effects of the Communication. However, if the debtor has failed to reach a restructuring plan, a debtor must file for insolvency in the following month, provided it remains in a situation of current insolvency^[18].

It is important to point out that the above effects shall not extend to public creditors and creditors who legally cannot be affected by the restructuring plan (e.g., claims for tort liability, salary claims, except for those arising from senior management contracts).

The above effects can be extended for an additional period of up to three months upon request by the debtor or 50% of the creditors by value affected by the Communication and in this case, if appointed, the restructuring expert shall issue a favourable report for the approval of such extension. If the extension is requested by the debtor, it also need to be supported also by 50% of the creditors by value affected by the Communication^[19].

As long as the Communication is effective, the restructuring expert or creditors representing more than 50% of the claims that may be affected by the restructuring plan may request the suspension of a voluntary insolvency petition filed by the debtor. For such purposes, either the restructuring expert or creditors (or the debtor with a signed responsible declaration by which it states that it has obtained the conformity of the relevant creditors) shall justify that the restructuring plan is likely to be confirmed. In that case, the suspension will be lifted if the adopted restructuring plan is not filed before the judge for sanctioning in the period of a month, as we will analyse in more detail in this article^[20].

4.5 Restructuring plans

Under the Spanish reform, either the debtor or any creditor affected by the plan who has voted in favour of it, may request court confirmation of a restructuring plan.^[21]

A plan may contain almost any restructuring alternative based on the autonomy of parties, provided that it is sufficient and proportionate to ensure the viability of the business and its continuation as a going concern. In this sense, a debtor and its creditors may agree on any type of measures including changes in the composition, conditions and/or structure of not only the debtor’s liabilities, but also of its assets or any part of its capital structure. This could even include sales of assets, parts of the business or even the entire business as a going concern, as well as any other necessary operational changes or a combination of the previous measures.^[22]

In addition, a restructuring plan must contain at least the following information (minimum legal content):^[23]

• Identity of the debtor;
• If any, identity of the restructuring expert;
• Description of the economic situation of the debtor and of its employees;
• Assets and liabilities of the debtor;
• Creditors to be affected by the plan;
• Contracts with bilateral outstanding obligations that, if applicable, will be affected by the restructuring plan;
• If the plan affects the shareholders’ rights, the face value of their shares;
• Creditors or shareholders that will not be affected by the plan;
• Proposed restructuring measures, justifying their convenience and their impact on employment (e.g., redundancies, reduced working hours);
• Description of the necessary conditions for the success of the restructuring, and
• Information and consultation measures implemented in accordance with labour applicable regulations.

In the event that the restructuring plan is intended to affect claims governed by public law, the debtor will include a certification that it is up to date in compliance with the tax and social security obligations. To do so, a debtor must present the relevant certifications issued by the tax authorities and the social security institute.

4.6 Adoption and confirmation of the plan: class formation

The restructuring plan under the Spanish regime must be adopted first by the creditors which will be affected by the plan, through classes of creditors, instead of one-by-one creditor votes. Second, it must be sanctioned by the Commercial court (confirmation of the plan). The class formation is one of the main innovations introduced by the PRD 2019 in Spanish Insolvency Law. Creditors affected by the restructuring plan will be grouped into classes. The class formation criteria must be based on a common interest shared by each group of creditors.

To form classes, as a rule, it is presumed that creditors with the same ranking in an insolvency process share a common interest. However, creditors can also be separated into different classes if there are objective reasons justifying the formation of classes (e.g. financial, and non-financial criteria, conflicts of interests among creditors of different classes, the effects of the measures that will be imposed by the plan). In any case, secured claims must constitute a single class, unless the different nature of the collateral justifies the creation of separate classes. Claims governed by public law also constitute a separate class among classes with the same ranking.^[24]

A debtor or creditors representing more than 50% of the liabilities that will be affected by the restructuring plan can request judicial approval of the class formation prior to the submission of the request for confirmation. In this regard, it is relevant to note that in the Spanish regime, a restructuring expert does not have standing to file such a request for a decision on the class confirmation.^[25] A request to approve the class formation must be accompanied by the communication of the proposed class formation, as sent to the affected parties by the judicial confirmation. If that is the case and the classes are confirmed by the judge, the class formation will not be a ground for challenging the restructuring plan at the confirmation stage. Otherwise, the correct formation of classes will normally be reviewed ex post at the stage of court confirmation and a challenge of dissenting creditors may prevent the confirmation.

In terms of process, once the judicial confirmation is requested either by the debtor or any affected creditor,^[26] and the judge admits such a request, the judicial decision admitting to hear the request for confirmation will be published in the Spanish Public Registry on Insolvencies. From the date of publication, creditors will have ten business days to challenge the class formation. Once this deadline expires, the judge shall issue a decision within five business days, a decision that is not subject to any appeal.^[27]

For voting on the plan by the classes, the proposed restructuring plan shall be notified to all affected creditors. As a rule, the notification shall be served to each creditor, either by regular post or electronically. If their notification details are unknown, the notification will be made on the debtor’s website. If it is not feasible to notify the proposal through any of these means, the restructuring expert (if appointed) or the applicant for the confirmation shall request to the court clerk the publication of an edict in the Spanish Public Registry on Insolvencies. In the case of public creditors, an official form shall be filed electronically and in the case of lenders, subject to a syndicated agreement, the notification details set out under the relevant agreement shall apply.^[28]

