Is Spain's homologacion fit for purpose?

Author: | Published: 26 Jan 2017

Spain introduced the scheme of arrangement nearly three years ago. But does it solve the issues it was created to address?

Until 2011, the Spanish Insolvency Law did not have a mechanism that allowed the cramdown of dissenting creditors. As a result, some large companies such as La Seda de Barcelona and Metrovacesa had to apply for a scheme of arrangement in the English courts. Although a 2011 amendment to the Insolvency Law created a cramdown mechanism, known as homologación judicial, it failed to provide an effective restructuring tool. There are several reasons for this failure including:

Firstly, only financial entities could be subject to homologación, an unclear concept that included banks but left out other creditors such as funds. Secondly, only a deferral of up to three years could be imposed on dissenting creditors. Restructurings normally involve more than deferrals, namely: debt-to-asset transactions, debt reduction agreements, subordination of pieces of...