Spain: Restructuring & Insolvency

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This country-specific Q&A provides an overview of the legal framework and key issues surrounding restructuring and insolvency in Spain.

This Q&A is part of the global guide to Restructuring & Insolvency.

For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/restructuring-insolvency/

  1. What forms of security can be granted over immovable and movable property? What formalities are required and what is the impact if such formalities are not complied with?

    Standard securities under Spanish Law are the mortgage over immovable assets (e.g. buildings, plots or malls) and the ordinary pledges of credit rights arising from the main agreement of the debtor (e.g. concession agreement, sales agreement or lease agreements) or the pledge over the shares or quotas of a company with transfer of possession.

    Chattel mortgages (hipoteca mobiliaria) and non-possessory pledges over certain valuable assets (e.g. patents, trademarks, industrial or commercial assets, machinery or equipment) are usually granted in specific financings related to companies belonging to the industrials sector.

    Financial securities granted under the regime of Royal Decree-Law 5/2005 on urgent reforms to promote productivity and improve government contracting (“RDL 5/2005”), which implements the Directive 2002/47/CE regarding the financial security agreements, are usually shares pledges, pledge over certain credit rights and pledge over bank accounts.

    Notarization plays an important role in the Spanish legal system, so securities granted under Spanish Law are always granted in a public document before a Spanish Notary although in cases where this formality is not required as the Financial securities granted under the regime of 5/2005 RDL.

    The advantages of granting a security in a Notarial deed are: (i) benefit from an executive procedure in an enforcement scenario, as it will be considered as an enforcement title (título ejecutivo); and (ii) provide certainty of the date and content of the applicable security vis-à-vis third parties.

    In addition, some of these types of securities are subject to compulsory entry on public registries, which requires the formality of public document, such as the land registry (Registro de la Propiedad) (e.g., real estate mortgage) or the chattel registry (Registro de Bienes Muebles) (e.g., mortgage on inventory), while registration is not required for other guarantees (e.g., pledge of unlisted shares).When the entry on public registry is compulsory, its non-compliance implies that the security is not completed and is null and void.

    Pursuant to article 1,863 of the Spanish Civil Code, ordinary pledges requires the transfer of possession to be valid granted. The transfer of possession could be fulfilled by an entry into the Companies shares book, endorsing the title of the shares certificates or sending a notice to the counterparty of the agreement which is pledged.

    Pledge over listed shares requires to enter into the book entry register held by Iberclear (the Spanish Central Securities Depository that keeps accounting records in the form of book entries of securities traded in the Spanish Securities Markets) in order to be enforceable against third parties.

    The non-compliance of the formalities will imply that the securities are not valid granted, will be considered null and void, non-enforceable against third parties and not recognized in an insolvency procedure.

  2. What practical issues do secured creditors face in enforcing their security (e.g. timing issues, requirement for court involvement)?

    Pursuant to article 572 of the Spanish Civil Procedure Law 1/2000, express agreement between the lender and the debtor on the system used to assess the amount due secured by a certain security should be the amount of the balance resulting from the transactions accomplished under the agreement secured, provided the parties have agreed in the title deed that the amount due and payable in the event of enforcement would be the result of the settlement made by the lender as per the formula agreed by the parties in the enforceable title.

    Mortgages enforcement can be carried out through judicial or notarial proceedings, although the latter only when this possibility is stipulated in the mortgage deed (which is standard practice).

    In judicial proceedings, the asset can be sold (i) by direct sale (through a sale agreement), (ii) by a specialized entity or (iii) through an auction. Notarial proceedings can only be carried out by auction. Auctions must be carried out through an electronic auction held on the Official Gazette of the Spanish State’s Auctions Portal.

    With regard to credits secured with the debtor’s assets required for the continuity of the debtor’s professional or business activity, when the debtor is declared bankrupt, the possibilities of enforcing the collateral will be limited, in accordance with the provisions of the Spanish Insolvency Act. In such cases, enforcement or realization of the security may not commence until a composition is approved (which does not affect that entitlement) or one year elapses from the insolvency declaration without liquidation taking place, unless the auction announcement for the asset or right had been published at the time of the insolvency declaration.