Related to the voting requirements by each class of creditors, restructuring plans can either be consensual (i.e., approved by all classes of creditors and eventually shareholders when their rights are affected) or non-consensual (i.e., not approved by all classes of creditors or shareholders). Consensual plans need to be approved by:

• All classes of creditors, in the understanding that the plan will be deemed approved by a class of creditors if more than 2/3 of the unsecured creditors by value of their debt vote in favour. If the class is composed of secured creditors, the relevant threshold will be of at least ¾.
• The shareholders, in the understanding that the plan will be deemed approved by the debtor if it is approved by the general shareholders’ meeting. Here, the procedural and majority rules applicable to other classes of creditors are not applicable, but the quorums and majorities set out in Spanish applicable corporate laws, with certain specialities in order to facilitate a favourable decision on the plan.^[29]

Non-consensual plans need to be approved by:

• A simple majority of the classes of creditors (applying the thresholds described in the preceding paragraph for consensual plans), provided that at least one of such classes would rank as a class with special privileged claims or general privileged claims in an insolvency process; or
• At least one class that, presumably, would be “in the money”, i.e., if pursuant to the valuation of the company as a going concern carried out by the restructuring expert, such class would have received some payment in accordance with the ranking in bankruptcy.

In this context it is worth mentioning the important role of the independent restructuring expert who will prepare and submit to the court a report required by the law on the value of the debtor as a going concern. In cases of cross-class cram-down, evidencing that at least one of the classes that supported the plan was ‘in the money’.^[30]

It is important to take into account that the plan can only be imposed on the shareholders if the company is in a situation of imminent or current insolvency, but not if it is in a likelihood of insolvency.

In the event that the restructuring plan affects syndicated instruments, the majorities set out above will apply, unless the relevant agreement sets out a lower threshold. In any case, if the relevant threshold is satisfied, the plan will be deemed approved by the total amount of the creditors subject to the syndicated instrument. If the threshold is not satisfied, votes of consenting creditors will be taken into account on an individual basis, unless the syndicated claims constitute a single class of creditors (in which case it will be deemed that such a class has not approved the plan).^[31] In addition, it is important to note that dissenting creditors under a syndicated instrument can challenge the restructuring plan before the courts.

Restructuring plans shall meet the following requirements in order to be confirmed by the court: the debtor must be in a situation of likelihood of insolvency, imminent insolvency or current insolvency and the plan offers a reasonable prospect to avoid the insolvency and ensure the viability of the company in the short and mid-term. Furthermore, the plan satisfies the legal requirements set out in the law, and all claims of the same class are treated equally. In addition, the content of the plan is notified to all creditors and certain majorities, as set out above, are satisfied.

4.7 Protection of dissenting creditors: cram-down and cross-class cram-down

Once the plan has been approved by the affected parties and confirmation of the plan has been requested, no new request for confirmation regarding the same debtor will be admitted for a period of one year.

The grounds to challenge a request to confirm a plan, are different depending primarily on whether it is a consensual or non-consensual plan. On the one hand, if the restructuring plan was approved by all classes of creditors, grounds to object against confirmation include: a lack of compliance with the applicable content of the plan and failure to meet certain formal requirements; with respect to creditors, also a lack of compliance with the notification requirements; the failure to meet the requirements for class formation and the majorities required for approval of the plan; The debtor is not in a situation of likelihood of insolvency, imminent insolvency or current insolvency; The plan does not offer a reasonable perspective to avoid the insolvency and ensure the viability of the company in the short and mid-term; claims are not treated equally with other claims in the same class; the plan entails a reduction of the value of the claims clearly higher than necessary to ensure the viability of the company; the plan does not pass the best-interest-of-creditors test, and failure by the debtor to comply with its tax and social security obligations.^[32]

On the other hand, there are additional grounds to object to the confirmation of a restructuring plan that is not approved by all classes of creditors. In this case, the confirmation of a plan may also be challenged if the absolute priority rule has not been respected. Only creditors that have not voted in favour of the plan, including creditors that have not voted, may raise such a challenge. However, the Spanish Insolvency Law introduces a nuance to mitigate a rigid application of this rule.^[33] This is when the class of creditors who challenge confirmation of the plan will receive a less favourable treatment than any other class with the same ranking.

And last but not least, there are grounds for challenges against a restructuring plan if it is not approved by the shareholders. This is when the debtor is not in a situation of imminent or current insolvency, or the plan foresees that a class of affected creditors will receive rights or shares exceeding the value of the creditors’ claims.^[34]

The Spanish Insolvency Law offers two alternative procedural courses of action to challenge a restructuring plan, the choice which is left to the proponents of the plan:

• Filing a challenge before the competent appeal court, once the first instance court (i.e., the commercial court) has confirmed the plan. Once the challenge is notified, the debtor and the creditors that are party to the restructuring plan have 15 business days to challenge to such plan. This appeal has no suspensive effect.
• Opposition before the court of first instance, prior to the confirmation of the plan. As an alternative, the applicant requesting confirmation of a restructuring plan, can request that creditors and shareholders can oppose to a plan before the court of first instance, prior to the confirmation by the court. In such a case, the confirmation of the plan will not be subject to any appeal, which brings a high degree of legal certainty.^[35]

Therefore according to the distinction between ‘consensual restructuring plans’ and ‘non-consensual plans’ (because of the cross-class-cramdown), we can distinguish two levels of protection: individual protection of affected creditors (by means of a cram-down), and protection of affected classes of creditors (by means of a cross class cram-down):

