Francisco Prada: ‘Awareness should be raised among companies of the need to make use of preventive restructuring arrangements’

PradaGayoso’s founding partner participated as a speaker at the IV Insolvency and Corporate Update Meeting

In view of the insolvency law amendment now going through Parliament, PradaGayoso’s founding partner Francisco Prada argues for raising awareness among companies so that a preventive restructuring arrangement is used before a financial distress situation becomes irreversible. This was just one of the messages launched by him at the IV Insolvency and Corporate Update Meeting hosted by the Bar Association of A Coruña and Gobid.

‘We are facing a paradigm shift’. This is how Francisco Prada defined the Spanish insolvency law amendment Bill, that is the result of the EU Directive on Restructuring and Insolvency. In his opinion, the new approach inspired by the legal amendment should be ‘appreciated’ because the scheme now existing in Spain and other European countries ‘does not work’, as it fails to provide companies in distress with an adequate response.

Francisco Prada anticipates that insolvency proceedings will be ‘unattractive’ under the new legislation: ‘It has now been devised rather as a punishment to those companies that failed to make timely use of restructuring plans’. This is evidenced by the fact that insolvency proceedings will in any case imply an evaluation of the bankrupt’s degree of fault (fase de calificación), where an assessment is made of the company managers’ liability for either the unfolding or worsening of the company’s financial distress.

A further new feature brought about by the projected amendment is, according to Francisco Prada, the emphasis put by the legislator so that insolvency proceedings ‘come to an end soon’, in the shortest possible time, over and above other traditionally sought considerations such as the preservation of business activity or the satisfaction of creditors’ claims.

Likewise, he pointed out that the new legislation will provide creditors with an ‘increased capacity to influence’ in insolvency proceedings and, in particular, he referred to the newly created concept of restructuring plans, whereby the debtor and its creditors may reach an agreement through out-of-court negotiation.

Lawyer, economist, auditor and insolvency practitioner Francisco Prada also referred to the changes that the impending legal amendment will unleash for insolvency practitioners now in business. In his opinion, practitioners’ fees will decrease and the procedure leading to their appointment will be simplified. In addition, he anticipates that the future of the insolvency practice business will be linked to companies’ restructuring arrangements rather than to the insolvency proceedings themselves.

With respect to the specific procedure for micro-enterprises, he underlined that even if the Bill does not prohibit that a lawyer or a court legal representative (procurador) may be appointed, his/her involvement will no longer be mandatory. In this respect, a similarity has been pointed out with the proceedings for tax disputes, where even if legal professionals involvement is not mandatory, in practice, one is appointed in most cases.