|Manuel Atencia||Ignacio Inigo|
Starting in 2011, the Spanish legislator has introduced a series of reforms which have included the possibility to cram-down creditors through the Spanish scheme of arrangement (homologación judicial).
One of the most interesting effects of a scheme of arrangement is the possibility (if certain majorities are achieved) to extend the content of the refinancing to non-consenting creditors (so-called hold-outs).
Once the court has issued the homologación ruling, dissidents can challenge it on two grounds. Firstly, a dispute over the threshold calculations; secondly, in the event there was unfair treatment (sacrificio desproporcionado). The concept of unfair treatment is not statutorily defined and is, therefore, subject to judicial interpretation. Notably, only a small amount of case law (none of which has been decided by the Supreme Court) has so far addressed the issue.
In the minor case law that has analysed the issue, unfair treatment is referred to as different treatment – under a refinancing agreement – of creditors whose credits would have the same ranking in a potential insolvency scenario.
The simplicity of this analysis does not take into account the enormous complexity of the situations that can arise within a refinancing in light of the different capital structures. The position of the equity, the exposure of the creditors to other companies within the borrower's group or potential third beneficiaries are all factors that a simple approach to the unfair treatment concept does not account for.
The fact that a robust concept that includes all the potential complexities of the refinancing processes (including rules akin to the US absolute priority or best interests test) has not been statutorily developed or analysed by the courts implies that there is not yet a clear process in a scheme of arrangement when it comes to dissenters challenging the court sanction.
The ruling on construction company FCC's homologación judicial challenge is about to be released and could be the case-law solution to this debate. This is because it is expected to analyse the concept in depth. Therefore, 2016 is set to provide a new milestone in the development of the homologación judicial: an answer to the unfair treatment debate.
Manuel Atencia and Ignacio Inigo