‘Sitting down to negotiate a restructuring plan entails an actual willingness to reach a feasible solution with creditors’


PradaGayoso partner Javier Marquina participated as a speaker at a conference on the insolvency law amendment

The main change brought about by the insolvency law amendment now going through Parliament lies in preventive restructuring schemes. Traditionally, pre-insolvency arrangements were used as a reactive approach intended to stop debt enforcement, and allowed to prepare the required documentation to file for insolvency on a timely basis. However, the new restructuring plans entail the debtor company’s ‘actual willingness to negotiate with its creditors in order to find a viable solution’ to its financial distress.

This is how lawyer, economist and PradaGayoso partner Javier Marquina put it in his statement made at a conference on the insolvency law amendment hosted by newspaper La Ley.

Javier Marquina stressed that notifying the court of the onset of negotiations aimed at agreeing on a restructuring plan will require to carry out preliminary documentation work which goes far beyond the mere notice now required to try to agree on a refinancing scheme or to propose a creditors’ agreement before filing for insolvency. ‘Providing the extensive documentation now demanded shows a clear intention to negotiate with creditors’, he said.

With respect to the requirements to be met in order to benefit from a restructuring plan, Javier Marquina explained that a company may make use of this scheme two years in advnace of the time when it expects it will not be able to meet its payment obligations. In his opinion, such an extensive time frame -the so-called ‘insolvency likeliness’- poses the difficulty to predict the company’s financial position in two years’ time.

PradaGayoso partner also referred to the period available to the debtor and the creditors to negotiate once notice is given to the court of the onset of this process. The three-month period established by the current regulations may, from now on, be extended for three additional months.

This extension may be requested by either the debtor or creditors representing more than 50% of the liabilities covered by the plan, excluding those creditors that would be classified as unsecured in an eventual insolvency proceeding. In any case, the petition must be justified by the requesting parties. Also, the extension must have the approval of the restructuring expert, if appointed.

Javier Marquina considers that ‘perhaps it might have been reasonable’ to permit an additional extension ‘whenever it is well-founded’, since an overall period of six months may not be sufficient to negotiate a large restructuring.

As for governmental creditors, he regrets that they maintain their privileges and are not subject to the otherwise applicable stay of enforcement actions. However, he stressed that governmental creditors may be subject to restructuring plans for debts which are less than two years old, among other criteria. ‘With early warning systems, it is no longer arguable that a company may have amounts payable to Tax Authorities more than four or five years later’, he said.

In addition to governmental creditors, in the opinion of Javier Marquina, financial institutions will also play a significant role in the negotiation of restructuring plans: “They will have to scrutinize not only the income statement for the most recent quarter, but also the medium- and long-term income statement’.