|Manuel Follía||María Lérida|
Certain debt restructurings include so-called pre-insolvency arrangements (pre-concurso), a preliminary stage ahead of any potential formal insolvency process. According to section 5bis of the Spanish Insolvency Act, this stage allows debtors to temporarily avoid filing for insolvency if they notify the relevant court (within a two-month period as of being in a state of actual or imminent insolvency) that they have commenced negotiations with creditors in order to reach either: (i) an out-of-court refinancing agreement (acuerdo de refinanciación); (ii) an early composition agreement (propuesta anticipada de convenio); or (iii) an out-of-court payment agreement (acuerdo extrajudicial de pago). This notification will provide debtors with an additional period of three months to reach an agreement, plus one additional month to file for insolvency if no agreement has been reached.
The pre-insolvency stage has two main effects: (i) protection against mandatory insolvency (concurso necesario), meaning that creditors are unable to request the insolvency of the company; and (ii) directors of the debtor are not obliged to file for voluntary insolvency (concurso voluntario).
It is to be noted that during pre-insolvency, there is no legal stay on enforcement, and therefore it is quite common for debtors to sign standstill agreements with their creditors in order to avoid potential enforcement of collateral or off-setting. At this stage, a well-drafted standstill agreement, signed by a significant number of creditors, becomes crucial, together with the adequate legal advice.
Finally, listed as well as non-listed companies can be involved in pre-insolvency proceedings. Turning our attention to a recent example, Codere, a Spanish listed company widely known in the sector of private gambling, filed a pre-insolvency petition in January this year and is currently seeking support from its main creditors for a refinancing agreement.
Manuel Follía and María Lérida