At the end of 2021, the Spanish government approved draft reforms of the Spanish insolvency laws that transposes Directive (EU) 2019/1023 of 20 June 2019 on preventive restructuring frameworks into Spanish law.
The reform will bring about a comprehensive change in insolvency proceedings in Spain. So what are these changes and what effect will these have in practice?
Among other objectives, the reform aims to make pre-insolvency processes effective. Indeed, the current Spanish insolvency system has obvious limitations. In fact, the use of pre-insolvency processes is low. This reduced use has meant that when Spanish companies go into insolvency proceedings, they do so in a situation of very advanced financial deterioration. Moreover, the excessive duration of insolvency proceedings, averaging 60 months, means that the vast majority of insolvency proceedings end in liquidation.
The first major innovation consists of the introduction of restructuring plans, which aims to eliminate the current limited pre-insolvency processes by introducing a single flexible procedure and the possibility of binding dissenting classes, with appropriate safeguards.
Restructuring plans may well replace current practice in Spain, where pre-insolvency situations are often resolved by refinancing agreements and out-of-court payment agreements.
This reform also aims to reduce judicial intervention, and relies on the majority support of creditors.
The...
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