Preliminary
In the last few days we have seen the conclusion of bankruptcy agreements in companies such as Hotel DON JUAN RESORT or CAHER, with great support from creditors and the saving of a large number of jobs. However, in the field of restructuring, new approved pre-bankruptcy plans are much more frequent. In some cases, with great media coverage. Think, for example, of the plans of SINGLE HOME, PRONOVIAS, TELEPIZZA or, above all, CELSA.
Certainly, the introduction of these instruments in the insolvency law has been accompanied by very relevant legal incentives for the sake of their frequent use, in order to achieve the rescue of viable companies before an insolvency proceeding is declared, following the indications of Directive 2019/1023 already transposed to our legislation by Law 16/2022. These incentives consist in the fact that they are negotiated before the often cumbersome insolvency proceedings; that their content can be very broad and that the law makes it much easier to obtain the necessary consent of the creditors.
In particular, it is flexible for the proponents to define the classes of claims affected by the restructuring, within which majority consent must be obtained. Moreover, it is not required that all classes of claims affected agree to the plan. In this respect, it is possible for a restructuring plan to be deemed to be accepted by the creditors and binding on all dissenting creditors, whether they are other creditors affected by the restructuring or even the shareholders of the insolvent company, by virtue of majority approval by a class that is expected to recover an amount based on the value of the going concern. It is even possible that, in the event of imminent or actual insolvency, the partners of an insolvent company may be displaced by the creditors in the ownership thanks to the provision of an accordion operation with capitalization of credits as the content of the plan. This is precisely what has happened in CELSA.
However, together with the novel and now popular pre-bankruptcy restructuring, the reformed Bankruptcy Law continues to contemplate the restructuring negotiated in the bankruptcy through the agreement.
This is a solution with deep historical roots, traditionally linked to the preservation of the insolvent debtor’s activity, thanks to a contract between the debtor and the creditors that can be concluded in the context of an insolvency proceeding in order to solve the problem of the impossibility of credit satisfaction arising from the insolvency of the common debtor.
The agreement remains, after the reform of the Insolvency Law of September 2022, a peculiar contract in which according to the law the consent of one of the parties, the creditors, comes from the acceptance of the holders of the majority of the ordinary credits and in which the judicial homologation is essential for the achievement of its definitive effectiveness.
This is the negotiated solution to the insolvency proceedings, which is incompatible with liquidation. However, to date, the statistics show that more than 90% of the insolvency proceedings that are declared lead to liquidation. It may be thought that this happens because more than 90% of the companies owned by debtors declared bankrupt were unviable, so that bankruptcy fulfills an essential selective function within the market economy system with their liquidation. However, such an idea would not be completely in line with reality.
Leaving aside the lack of insolvency culture, which means that the debtor delays filing for insolvency proceedings to avoid being stigmatized, arriving at the insolvency proceeding with a very deteriorated company, making it very difficult to reach an agreement with the creditors that contemplates the continuation of the business, it is also true that the deficiencies and inadequacies of the regulations governing the negotiated insolvency solution as an alternative to that imposed by liquidation have had a lot to do with the scarce use of the agreement.
In the past, the regulation of the agreement caused slow processing and undoubted material shortcomings. With the reform introduced by Law 16/2022, an attempt has been made to correct these defects. Thus, the procedure has been speeded up, eliminating or reducing deadlines, eliminating both the advance proposal of arrangement and the meeting of creditors and establishing the written adhesion before the Insolvency Administration as a way to obtain the essential majority consent of the creditors. In addition, in order to improve the effectiveness in achieving an agreement, the opposition to the approval of the agreement has been reformed, so that now the causes related to defects in the adhesions are only relevant if the adhesions would have been decisive for obtaining the majority acceptance.
For its part, in order to improve efficiency in the solution of insolvency and the rescue of viable companies, corporate structural modifications, the capitalization of credits and the unitary transfer of productive units have been strengthened as possible contents of the agreement, and proof of the best interests of the creditors has been introduced among the causes of opposition to the approval of the agreement, which must also be controlled ex officio by the judge.
The insolvency agreement should thus become, in our system, a complement to the approved pre-bankruptcy restructuring plans for the restructuring of viable companies, or even a perfectly valid alternative route in this respect.
In fact, access to the agreement has legal incentives not present in the regime of the pre-bankruptcy plans, as attractive as the possibility of affecting certain public credits with reductions and/or delays, the facilitation of the transfer of production units in the bankruptcy through rules that derogate from the general rules of obligations and contracts, or the possibility of modifying the agreement to avoid non-compliance.
Streamlining the procedure
From the procedural point of view, the reform has led to a considerable reduction in the time required for the conclusion of an arrangement. Thus, first and foremost, the debtor can submit a proposal for an agreement with the same application for the declaration of insolvency, or from the declaration of insolvency and, for the creditors, from such declaration, extending the deadline for all those entitled to submit proposals for agreement to 15 days after the presentation of the report of the Insolvency Administration (arts. 337 and 338 TRLC). Once the proposal has been admitted for processing by the judge, the will in favor or against the proposal can be expressed within two months (art. 358 TRLC), always in writing and before the Insolvency Administration (art. 355 TRLC), having eliminated the previously existing tortuous Meeting of Creditors.
Under the new regime, it is still necessary to obtain the majority creditors’ acceptance, based on the classification of credits contained in the list of creditors drawn up by the Insolvency Administration. However, it is more effective for reaching an agreement that in the opposition to the approval the causes relating to defects in the accessions are only relevant if the accessions affected would have been decisive for obtaining the majority (art. 383 2nd and 3rd TRLC). On the other hand, for the greater efficiency of the agreement in terms of the achievement of the purposes of the insolvency proceeding, it is very relevant that among such causes of opposition the proof of the best interest of the creditors has been included, that is, that the agreement results in a greater recovery for the creditors than a hypothetical liquidation that would take place in the following two years (art. 383 7th TRLC).