• Cram-down protection by the best-interest-of-creditors test. Under the Spanish Insolvency Law, this test entails that no dissenting creditors should be in a worse situation under a restructuring plan than they would be in an insolvency liquidation scenario. This can be either a piecemeal liquidation or sale of the business as a going concern (i.e., liquidation test). The option in the Spanish reform has been limited to the contractual assessment to an alternative insolvency liquidation scenario only and does not include any alternative better scenario that could be an option for the Member States under the PRD 2019. In order to verify the satisfaction of this test, the value to be received by the relevant creditor pursuant to the restructuring plan will be compared to the value the creditor would receive in case of a hypothetical insolvency liquidation. For these purposes, it is deemed by law that a liquidation takes place within two years from the date of the public document (Formalizacion del plan)^[36] All the dissenting creditors, even secured, unsecured and public creditors, are protected by the best-interest-of-creditors test. In this framework it is important to highlight that the price of a claim in the secondary market, may be a good indication of its real value and therefore a useful reference for applying the best-interest-of-creditors-test.
• Cross-class cram-down protection by the absolute priority rule. Under Spanish law, the plan can be confirmed even if the majority of voting classes do not support the plan (non-consensual restructuring plan). In this case, the plan must be adopted by at least one affected or impaired class of creditors and dissenting classes of affected creditors are not unfairly prejudiced under the proposed plan. In these cases, the PRD 2019 established the principle that dissenting voting classes of affected creditors had to be treated at least as favourable as any other class of the same rank and more favourably than any junior class (the relative priority rule). Member States were allowed to implement instead the absolute priority rule pursuant, subject to which a more junior class can receive any payment or maintain any interest under the plan, as long as the senior dissenting voting class are paid in full by the same or equivalent means. The option under the Spanish Insolvency Law reform has been that dissenting classes of affected creditors are deemed unfairly prejudiced under the proposed restructuring if: (i) such creditors are treated less favourably than any other class of the same ranking (a violation of the equal treatment of creditors), or (ii) such dissenting class of creditors is impaired (i.e. it receives rights, assets or shares whose value is lower than the value of its credit rights) while a class with lower ranking than these creditors receives any distribution under the restructuring plan (a violation of the absolute priority rule).^[37] Therefore, Spanish law has opted for the absolute priority rule but with some exceptions which have been introduced to mitigate its rigidity. It allows for confirmation of the plan, even if the absolute priority rule is not met, but when it is essential to ensure the viability of the business and it does not unreasonably prejudice the rights of the classes of affected creditors, who have voted against the plan. In particular, the use of this exception to the absolute priority rule may be deemed indispensable to maintain certain contracts for the supply of goods or services, which are indispensable for a company’s viability (strategic suppliers).^[38]

4.8 Restructuring plans in case of a subsequent insolvency proceeding protective shields

A restructuring plan can’t offer an absolute guarantee of the viability of the business, and therefore, the possibility exists that despite the plan the debtor will end up in subsequent insolvency proceedings. In this scenario, the Spanish Insolvency Law establishes certain protections that we could call ‘protective shields’.^[39] This legal protection it offers is conditioned, in any case, on the plan having been sanctioned by the court, as well as the proportion of affected credit in relation to the total liabilities of the debtor. We can distinguish a double legal protection against insolvency clawback actions:

• The highest degree of protection is granted to the affected claims under the restructuring plan if they represent at least 51% of the total liabilities of the debtor. In this case, the interim financing and other necessary acts carried out during the negotiation of the plan, and which are part of the plan, as well as the new financing and others acts carried out in execution of the plan cannot be rescinded in a subsequent insolvency proceeding, unless it is evidenced that there was a fraud on the creditors.
• Otherwise, if the proportion of affected credits mentioned above is not satisfied, a lesser degree of protection is granted to restructuring plans. In this case, the protection is limited to disabling the general presumptions of prejudice, absolute or relative, as regulated in Book I of the Spanish Insolvency Law^[40].

The conditions are more specific for obtaining protection of certain transactions, such as:

• Interim financing, that it is granted either by a third party (not being a pre-existing creditor) or by a pre-existing creditor if, at the time of granting, it was reasonable and immediately necessary to:
• a. Ensure the total or partial continuity of the debtor's business or professional activity during the negotiations with the creditors, until the confirmation of the restructuring plan.
• b. Preserve or improve the value that the company as a whole or one or several production units had at the date commencing such negotiations.
• Interim financing has the same ranking as new money in an insolvency proceeding, which means that 50% will be considered as a claim against the insolvency estate and the remaining 50% will qualify as an insolvency claim but with general privilege.^[41]
• New financing, which was lent after the court’s confirmation of the restructuring plan, benefits from the same protection as interim financing as described above. Any financing granted either by a third party (not being a creditor) or by a pre-existing creditor which are part of the plan and fulfil the legal conditions, will qualify as new finance.^[42]
• Equitable subordination. If the interim financing and new financing have been granted by a specific related party (e.g., a significant shareholder, a director, a group company, etc.) the special protection regime set out above shall only apply if the affected claims (excluding any claims held by a specially related party) represent more than 60% of the debtor’s total liabilities.^[43]

4.9 Executory contracts

Since the preservation of contractual relations is crucial to guarantee the continuity of the business, the Spanish reform envisaged a general rule to maintain the existing contracts. Any provisions allowing to accelerate or amend a contract based on the filing of a restructuring plan are not effective. On top of that, any contracts that are necessary for the continuation of the business or professional activity of the debtor cannot be suspended, amended, or terminated early in the event that the restructuring plan entails a change of control, even if such contracts include change of control provisions (compare also Section 4.4).^[44]

4.10 Possibilities for a debtor-for-equity swap: addressing shareholders’ hold-out

Before the Spanish reform took place, the shareholders used to have the control over the restructuring process. If they didn’t adopt the necessary resolutions in the General Assembly to put in place measures, such as a debt-for-equity swap, the restructuring process would fail. After the reform, the creditors take over the restructuring process and the shareholders can be forced to carry out restructuring measures such as a debt-for-equity swap or selling an essential asset of the company.

