The Council of Ministers has approved the Royal Decree Law (RDL) by which Urgent Measures are adopted in Refinancing and Restructuring of Business Debt whose objective is to streamline and make these processes more flexible. It is about guaranteeing the survival of societies that have accumulated an excessive financial burden but are viable from an operational point of view, through an orderly and balanced system of agreements with creditors and a wider range of refinancing formulas. The text must be subsequently validated by the Congress of Deputies.

The RDL modifies some specific aspects of the Bankruptcy Law (22/2033 of July 9) in relation to the pre-bankruptcy phase, so as to avoid the entry into competition and the subsequent liquidation of these companies. Specifically, the regime of judicially approved refinancing agreements is modified, which may include debt removal and capitalization, as well as deferrals (waiting in bankruptcy jargon). These judicially approved refinancing agreements may extend their effects to dissident creditors when the majorities established in each case concur. Aspects such as the so-called are also addressed fresh money

Individual refinancing agreements

The RDL introduces the possibility of reaching refinancing agreements with one or more creditors, provided they improve the debtor's equity position and without the need for major liabilities. These agreements are only expendable by the judge at the request of the bankruptcy administration, if you understand that the requirements set forth do not meet.

Collective refinancing agreements not legally approved

These agreements are simplified by eliminating the requirement of the independent expert report. It is replaced by the auditor's certification accrediting the concurrence of the required liability majorities. In order to guarantee legal certainty, these agreements may no longer be subject to subsequent termination (unless they fail to meet the requirements), if the company enters into bankruptcy proceedings. This corrects the current situation, where agreements are usually terminated because they are considered harmful to the active mass of the contest.

Finally, in the event that in the collective agreement a capitalization of credits is raised, and to enhance this figure, the presumption of guilty of the contest is established if the debtor had refused to do so without reasonable cause. For this purpose, it will be understood that there is reasonable cause if this is declared by means of a report issued by an independent expert, and it is also necessary that the proposed agreement recognizes in favor of the debtor's partners a preferential acquisition right over the shares subscribed by the creditors, to resulting from the capitalization, in case of subsequent disposal of the same.

Collective refinancing agreements judicially approved

In order to facilitate the speed and flexibility of these agreements, the judge will only have to verify the concurrence of the required majorities and the formal requirements to agree on their approval. The agreements, once judicially approved, may not be subject to subsequent termination if the company enters into bankruptcy proceedings.

As in the non-approved collective agreements, the requirement of the independent expert report is eliminated. It is also replaced by the auditor's certification accrediting the concurrence of the required liability majorities.

The majority required to judicially approve the agreement goes from 55% to 51% (simple majority). This majority is not computed, as until now, with respect to the liability owned by financial entities, but with respect to all creditors of financial liabilities. The holders of any financial indebtedness are understood as such (excluding creditors for commercial operations and creditors of public law liabilities), regardless of whether or not they are subject to supervision financial However, the possibility of other creditors, not of financial liabilities or public law, adhering to the agreement is contemplated. Also as a novelty, in syndicated loans, it is understood that the lending creditors sign the refinancing agreement when 75% of the liabilities represented by the loan vote in favor, unless the regulations governing the syndication establish a lower majority.

If 60% of the creditors of financial liabilities have agreed waits (deferrals) up to five years and the conversion of credits into participatory loans for the same term, these measures will be extended to dissident creditors without collateral. If the agreement has been signed by 75% of the creditors of financial liabilities, they will be extended to dissident creditors: waits between 5 and 10 years, withdrawals, conversion of credits into shares or participations of the debtor, or participatory credits, debt transformation in any other financial instrument of different characteristics and transfers of assets in payment of debts.

Currently, approved refinancing agreements do not extend their effects to loans with collateral (mortgages, pledges, etc.). With the reform, these credits are also affected by the approved agreement, as follows:

In the part of the credit that exceeds the value of the guarantee: The effects of the agreement provided for in the previous point (waiting, credit conversion, etc.) are extended, in the same terms as to unsecured loans, and with the same majorities.

Up to the value of the guarantee: The effects of the agreement provided for in the previous point are extended, when so agreed by the same 65% and 80% majorities, calculated according to the value of the guarantees of the accepting creditors.

On the other hand, the possibility is recognized that the approved refinancing agreements include (and extend to dissidents) the conversion of debt into capital. The agreement of the board of partners required in this regard is the simple majority, and an alternative of removing the dissident creditor is offered, which will remain at your choice.

Likewise, and as in non-approved agreements, the presumption of guilty of the contest is established if the debtor had refused without reasonable cause to the capitalization.

Common measures for homologated and non-approved collective agreements

The stoppage of the singular executions of assets necessary for the continuity of the professional or business activity is foreseen, from the moment in which the beginning of the negotiations with the creditors is communicated to the court. The stoppage would occur for a maximum period of 4 months from the debtor's communication. The objective is to allow the negotiations of the agreements to come to fruition and there is no accumulation of singular executions by creditors not willing to negotiate

Common measures for homologated and non-homologated individual and collective agreements

Currently, only 50% of the new money put into a refinancing has that bankruptcy privilege, which implies that the credits are paid at their respective maturity. This percentage is temporarily raised to 100% in order to provide this liquidity with maximum bankruptcy protection. The objective is to encourage additional financing as it is essential to guarantee the temporary viability of the company and to make the refinancing agreement itself practicable.

This consideration extends to the income made by the debtor himself or especially related persons, excluding capital increase operations.

This measure is adopted with an extraordinary and temporary nature for the income of new money that occurs within two years from the entry into force of the royal decree-law.

Improvement in the treatment of provisions constituted by financial institutions

The Bank of Spain is entrusted to establish homogeneous rules to improve the rating of the remaining debt following a refinancing agreement.

Final Provisions

The Civil Procedure Law is modified, to make effective the stoppage of singular executions during the refinancing agreement negotiations.

– The Royal Decree-Law 10/2008, of December 12, is modified so that, during the fiscal years that are closed in 2014, they do not compute the losses due to deterioration, recognized in the annual accounts of the companies, derived from property, plant and equipment , real estate investments, stocks or loans or receivables, for the sole purpose of not being a cause of insolvency (and insolvency) or reduction of capital or dissolution of the company.

– The Royal Decree 1066/2007, of the OPA regime, is modified. In this way, the public tender offer and the need to request, where appropriate, exemption from the CNMV are excepted, in the case of certain operations carried out as a direct consequence of a judicially approved refinancing agreement, provided that it had been favorably informed by an independent expert.

-Modification of the consolidated text of the Corporate Tax Law, approved by Royal Legislative Decree 4/2004, of March 5. Within the scope of the Corporation Tax, the absence of taxation is established in the cases of debt capitalization, unless it had been the subject of a derivative acquisition by the creditor for a value other than the nominal value thereof. Likewise, in relation to the tax treatment of the income derived from removals and waits derived from the application of the Bankruptcy Law, a deferred allocation system of the income generated in the taxable base is determined, based on the financial expenses that subsequently go registering.

-Modification of the consolidated text of the Law on Tax on Patrimonial Transfers and Documented Legal Acts, approved by Royal Legislative Decree 1/1993, of September 24. In order to contribute to the maintenance of viable companies, the exemption in the Tax on Patrimonial Transfers and Documented Legal Acts is extended to deeds that contain the removal or reduction of loans, credits and other obligations, facilitating refinancing or payment agreements.

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