Refinancing arrangements and secured creditors
We recently published an article in Expansión, which had previously been published elsewhere (“Reflections on pre-insolvency solutions,” Insolvency and Para-Insolvency Law Review No. 16/2012, p. 115-125), but which did not have much of an impact at the time. Surely it had to do with the fact that the article was published the first time in a more specialized publication, the kind that goes unnoticed by the general public, while this time the article was published in one of Spain’s leading financial daily newspapers; nonetheless, it must be admitted that this article has managed to cause the kind of stir that was missing the first time round.
In our original article we urged the financial and legal community to explore the possibilities offered by additionalprovision four of the Insolvency Law on “Court validation of refinancing arrangements,” in force since January 2012. We did this with the intention of getting over the idea—which had become deeply rooted at the time, but which now is starting to be reconsidered by several quarters—that the unanimity of secured creditors is required to refinance the debt of an enterprise or group of enterprises in Spain, since, otherwise, these creditors cannot be bound by any debt rescheduling that is agreed to.
Our reflection on exploring and exhausting the possibilities of a Spanish legal tool (that of court validation) is justified by its inferiority when compared with more flexible foreign tools, such as the English scheme of arrangement, which permits, where a qualified majority of creditors considers it reasonable, the introduction of debt composition and rescheduling solutions and even debt/equity swaps, which can be imposed in certain circumstances on minority dissenting creditors, even if they are secured creditors.
In our article we suggested banishing the idea that a dissenting creditor could, just because he was a secured creditor, be absolutely immune from the scope of any debt deferral obtained where a refinancing arrangement is validated by a court in Spain. And we gave some reasons why such immunity was only relative. We even cited a recent court ruling (decision of Barcelona Commercial Court no. 2 of April 10, 2013) which accepted a moratorium on actions brought by secured financial creditors which did not accept a refinancing arrangement subsequently validated by the court.
We believe, in short, that the most recent reform introduced into the Insolvency Law regarding court validation goes much deeper than is commonly thought and that it can make it unnecessary to resort to mechanisms that are often over-complex and expensive, such as migrating to the legal systems of English-speaking countries.
Garrigues Restructuring and Insolvency Department