Subject to the Spanish Insolvency Law reform, a restructuring plan can be imposed on shareholders as an affected party if the debtor is in a situation of current or imminent insolvency. This excludes situations of likelihood of insolvency in which the debtor still has the benefit of a long period before it envisages to be in current insolvency. However, shareholders do not constitute a class of creditors under this regime, contrary to, for instance, the US Chapter 11 Bankruptcy Code. In the US, shareholders are a separate class voting on the plan. Pursuant to the Spanish restructuring plan, shareholders cannot be crammed-down as a class and are not deprived of their right to vote.

The effects of a Spanish restructuring plan can be imposed in two different contexts through the following mechanisms:^[45]

• By operation of the applicable general Spanish corporate rules: if the plan is consensual, it can be imposed on dissenting shareholders, if it is approved in the general shareholders’ meeting with the relevant majorities, pursuant to the general applicable corporate rules.
• By operation of the applicable insolvency rules: in this case, the plan can be imposed on all shareholders if the debtor is in a situation of current or imminent insolvency and any of the voting conditions described in Section 639 of the Spanish Insolvency Law for non-consensual plans are satisfied.

On top of this, once the plan has been confirmed and the general meeting of shareholders does not approve the measures required to implement the confirmed restructuring plan, the debtor’s directors or, if they fail to do so, any person appointed by the judge proposed by a creditor, can carry out and approve any actions that are necessary to implement a restructuring plan.

In this context, the key question in the Spanish regime is: why are shareholders allowed to vote against the restructuring plan if the creditors can still get a judge to impose the measure on them? Would it not be more time-efficient to alter the decision-making rules to include a short-cut to arrive at the same outcome sooner? The answer to this question probably could be that the Spanish Insolvency Law reform entails a new framework of relationship between company in insolvency, by avoiding that the effectiveness of the process of adoption and implementation of a restructuring plan should be jeopardised by company law. Thus, the change is quite important and that’s why one of the main goals of the reform was to introduce a ‘soft landing’ for shareholders.

Under the reform, it makes sense to keep the shareholder’s right to vote for those measures in the restructuring plan that need the agreement of the general meeting of shareholders, although at the same time shareholders are affected parties and could be forced to restructure the company. It is true that at the end of the day the adage ‘out of money, out of the vote’ applies, but at least, they can’t state that no one has heard them and above all they have the opportunity to negotiate their agreements with the creditors.

Another important novelty introduced by the reform of the Spanish Insolvency Law is that the Consolidated Text of the Spanish Insolvency Law expressly excludes when shareholders’ approval is requested for a restructuring plan whose content includes the so-called accordion operation (reduction of capital to zero and simultaneous capital increase). This relates to the pre-emptive right of the former shareholders in the subscription of new shares or in the assumption of the new participations.^[46]

Therefore, a reduction of capital to zero and a simultaneous capital increase can be imposed on the shareholders under the legal conditions provided for in the revised text of the Spanish Insolvency Law. This is intended to avoid what in practice has been happening, namely that former shareholders subscribed by virtue of this pre-emptive right for a few shares and remained within the company. This has sometimes hindered future restructuring operations, in a kind of ex post blackmail, blocking in practice the restructuring of viable companies which were experiencing economic difficulties. However, the aforementioned exclusion of pre-emptive rights is only envisaged in a state of actual or imminent insolvency, when shareholders are out of the money, and therefore not in scenarios of the mere probability of insolvency.

On the other hand, in the traditional conflict between shareholders who want to solve the problem by means of an insolvency proceeding and creditors who want to avoid proceedings, the key question should be how creditors can prevent shareholders from filing for insolvency. Traditionally in a restructurings process, the creditors must deal with the risk of a voluntary Insolvency petition and pressure from the shareholders on directors to invoke the legal duty to apply for an insolvency judicial proceeding, as is case in countries such as Spain. It could be said that the company and above all the shareholders had the ‘red button’ to apply for a judicial insolvency proceeding that would disrupt the restructuring process.

Due to the reform, the new system incentives to reach consensual solutions when a company is viable, which allows the creditors to have to some extent control over the possibility of the company to apply for a judicial insolvency proceeding in the framework of two scenarios. On the one hand, as we have analysed previously, this relates to when the debtor communicates the opening of negotiations with its creditors or the intention to initiate them immediately. In this scenario, if the debtor has failed to reach a restructuring plan, it must file for insolvency in the following month, provided it remains in a situation of current insolvency. In this context, the restructuring expert or creditors representing more than 50% of the claims that may be affected by the restructuring plan, may request the judge to suspend such voluntary insolvency petition filed by the debtor, alleging that the restructuring plan is likely to be approved by a majority of creditors. In that case, the suspension will be lifted if the approved restructuring plan is not filed before the judge for sanctioning in the period of a month.^[47] On the other hand, the same provision could be applied when the debtor´s has decided not to communicate the opening of negotiations.^[48]

In conclusion, after the reform of the Spanish Insolvency Law, we could say that the creditors have recovered, control over the restructuring process when shareholders are out of the money, although the main problem is the economic valuation of the company. As a well-known problem, there is not only one valuation method, and as practice has shown this topic is clearly controversial.