It is also more efficient procedurally and materially that the judicial approval or rejection must be issued within 5 days after the expiration of the 10-day period established for opposition, if no opposition has been filed, or within 10 days after the incident has been processed if there has been any (art. 389 TRLC). In addition, the judge’s decision, based on the oppositions filed and also on the ex officio control of the legally established grounds for opposition that concern the legality and timeliness of the agreement, can only be the approval of the agreement, or its rejection, with the opening of the liquidation once his decision is final (arts. 390, 391, 392 and 409.1 3º TRLC), so that it is no longer possible, as in the repealed regulation, for the judge not to approve the agreement and order the procedure to be taken back to give a new procedure to the proposal, a potential source of mere delays.
Content
As regards the possible content of an insolvency agreement, which must always respect the classification of credits established by law, the traditional waivers and delays, now reduced to a maximum of 8 years for ordinary credits if there are subordinated credits in the insolvency proceedings and 10 years in total (art. 396.2 TRLC), may affect all types of credits, by voluntary or compulsory linkage, including certain public credits, except for certain social security quotas (art. 318.3 TRLC).
Likewise, it is encouraged that the agreement contains structural modifications of companies such as the merger, spin-off or global assignment of assets and liabilities of the insolvent legal entity (art. 317 .1 TRLC), establishing that creditors will not have the rights of individual guardianship recognized in the first book of Royal Decree-Law 5/2023, of June 28 (art. 399 ter .1 TRLC), that the registration of such structural modifications contained in the agreement, if they lead to the extinction of the company declared bankrupt, will be cause for the conclusion of the bankruptcy (art. 399 ter .2 TRLC) and that those made in execution of the agreement will remain in force even if the agreement is terminated due to non-compliance (art. 404 .2 TRLC). For greater efficiency in the pursuit of corporate viability, it is obligatory that under no circumstances may the absorbing company, the new company, the companies benefiting from the spin-off or the transferee company have negative net worth as a result of the structural modification contained in the agreement (art. 317 bis .2 TRLC).
The capitalization of credits contained in the agreement is also supported by a rule that facilitates its implementation, and even the change of corporate control towards the creditors. Indeed, according to the law, if the bankruptcy agreement approved by the judge provides for the conversion of bankruptcy credits into shares or participations of the debtor company, the company’s administrators will be empowered to increase the share capital to the extent necessary for the conversion of the credits, without the need for a resolution of the general meeting of shareholders (art. 399 bis .1 TRLC), and an accordion operation presented by the creditors can be understood to be covered.
Finally, although the law prohibits the agreement from containing a disintegrated liquidation of the debtor’s assets, the transfer of the company or productive units to a third party, natural or legal person, is perfectly admissible, provided that the acquirer assumes the commitment to continue the activity for the minimum time agreed and the obligation to pay, in whole or in part, all or some of the bankruptcy claims (art. 324.1 TRLC). The special rules established in the Law to encourage unitary transfers within the insolvency proceedings will apply to these transfers (art. 324.2 TRLC), which are an exception to the general rules and which establish the automatic subrogation of the acquirer, unless the acquirer does not wish it, in the contracts and licenses essential for the company and the possibility of not having to assume certain labor debts paid by the FOGASA (arts. 222, 223 and 224 TRLC).
Modification of the agreement
Finally, it should also be noted that, in order to protect the subsistence of the agreement capable of preserving a viable company, the reform introduces the possibility of achieving the modification of an insolvency agreement as a general rule (art. 401 bis TRLC) and not for extraordinary circumstances and of limited temporary application as occurred in the past (DTR. 3ª RDL 11/2014, then L 9/2015 until May 2017 and during the crisis caused by the COVID: RDL 16/2020, L 3/2020, RDL 34/2020 and RDL 5/2021, until 31.12.2021), although it restricts the modification proposal exclusively to the debtor.
On the other hand, there is no limit as to the objective scope.
It does specify that the modification cannot affect credits accrued or contracted during the period of compliance with the original agreement, nor privileged creditors to whom the agreement had been extended or who had adhered to it once it had been approved, unless they expressly adhere to the modification. This means that the modification could be extended to those who participated in the acceptance of the original agreement and could also be compulsorily bound if the legal majority is achieved in the respective class of preferential claims.
The request must be accompanied by a list of satisfied bankruptcy credits, those pending payment and those accrued during the compliance period that have not been satisfied, a viability plan and a payment plan.
The measure has a profound significance in relation to the efficiency of the arrangement. In fact, the applicant has to justify that there is a risk of non-compliance with the agreement and that this is not due to willful misconduct, fault or negligence of the insolvent party, which means introducing a moralization that is not understandable, especially when the law then requires that it must also be justified that the modification is essential to ensure the viability of the company, which is what should really prevail. In the same vein, it is incomprehensible that two years have elapsed since the agreement came into force in order to be able to request the modification of an agreement.
On the other hand, it is very reasonable that while the modification is being processed, a request for a declaration of breach of the agreement and the opening of the liquidation cannot be admitted for processing, and also that the procedure to be followed is the general one established by the Insolvency Law for the approval of an agreement, with the peculiarity that for the calculation of the majorities necessary to consider an agreement proposal accepted, the amounts pending payment under the agreement to be modified will be taken into account.
Finally, the rule is radical in that, once the agreement has been modified, the insolvent party will not be allowed to propose a new modification, which not only encourages the proposed modifications to be sufficiently serious in terms of the possibility of compliance, but also avoids possible abuses.