    Financial securities granted under RDL 5/2005 can be enforced by retaining the collateral or enforce them through “direct sale.” This executive procedure will imply the faster enforcement procedure under Spanish Law. In addition, financial securities are not affected by the insolvency rules.

    The enforcement of pledges of credit rights is quite straight forward just notifying that an enforcement event has occurred to the counterparty of the debtor and all flows under the underlying agreement should be deposited in a lender’s bank account.

    In order to avoid delays in case of enforcement of the securities, parties should establish an auction value in the securities agreement which calculation should be objective and simple as possible. (i.e. the net book value of shares).

    After the amended of the Notary Act carried out by the Voluntary Jurisdiction Act 15/2015, the extrajudicial proceeding (“subasta notarial”) pursuant to article 1872 of the Spanish Civil Code regarding the enforcement of the pledges and the out-of court foreclosure of the mortgages, speed up the enforcement procedures but there is not much practical experience so far.

    The auction must be announced in all cases in the Official Gazette (article 74.1 of the Notary Act). Moreover, the parties expressly agreed that the announcement will be published and notice to the debtor with at least 15 days before the first auction.

    The auction will be electronic and carried out in the Auction Portal of the Official State Gazette (“Portal de Subastas de la Agencia estatal Boletín Oficial del Estado”). The bidding period lasts for a period of 20 calendar days from the start of the auction (article 75.1.3ª of the Notary Act).

    Although the out-of-court foreclosure proceeding is less time-consuming than the courts’ one, our suggestion would be to follow the out-of-court foreclosure proceeding just in the event the foreclosure is done in an amicable way with the Debtor. If there is any chance that the debtor will challenge the out-of-court foreclosure proceeding will not be suggested.

    It is very difficult to assess accurately the effective duration of an enforcement process of a pledge or the foreclosure of a mortgage, as it is conditioned by certain contingencies that are impossible to predict pre-emptily (the workload of certain courts or the challenges invoked by the debtor) and that may make the duration of the process vary substantially. However we could make the following standard estimation of timing: executive procedure in-courts could take approximately 10 to 12 months. The extrajudicial proceedings are the fastest procedure, and it could last around 3 or 6 months depending on the period of time needed for the auctions.

  3. What is the test for insolvency? Is there any obligation on directors or officers of the debtor to open insolvency procedures upon the debtor becoming distressed or insolvent? Are there any consequences for failure to do so?

    Insolvency can be defined as the situation in which a company or a natural person cannot meet its payable obligations consistently and on time. At that moment, the two-month period to file for voluntary insolvency begins.

    As provided under article 5 of the Spanish Insolvency Act 22/2003 (the “Spanish Insolvency Act”), directors should file for insolvency with the competent commercial court within two months of when they became aware, or should have become aware, of the company’s state of insolvency. There is an exception to this rule, which consists of filing, within the two-month period, a so-called “5 bis notice” with the same competent commercial court, claiming that the directors are negotiating with the creditors to reach an out-of-court refinancing agreement or obtain their support to file a pre-pack or advanced composition agreement. The filing of the 5 bis notice extends by four months the deadline for filing for insolvency.

    If the petition is filed once the two-month period has elapsed and it is proved that the delay in filing for insolvency has exacerbated the debtor’s situation, the directors (and even other affected persons) could be penalized under the Spanish Insolvency Act and be obliged to compensate for damages.

  4. What insolvency procedures are available in the jurisdiction? Does management continue to operate the business and / or is the debtor subject to supervision? What roles do the court and other stakeholders play? How long does the process usually take to complete?

    According to Spanish Insolvency Act, Insolvency judicial proceedings or Bankruptcy, is the compulsory process in which to handle financial distressed. Spanish Insolvency Act, therefore, only foresees one kind of judicial procedure - the so-called Concurso de Acreedores-. However, under certain circumstances, the proceedings could be managed throughout the abbreviated process envisaged by the Insolvency Act (i.e. when the debtor files together with a pre-packaged plan or a liquidation plan containing a binding offer to purchase an existing business unit , etc.)

    All Insolvency proceedings are directed by the commercial court with jurisdiction and managed by a specific body called the “insolvency administrator” (administración concursal).

