What do you think of the environment out there for implementing a cross-border restructuring? Are there sufficient legal tools and mechanisms and do they work well?
In my view, as secretary to the board and general counsel, the process is driven by two main challenges.
On the business side, it's the capability to control an accelerated process of deterioration, caused not only by the financial difficulties but also by the uncertainty that the process creates in all the stakeholders. This requires a great effort from the company to explain the restructuring process and its consequences for all of them. It is a continuous fight against the clock as business normally does not accommodate to the slow pace of the legal processes.
On the legal side, every process needs its tailored solution so once the company has worked out a viability plan, the implementation process takes time and could be complicated as it involves different jurisdictions. It is a process that is mainly driven by the viability plan that contains the description of the businesses to be protected, and the ones to be divested or liquidated. The legal strategy should accommodate to that strategy and benefits from all the different possibilities that provide the different jurisdictions involved.
In my experience, the process gains traction easily in the main jurisdiction which is normally the one covering the parent company and its main subsidiaries but not in the domestic jurisdictions on the subsidiaries. The greatest tension is created to try to accommodate the interest of the group and the domestic concerns of each subsidiary and thus to craft into each of the domestic tools available the different commitments that the viability plan requires.
In my opinion, the legal tools might be sufficient but the main hurdles are timing and cost. In a restructuring, time is of essence and the complexity of the implementation of the agreement takes more than what it would be advisable. Each extra day is a delay on the implementation of the viability plan and the reestablishment of the company business and market confidence. Cost is also a matter of concern as these processes are very expensive and cash consuming for companies.
What are the greatest risks and impediments to a restructuring process? For instance, in Abengoa can you identify individual sticking points? We understand there were risky delays in the Spanish legal framework, how were these handled?
Main risks in our process were funding of the new money, widespread geographical presence and the number and variety of the parties involved. On the legal side, it was also the first time in which all the tools adopted in a recent reform of the Spanish insolvency law were tested.
Funding of the new money needs was an important part of the effort made by the company through all the process. Funding was required not only at the time of the closing but also during the process itself. Providing a secure and bankruptcy protected funding for this interim money required extensive legal analysis.
Managing with more than 200 financial creditors spread all over the world including all types of financing was also complex. Creditors not familiar with the restructuring process in Spain and US required lots of education to obtain their support. Advisors took also an important part of this effort.
Using of the homologation process in Spain as main procedure, completed with the company voluntary arrangement process in England and Chapters 11 and 15 in the US required a lot of coordination to obtain the best protection for assets. Spanish homologation, regardless of its novelty, proved to be a robust solution for the restructuring.
How practically do you manage such a large case? For example, how big is your team, what mechanisms did you have the create to coordinate the different work streams?
The restructuring process was internally managed, on the legal side with a small group of lawyers led by me. It also implied the involvement of most of the company for the strategic review and the financial aspects. On the legal side, apart from the restructuring process itself, all the team, comprised of more than 100 lawyers, spent endless hours managing all the different issues arising in all the businesses of the company.
The role of the advisers was key in completing the restructuring. They provided the experience and work was organised in a well-organised manner. Probably one of the difficulties was the number of advisers involved, representing parties with different interests that made that coordination effort very important.
What is it that external counsel can bring to best support a company and its in-house team through these processes? Where were your needs most acute?
In-house teams are not normally organised to manage insolvency processes, and they do not have the experience to do it. External advisors bring the experience and solutions and coordination with the in-house team is crucial to get timely information about the contracts, the history of the relationship with the different stakeholders.
It is a team effort in which in-house and external core advisors had worked as a single group. Bearing in mind that affected least 9 different core jurisdictions (Spain, Brazil, Mexico, the US, South Africa, the UK, Algeria, Chile and the Netherlands) – it was a huge coordination effort.
The EU has been pushing to harmonise approaches to bankruptcy and insolvency, and enacted Recast Insolvency Regulations in mid-2017 in order to aid cross-border cases. What impact if any did this have?
Not in our process but it will certainly help future cases.
Are there any changes you would like to see being made that would smooth the path for restructurings?
At least in Spain, the homologation tool should also be available for the supplier's debt. It is only available for financial debt. This leaves part of the debt not impaired by the homologation.
Compared to other jurisdictions that cover also that debt, it is a significant weakness of the Spanish law.
|About the author|
Daniel Alaminos Echarri
Daniel holds a law degree specialising in business law from Universidad San Pablo CEU. He has been a state attorney since 1996 and is the general secretary of Abengoa and secretary of its board of directors.
Daniel Alaminos has held various previous positions, including general counsel of SEPI, the Spanish holding group for state-owned companies. Prior to joining Abengoa in 2014, Daniel was a partner in the capital markets division of the law firm Ramón y Cajal Abogados. He also has experience of restructuring savings banks, capital increases and restructuring major real estate and industrial groups, as well as advising on a wide range of issues, especially financial, technological and industrial matters.