It has been shown recently in the Celsa group restructuring plan (Leading Case). This was the first judicial confirmation of a restructuring plan that was not agreed upon with the debtor and that entailed a cram-down of the shareholders.^[49] In this case, the shareholders and the dissident creditor, as was predicted, opposed to the confirmation of the plan. The court in its ruling highlighted that the controversy presents a clear economic nature of the business, which has a lot to do with the distribution of the company value with the insolvency situation of the Celsa group, but also with the position its holds in the market and with the economic interests of the shareholders and creditors.^[50]

4.11 Practitioner in the field of restructuring: the independent expert

An important novelty in the Spanish Insolvency Law reform is the actor of the independent restructuring expert. This expert will prepare and submit to the court various reports required by law. It included on the one hand, a report certifying that the voting majorities needed to confirm the plan have been obtained. On the other hand, it entails a report on the value of the debtor as a going concern for cases involving a cross-class cram-down. It should provide the evidence that at least one of the classes that supported the plan was ‘in the money’, which as mentioned above, is a condition for the judicial confirmation of the restructuring plan.

The independent restructuring expert must be appointed by the judge according to a market criterion in the following circumstances:

• At the debtor´s request;
• At the request of creditors holding more than 50% of the value of the claims that are likely to be affected by the plan;
• When the courts grant a general stay of individual enforcement actions and it considers that a restructuring expert is necessary to safeguard the interest of the parties affected by the stay, and
• When the plan’s effects are to be imposed with a cross-class cram-down on dissenting classes or shareholders.

In addition, if no expert has been appointed because none of the above grounds apply, creditors holding at least 35% of the value of the claims likely to be affected by the plan, have the right to propose one candidate, whom the court will appoint, unless the debtor opposes the appointment. A debtor can do so by arguing that either a restructuring expert is unnecessary or that the candidate does not meet the legal requirements for appointment.^[51]

In any case, it is worth mentioning that the Spanish Insolvency Law gives the majority of the creditors the option to request that the court replace the appointed expert at any time and ad nutum, which means that under the Spanish regime, the majority of the creditors have the last say on this core element of a restructuring process.^[52]

4.12 Jurisdiction for and recognition of foreign court decisions in Spain

Related to the recognition and enforcement in Spain of judicial decisions in insolvency proceedings, we must distinguish between EU Member States and third states. In relation to decision from EU Member States, the recognition is automatic if the insolvency proceeding is listed in Annex A of the EIR 2015.

In relation to third states, the first step is to find out if there is any international treaty on recognition of such judicial decisions between a third state and Spain. If not, the Spanish Insolvency Law determines that a special exequatur is requires as the recognition mechanism.^[53]

Given that the UK is no longer a member state of the European Union, the provisions of recognition and enforcement of judgements contained in EU regulations, such as the Brussels I regulation (recast) do not apply to the recognition in Spain of English judgments rendered in pre-insolvency proceedings that are opened after the end of the Brexit transition period. Furthermore, there is no bilateral treaty on recognition and enforcement of judgments between the UK and Spain,^[54] nor any other international convention on recognition of foreign judgements that is applicable to the recognition in Spain of an English judicial order sanctioning a scheme of arrangement or a restructuring plan.^[55]

In this context, the nature of the scheme of arrangement and the restructuring plans is a key element related to the legal way of recognition in Spain of the rulings enacted in both proceedings. A scheme of arrangement under Part 26 (Sections 895-901) of the English Companies Act is not a formal insolvency proceeding. It can be used in conjunction with insolvency proceedings or on a standalone basis and outside any insolvency proceedings. That is why it does not require financial difficulties or insolvency of the debtor.^[56] Therefore, the recognition of a scheme of arrangement in Spain would not be possible on the basis of the Spanish Insolvency Law and it is a controversial matter.^[57]

As we have already mentioned above, the scheme of arrangement differs from other statutory proceedings, such as the restructuring plan under Part 26A of the UK Companies Act, which was introduced by the Corporate Insolvency and Governance Act 2020 (CIGA), for which the insolvency nature is a clear.^[58] Therefore, for UK restructuring plan entails the application of the Spanish Insolvency Law and requires a special exequatur^[59] as the mechanism for recognition of the decisions by the English court.^[60]

4.13 Special rules for micro businesses, medium and small-sized companies

Pursuant to Spanish Insolvency Law, micro business – in the sense of natural or legal persons with less than ten employees and an annual turnover or annual balance sheet not exceeding EUR 350.000 – are excluded from the framework of the restructuring plan. They are regulated by a special proceeding introduced as a novelty, when transposing of the PRD 2019 into Spanish Insolvency Law.^[61]

The regulation of this special proceeding was envisaged as something necessary, attending to the enormous relevance of micro business for the Spanish economy, and the foreseeable increase in the number of cases in the aftermath of the Covid pandemic. It is an audacious proceeding, since its main features are increased procedural flexibility, wholesale cost reduction and extensive use of technology, introducing a system which has the potential to allow for the preservation of value and the quick liquidation of unviable businesses.

