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New times and opportunities for restructuring in Spain?

The Spanish Parliament is dealing with a preliminary draft of the amendment to the Insolvency Act. Therefore, although it is not yet a definitive and fully effective regulation, it clearly anticipates some significant aspects which are very likely to be approved in its current terms and which will impact positively restructurings in Spain. For instance, it will favour out-of-court restructurings by providing new restructuring alternatives for the different players in the current Spanish restructuring market.

Notably, the reform will promote out-of-court restructurings by privileging "fresh money" made available to the debtor pursuant to the ring-fenced restructuring set forth by Spanish Insolvency Act (new section 71.6) and introducing a court-supervised procedure (new Fourth Additional Provision) pursuant to which certain pre-petition financing agreements will be sanctioned by the court "cramming down" dissident financial creditors. This procedure is clearly inspired by the English law figure of the scheme of arrangement statutory procedure recently used by certain large listed Spanish companies in their debt restructuring processes.

With respect to the new money priority, the reform provides that claims resulting from pre-petition financing granted within the ring-fenced restructuring's framework will have the following status: (i) 50% of the resulting claim will be treated as administrative expense (with a super-priority over any other pre-petition claims); and (ii) the remaining 50% as a general secured claim (junior to administrative expenses and in rem guarantees but senior to general ordinary and unsecured creditors).

There still seem to be missing provisions within the Insolvency Act dealing specifically with post-petition financing and the priorities granted to this sort of financing, even if the new pre-petition privilege sets the correct path to further facilitate the access to pre-petition liquidity to entities under financial distress. Additionally, in those cases where the refinancing agreement has been entered into by financial entities representing 75% of the liabilities of the debtor, the court (following the petition filed in this regard by the debtor and after closely scrutinising that certain formal requirements have been dully met) will have the power to sanction the agreement binding all financial creditors, even those that were against, or were not a party to, the refinancing agreement (except secured creditors that will remain unaffected by the agreement). In this regard, all financial creditors (again, except secured creditors) will be bound by the moratorium content of the refinancing agreement and will be subject to an automatic stay preventing them from initiating any enforcement actions against the debtor, if such request is expressly made by the debtor in its petition.

Fingers crossed, it is anticipated that the reform will be approved before the end of 2011. Therefore, it is important to be alert to these advantages becoming available.

Ignacio Buil Aldana

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