    The declaration of insolvency implies that the directors lose control over the insolvent debtor’s activity, since their powers of management and disposition would be intervened or even exclusively controlled by the insolvency administration. In case the insolvency is voluntary, debtor’s powers to manage and dispose of its business may be under supervision by the insolvency administrator. However, if the insolvency is mandatory, then the debtor is removed from its power over its assets, which are managed by the insolvency administrator. These situations may be modified at any time by the competent court.

    The insolvency procedure is divided into different phases which may last (approximately and always depending on the workload of the competent Court), in average:

    1. Common phase – between 6 to 18 months: it lasts from the insolvency is judicially declared until the insolvency administrator files its definite report.
    2. Composition phase – between 6 to 12 months: it lasts from the date when the common phase is closed and the composition phase is opened, until the proposal for composition agreement is judicially approved, or rejected by the creditors.
    3. Liquidation phase – between 12 to 18 months: it lasts from the date when the liquidation phase is initiated, until the conclusion of the insolvency proceedings.
    4. Categorisation phase – between 3 to 9 months: it lasts between 6 to 9 months. When the liquidation phase starts, the insolvency must be categorised. However, in the event of a composition, the categorisation process will not start when judicial approval of a composition agreement is granted whereby a debt relief lower than a third of the amount of the credits or a grace period not exceeding three years is established for all creditors or for one or several classes, including also those defined in article 94.2 LC (e.g. labour, public, financial and others), unless the composition is breached.
  5. How do creditors and other stakeholders rank on an insolvency of a debtor? Do any stakeholders enjoy particular priority (e.g. employees, pension liabilities)? Could the claims of any class of creditor be subordinated (e.g. equitable subordination)?

    The Spanish Insolvency Act provides for two main categories of claims: (i) insolvency claims, and (ii) administrative expenses or credits against the estate.

    The administrative expenses (“créditos contra la masa”) not included in the liabilities of the insolvency estate, being paid as they become due, are those that (i) generally arise after the declaration of insolvency, (ii) and are mainly originated to facilitate the insolvency procedure.

    Insolvency claims, as claims filed before the declaration of insolvency, are divided into privileged (general and special), ordinary and subordinated (both unsecured credits).

    Privileged credits can have a special or general privilege, depending on whether the security is created over a specific asset (special privilege) or over all of the debtor’s assets (general privilege).

    Credits with special privilege generally include those in which collateral consists of specific property or rights (mortgage or pledge) or equivalent rights (financial lease agreement for the leased property). The privilege will only cover the part of the claim not exceeding the value of the respective guarantee.

    Credits with general privilege include (i) credits relating to salaries (subject to the legal limits of triple the minimum inter-professional salary) and indemnity for termination of agreements, occupational health and safety claims, provided they are incurred prior to the insolvency; (ii) tax and social security withholdings; (iii) credits for individual work by independent contractors and those corresponding to authors for the assignment of licensing rights over intellectual property works, accrued during the six months prior to the declaration of insolvency; (iv) tax credits, other credits of public entities and Social Security credits up to a maximum of 50% of their value; (v) credits arising from tort liability; and (vi) finally, 50% of the credits held by the creditor at whose request has been declared the insolvency.

    Finally, creditors’ claims can also be considered as subordinated (those which are legally relegated to a position below ordinary credits) in the following cases: (i) notice of the credit is given late, (ii) contractual covenant, (iii) its ancillary nature (e.g. surcharges and interest, except those having an in rem guarantee), (iv) penalty (fines), or (v) the credit holder’s personal status (parties specially related to the debtor, or parties that have executed bad faith actions that are detrimental to the insolvency proceedings or that obstruct performance of the agreement to the detriment of the insolvency).

    Insolvency Act also foresees that creditors entering into a refinancing agreement shall not be affected by equitable subordination for being considered as: (i) de facto directors, when said creditors have undertaken certain obligations in connection with the viability plan ; nor (ii) as specially related persons for purposes of equitable subordination, when said creditors have become shareholders of the debtors as a result of a debt-for-equity swap implemented in the context of a statutory refinancing agreement.