However, the Spanish restructuring plan will apply to medium-sized companies, which is defined as natural or legal persons with less than fifty employees and an annual turnover or annual balance sheet not exceeding EUR 10 million, but do not qualify as a micro business.^[62] Nevertheless, certain specialities are introduced in this framework for medium-sized companies:

• The debtor’s, and where required, its shareholders’ consent is always required for the court to confirm a restructuring plan, even if the debtor is in a likelihood of insolvency. The underlying idea is that the Spanish legislator presumes that the partners or owners of these companies do not have a mere investment position in the company, but contribute fundamentally with other assets.^[63]
• Only the debtor and not the creditors may voluntarily request the court to approve the class formation.
• The Spanish Insolvency Law excludes in these cases the application of the absolute priority rule by allowing the confirmation of plans that respect a relative priority. Therefore, it is sufficient for the dissenting class or classes of creditors to receive a more favourable treatment than any lower ranking class.
• Last but not least, the parties may use an official template for a restructuring plan (available electronically) that is tailored to the needs of small enterprises.

5. Focus points for Spanish restructuring

The reform of the Spanish Insolvency Law has introduced important novelties and currently the doctrinal and judicial debate is focusing, inter alias, on three main topics: (i) class formation, and to a certain extent connected to this, (ii) the effectiveness of the majority principle and the possible exceptions to this principle, and (iii) the possibility to submit competing restructuring plan proposals.

Related to class formation, the focus is on the criterion of class formation and the concept of a common interest (interés común). This is discussed not only because of the importance of this topic itself, that clearly link to the aspect of fairness, but also because traditionally Spanish Insolvency Law, so far, only recognised two types of creditor classes: privileged creditors with in rem security interests, and financial creditors. This has been broadened after the reform of the Spanish Insolvency Law. In particular, the debate focuses on the possibility of creating a class with a single creditor (a unipersonal class), as well as the possibility to create only one class of creditors, composed of different creditors with the same common interest. The matter of a class with a single creditor is debated in some European countries as well as in the UK, where currently there is not a technical problem with a class comprising only one creditor in a scheme of arrangement or in a restructuring plan. However, twenty years ago this was seen as a potential issue in the UK, as well as in Spain right now.

From some Spanish judicial decisions it follows that single creditor classes have been accepted,^[64] but there is some doctrinal concern surrounding single creditors classes. This is in particular the case when an approving class is artificially created or when a creditor uses self-help remedies in an attempt to be put into a separate single creditor class (thereby giving them an effective veto right).

The second main concern relates to the effectiveness of the majority principle, because of certain exceptions that have been identified to this principle. On the one hand, when a class with a single creditor is in the money, this allows already for a cross-class cram-down of the remaining classes of creditors. This entails that the principle of qualified majority that inspired the Spanish reform failed (Section 4.1).^[65] On the other hand, as we have analysed before in this paper, under the Spanish regime, shareholders do not constitute as a class of creditors. Therefore, they are not entitled to request to the court to confirm a plan. Nevertheless, practice has shown that sometimes a shareholder is also a creditor, i.e. by providing financing to the company. This can be done with the aim of requesting the judge to confirm a plan, in a scenario where a debtor faces a likelihood of insolvency. In this context, the independent restructuring expert, appointed by the court at the request of the shareholders will need to determine in its valuation report of the company, that the shareholders – in their capacity as creditors – are in the money and can drag other classes of creditors along with them in a cross-class-cramdown.^[66] This allows shareholders to take advantage over the creditors, since in a likelihood insolvency scenario, creditors cannot affect shareholders against their will and take control of the company (e.g., Single Home case).

It is true that under the Spanish regime, from a legal standpoint, the majority of creditors holding more than 50% of the value of the claims that are likely to be affected by the plan, have the power to request the replacement of an expert appointed by the debtor. Nevertheless, if creditors are not proposing a plan, they are not entitled to choose that the challenges are filed prior the confirmation of the plan. If the challenges are filed before the confirmation of the plan, shareholders could early defend their rights and object, among other things, to the economic valuation of the company.

The Spanish Insolvency Law, as we have analysed, leaves at the discretion of the proponents of the plan (in this case the shareholders) the choice between the submission of challenges to the plan before the court of appeal of the confirmation order (i.e. after the court ordered the confirmation of the plan) or to be raised prior to the confirmation of the plan. In this context, it is important to modify the Spanish Insolvency Law, to allow not only the proponents of the plan, but also dissenting creditors, the choice between the submission of challenges before the court of appeal and the opposition prior to the confirmation decision. Otherwise, in practice, the shareholders could delay the creditors protection, making the choice to bring challenges of the plan before the appellate court. At the end of the day, it could block one of the most important changes introduced by the reform of the Spanish Insolvency Law, namely that company law and shareholders should not be able to jeopardise the restructuring of viable companies in economic difficulties.

We could also mention that there is a debate on the possibility to allow for the submission of competing restructuring plan proposals. Either the debtor or any affected creditor, with the approval of the management body of the party that files the request, may request court confirmation of a plan (commercial court). Given the level of disclosure required, in practice, restructuring plans have so far been company-led processes, although there are some cases in which financial creditors requested court confirmation of a plan (i.e, Celsa Case). The Spanish reform does not envisage the possibility to submit competing restructuring plans because it would not fit into the informal structure of pre-insolvency plans under the Spanish model. In those cases where eventually the request for a court confirmation of a plan from the debtor and from the creditors are filed simultaneously, the judges will apply the principle of ‘prior in tempore potior in iure’ which clearly benefits the debtor over the creditors (i.e. the Single Home Case), although this solution is clearly controversial.^[67] In this sense, there is a risk of hasty and ill-considered requests for approval of restructuring plans by the debtor or affected creditors, in order to file the request in a timely manner and obtain judicial confirmation. This may mean that not the best, but the firstly submitted plan may be confirmed.

