The Spanish Government has just approved relevant changes to the Spanish Insolvency Act in view of the current situation in Spain pursuant to the COVID-19 outbreak.
The new Royal Decree 16/2020, of 28 April
Before Royal Decree 16/2020, of 28 April ("RD 16/2020"), was approved, certain temporary changes had already been introduced as a matter of urgency to Spanish Act 22/2003, of 9 July (the "Spanish Insolvency Act"), by Royal Decree 8/2020, of 17 March ("RD 8/2020").
RD 8/2020 set out that, as long as the national emergency was declared:
- The obligation to file for voluntary insolvency would lapse and the insolvency courts would not admit compulsory insolvency filing by third parties, either within the national emergency or within the two (2) months immediately following cessation thereof;
- Any voluntary filing would be admitted by the insolvency courts before, and with preference to, a compulsory filing – even if the latter had been submitted on an earlier date;
- The obligation to file would also cease as long as the national emergency is declared in cases where the term for filing an insolvency petition under article 5 bis of the Spanish Insolvency Act had lapsed.
The new RD 16/2020 goes beyond the provisions of RD 8/2020 and foresees, inter alia, the following measures:
(i) It extends the period within which the obligation to file for insolvency would cease up to 31 December 2020 and contemplates that insolvency courts will not admit compulsory filings made after the national emergency was declared until such date. Any voluntary filing would still be admitted by the insolvency courts before, and with preference to, a compulsory filing;
(ii) If a notice of negotiations under article 5 bis of the Spanish Insolvency Act had been filed with the relevant insolvency court before 30 September 2020, the general regime will apply (up to three (3) months to negotiate plus one (1) month to file for insolvency should an agreement not be reached). However, the language of the provision dealing with this under RD 16/2020 is not clear and may lead to the understanding that any notice filed before 30 September 2020 may benefit of an additional period – as the four (4)-month period previously referred to will only start from 30 September 2020 – but this is yet to be further clarified;
(iii) Where insolvency was declared within two (2) years from the date on which the national emergency was declared (i.e., 14 March 2020) (the "Declaration Date"), amounts lent to the debtor under any type of instrument by a specially related person will be considered ordinary rather than subordinated claims, as well as those claims in which a specially related person had subrogated pursuant to any payment of ordinary or privileged claims made on behalf of the debtor;
(iv) If a composition agreement had been reached with creditors ("convenio de acreedores") and was currently being complied with, the terms thereof may be amended within one (1) year from the Declaration Date when approved by the same majorities required for the original composition agreement;
(v) In the event the debtor was not capable of complying with the obligations under the composition agreement (or those arising after the composition agreement was approved), it will not be obliged to request liquidation within one (1) year from the Declaration Date, provided that a proposed amendment to the original composition agreement was admitted by the court within such year;
(vi) Where the composition agreement is breached within two (2) years from the Declaration Date, claims arising in relation to amounts lent to the debtor under any type of instrument or guarantees or in rem security granted in favour of the debtor (including those granted by specially related persons) will be considered claims against the bankruptcy estate ("créditos contra la masa"), where the composition agreement or any amendment thereof included details of the obligor and the maximum amount lent or guaranteed;
(vii) Within one (1) year from the Declaration Date, where there was a homologated refinancing agreement ("acuerdo de refinanciación homologado") in place, the debtor may file a notice to the insolvency court informing it of negotiations to amend such refinancing agreement or to enter into another that would supersede it, even when one (1) year had not elapsed from the homologation of the original refinancing agreement;
(viii) Losses for 2020 will not be considered for the purpose of assessing whether a company would have to be dissolved pursuant to the provisions of Spanish law.
Other measures of a more procedural nature have been taken and included under RD 16/2020, although the above are particularly relevant for both lenders and borrowers when considering a potential debt restructuring or acquisition of assets or even of the debtor itself.
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