Lastly, there is almost unanimity regarding the controversial position of public creditors in the Spanish reform. This must be reconsidered in a future reform of the Spanish Insolvency Law because it is a disadvantage in relation to other European proceedings and because it does not fit into the approach of the PRD 2019.

6. Conclusions

In summary, the pre-insolvency restructuring landscape has changed significantly across Europe over the last few years after the PRD 2019. The Spanish legislator has been aware of the regulatory competition that exists in the restructuring sector due to the minimum degree of harmonisation introduced by the PRD 2019. One of its concerns has been to provide a competitive framework that prevents national companies from having to move to other jurisdictions to carry out a preventive restructuring.

It has been more than a year since the legal reform of the Spanish Insolvency Law transposing the PRD 2019 entered into force, by means of which restructuring plans were incorporated in the Spanish restructuring landscape. In this short period of time, we could say that this restructuring tool has been used several times in practice, above all by large companies and also medium-sized enterprises. It is used generally by debtors and to a lesser extent by creditors.

The Spanish commercial judges are to a large extend prepared for the restructuring plans, this due to their experience with the previous pre-insolvency mechanisms, the so called acuerdos de refinanciacion. These mechanisms have been regulated in the Spanish Insolvency Law since 2009. Although the restructuring plans have been introduced recently, the case law is still developing (i.e. Celsa, Single home, Pronovias, and Naviera Armas cases).

At the same time, we could say that the Spanish Insolvency Law reform has been well-evaluated by Spanish judges, practitioners, and companies. Although in the coming years the role of the commercial courts will be crucial in interpreting the law in a flexible way, taking into account the experiences in other jurisdictions, above all in the European Union, the United States and the UK. In relation to the UK, which after Brexit has become a third state, its restructuring strength has been reinforced and improved upon with the introduction of the English Part 26A restructuring plans. Therefore, the UK remains an attractive restructuring forum that is well equipped to manage large scale, cross-border restructurings, as has been demonstrated by recent case law and indicates that the preference for English law restructuring proceedings remains (see Adler, the German real estate group which recently used an English restructuring plan to restructure in May 2023). while the UK schemes of arrangement and restructuring plans do not enjoy automatic EU-wide recognition, this will be different for certain other proceedings of other EU Member State that have been included on Annex A of the EIR 2015.

^[1] Directive (EU) 2019/1023 of the European Parliament and of 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 (Directive on restructuring and insolvency), O.J. L172/18.

^[2] This article has been prepared in the context of a research project on the topic of “Corporate governance in the vicinity of insolvency", financed by the Spanish Ministry of Science and Technology (PID 2019-107487GB-100).

^[3] See J. Pulgar Ezquerra, ‘A contractual versus judicial approach to the over-indebtedness insolvency’, in: L. Nogler and U. Reifner (eds.), Life Time Contracts: Social Long-term Contracts in Labour, Tenancy and Consumer Credit Law, The Hague: Eleven International publishing, 2014, p. 531-551.

^[4] The author was part of the working group preparing a draft legislative text for the implementation of the PRD 2019.

^[5] Currently, the names of the procedures listed in Annex A of the EIR 2015 are: ‘concurso de acreedores,procedimiento de acuerdos extrajudiciales de pagos, procedimiento de negociación publica para la consecución de acuerdos de refinanciación colectivos, acuerdos de refinanciación homologados y propuestas anticipadas de convenio’. This list has not been updated with the reform introduced in the Spanish law by Law 16/2022 to transpose the PRD 2019. This reform has deleted the procedures of ‘acuerdos extrajudiciales de pagos’, ‘los acuerdos de refinanciacion’ and ‘las propuestas anticipadas de convenio’. The Kingdom of Spain communicated through the Ministry of Justice more than a year ago to the European Commission the names of the new procedures to be included in Annex A of the EIR 2015, but so far this list has not been updated.

The names of the procedures that have been communicated for inclusion in Annex A EIR 2015 are as follows: ‘Concurso de acreedores’, which is already included in Annex A ‘comunicación pública de apertura de negociciones con los acreedores’,’planes de reestructuracion’ and ‘procedimiento especial para microempresas’.

^[6] See F. Garcimartín Alférez, ‘The Spanish approach to corporate restructuring: a prepackaged chapter 11’, European Insolvency and Restructuring Journal (EIRJ), 2022/6, p. 2-3.

^[7] Article 623(4) of the Spanish Insolvency Law.

^[8] Article 616 bis of the Spanish Insolvency Law.

^[9] Article 652 of the Spanish Insolvency Law.

^[10] Article 587 of the Spanish Insolvency Law.

^[11] Article 609 of the Spanish Insolvency Law.

^[12] Articles 595-596 of the Spanish Insolvency Law.

^[13] Articles 597-598 of the Spanish Insolvency Law.

^[14] Articles 599 and 603 of the Spanish Insolvency Law.

^[15] Article 607 of the Spanish Insolvency Law.

^[16] Articles 600-603 of the Spanish Insolvency Law.

^[17] Article 613 of the Spanish Insolvency Law.

^[18] Article 611 of the Spanish Insolvency Law.

^[19] Article 607 of the Spanish Insolvency Law.

^[20] Article 612 of the Spanish Insolvency Law.

^[21] Article 643 of the Spanish Insolvency Law.

^[22] Article 614 of the Spanish Insolvency Law.

^[23] Article 633 of the Spanish Insolvency Law.

^[24] Articles 623-624 bis of the Spanish Insolvency Law.

^[25] Article 625 of the Spanish Insolvency Law.

^[26] Article 643 of the Spanish Insolvency Law.

^[27] Article 626 of the Spanish Insolvency Law.

^[28] Article 627 of the Spanish Insolvency Law.

^[29] Article 631 of the Spanish Insolvency Law.

^[30] Article 639 of the Spanish Insolvency Law.

^[31] Article 630 of the Spanish Insolvency Law.

^[32] Article 654 of the Spanish Insolvency Law.

^[33] Article 655.2.4º of the Spanish Insolvency Law.

^[34] Article 656 of the Spanish Insolvency Law.

^[35] Articles 662-663 of the Spanish insolvency Law.

^[36] Articles 634 and 654.7º of the Spanish Insolvency Law.

^[37] Article 655.2.4º of the Spanish Insolvency Law.

^[38] Article 655.3 of the Spanish Insolvency Law.

^[39] See J. Pulgar Ezquerra, Preconcursalidad y reestructuración empresarial (third edition), Madrid: Wolters Kluwer España, 2021, p. 531-694.

^[40] Article 667 of the Spanish Insolvency Law.

^[41] Article 665 of the Spanish Insolvency Law.

^[42] Article 666 of the Spanish Insolvency Law.

^[43] Article 668 of the Spanish Insolvency Law.

^[44] Article 618 of the Spanish Insolvency Law.

^[45] Article 631 of the Spanish Insolvency Law.

^[46] Article 631(4) of the Spanish Insolvency Law.

^[47] Article 612(2) of the Spanish Insolvency Law.

^[48] Article 637 of the Spanish Insolvency Law.

^[49] See Sentencia Juzgado de lo mercantil n 2 de Barcelona de 4 de septiembre de 2023 (Resolution challenges against the confirmation decision) (CELSA case).

^[50] See, C. Jimenez Savurido, ‘Analysis of the ruling on the Celsa group restructuring plan’, FIDE News, 2 October 2023, https://thinkfide.com/en/analisis-de-la-sentencia-sobre-el-plan-de-reestructuracion-del-grupo-celsa/.

^[51] Articles 672-673 of the Spanish Insolvency Law.

^[52] Article 678 of the Spanish Insolvency Law.

^[53] Articles 742-752 of the Spanish Insolvency Law.

^[54] It must be noted that the convention between the UK and Spain regarding legal proceedings in civil and commercial matters (Bilateral) (1929) UKTS TS 0018 (27 June 1929) does not contain provisions on recognition and enforcement.

^[55] It must also be noted that the Hague convention of 30 June 2005 on choice of court agreements only applies to exclusive choice of court agreements (Article 1.1), and additionally, this Convention does not apply to ‘insolvency, composition, and analogous matters’ (Article 2.2.e).

^[56] See J. Windsor, ‘The relationship between Part 26 A restructuring plans and schemes of arrangement’, Revista de insolvencias y reestructuraciones (I&R), 5/2022, p. 377-390; O. Galazoula, I. West, C. Harvey, ‘Corporate restructuring following the EU Directive on preventive restructuring frameworks: is the UK still the center for European reorganization?’, I&R, 10/2023, p. 207-221.

^[57] See F. Garcimartín Alférez, ‘La eficacia en España de los schemes of arrangement ingleses’, Revista de Derecho Concursal y Paraconcursal (RcP), 13/2010, p. 383-398; A. Carrasco Perera, E. Torralba Mendiola, ‘Schemes of arrangement ingleses para sociedades españolas: una crítica’, RcP, 14/2011, p. 349-362; Á. Ballesteros Barros, ‘El reconocimiento en España del Scheme of arrangement del derecho ingles tras el Brexit’, Cuadernos de derecho transnacional, 2021, Vol. 13(1), p. 70-86.

^[58] See Smiles Telecom Holdings Limited, England and Wales High Court of 30 March of 2022 (2022) (EWHC 740 (Ch) where the High Court say that likely the restructuring plans are going to be considered as insolvency proceedings in other countries. See also Gategroup case (2021) EWHC 304 (Ch) where the High Court clearly say that the restructuring plans are insolvency proceedings.

^[59] Articles 742-752 of the Spanish Insolvency Law.

^[60] See E. Torralba Mendiola, ‘Los planes de reestructuración ingleses y la estructura de capital del deudor: cuestiones de competencia y reconocimiento’, I&,R, 6/2022, p. 411- 425.

^[61] Articles 685-720 of the Spanish Insolvency Law. See I. Tirado Marti, ‘El procedimiento especial para micropymes en el texto refundido: ¿una oportunidad perdida?’, I&R, 10/2023, p. 237-281.

^[62] Article 682 of the Spanish Insolvency Law.

^[63] See F. Garcimartín Alférez, ‘The Spanish approach to corporate restructuring: a prepackaged chapter 11’, EIRJ, 2022, 6, p. 17, who moreover understands that there is a risk connected to the potential imposition of a restructuring plan in these cases, because it could have a counterproductive effect by generating an incentive to file for insolvency proceedings.

^[64] See Sentencia 179/2023 AP Pontevedra de 10 April 2023 (Xeldist case).

^[65] See F. Garcimartín Alférez, ‘Planes de reestructuración: algunas reflexiones sobre la práctica reciente’, Almacén D Derecho, 20 April 2023; J. Pulgar Ezquerra, ‘Las fugas del principio mayoritario en los nuevos planes de reestructuración’, El notario del siglo XXI, May/June 2023, Vol. 109.

^[66] Article 639.2º of the Spanish Insolvency Law.

^[67] See Auto of 10 April 2023 of the Commercial court Nº 5 of Madrid (Single Home Case).