  6. Can a debtor’s pre-insolvency transactions be challenged? If so, by whom, when and on what grounds? What is the effect of a successful challenge and how are the rights of third parties impacted?

    The insolvency administrator can challenge any pre-insolvency transaction carried out by the debtor in the two years before its declaration of insolvency if the transaction or merely the action is considered detrimental to the insolvency estate. Under article 71 of the Spanish Insolvency Act, the general terms in which a claw-back action can be initiated are as follows:

    1. Temporary requirement: only actions (or omissions) carried out in the two years before the declaration of insolvency can be rescinded.
    2. Objective requirement: actions or omissions to be rescinded must be detrimental to the insolvency estate.
    3. Qualitative requirement: even actions carried out without fraudulent intent can be rescinded.

    The claw-back action can also be exercised by any creditor who has requested the insolvency administrator to do so, but does not seek the rescission within two months from the date of the creditor’s written request (subsidiary legitimacy).

    Actions carried out in the debtor’s ordinary course of business and under market conditions cannot be rescinded. Moreover, some refinancing agreements may receive indemnity for actions of this kind if they meet the requirements set forth under article 71bis – Fourth Additional Disposition Spanish Insolvency Act.

    Under the Spanish Civil Code, the debtor’s actions can also be challenged by means of revocatory actions or actions seeking for them to be declared void.

  7. What restructuring and rescue procedures are available in the jurisdiction, what are the entry requirements and how is a restructuring plan approved and implemented? Does management continue to operate the business and/or is the debtor subject to supervision? What roles do the court and other stakeholders play?

    Spanish Insolvency Act provides for out-of courts and in-courts rescue finance procedures to solve insolvency problems.

    The standard out-of courts procedure is implemented by a refinancing agreement reached with a certain majority of the finance creditors of the debtor. The refinancing agreements must fulfilled the requirements set forth in the Spanish Insolvency Act, to benefit from the irrevocability of the transactions and securities granted under such refinancing agreement, as those refinancing agreements are not subject to third parties claw-back action pursuant to article 71 of the Spanish Insolvency Act.

    Pursuant to article 71.bis.1 of the Spanish Insolvency Act, the refinancing agreement must be signed by, at least, 60% of the total creditors of the debtor certified by the auditor and it must imply an additional financing and an amendment of the existing liabilities and extent their final maturity date, in accordance with a viability plan that reflects the continuity of the company in a short and medium term. All those documents shall be formalized in a public document before a Notary

    According to article 71.bis.2 of the Spanish Insolvency Act, singular refinancing agreement with some of the creditors could benefit from avoiding claw-back risks if certain measures pro-debtor are included therein (a proportional increase of the assets against the liabilities, the short term assets are higher than the short term liabilities, the interest rate applicable could not increase over 1/3 additional to the previous interest rate, the assessment of the security could not be higher than 9/10 of the company liabilities). Singular refinancing agreement must be formalized in public documents also.

    The restructuring agreements can be sanctioned by a judicial procedure (“homologación”) which provides additional protection to claw-back actions and extent the effects of the refinancing agreement to dissident finance creditors. To be beneficiary of the court sanctioned procedure, the refinancing agreement must be signed at least by the 51% of the finance creditors of the debtor, and additional majority are required in case of requests to extent the effects to dissident creditors (between 60% and 80% of the finance creditors of the debtor depending on the nature of the measures included in the refinancing agreement (capitalization of debts, write-offs and extensions on the maturity) and if the dissident finance creditors are deemed secured or unsecured).

    The in-court rescue procedure are less likely as the Spanish Insolvency Act does not provide for certain tools requires to achieve such result. Thus, not provision of debt-in-possession financing is possible and liquidation rate is over 90% when a company is declared bankrupt in Spain. New money in an insolvency procedure will require the prior authorization of the insolvent administrator and even the judge if the new financing will imply granting of new security by the debtor.

    In an out-of court restructuring procedure, the management continues with the normal administration of the company and no supervision is required. In an in-court restructuring procedure, the most likely scenario is that the management will keep the administration of the company but certain transactions must be approved by the insolvent administrator or the judge. Only if a certain negligence in the administrators’ behavior in the management of the company is proved and a third party is the one filing for insolvency, the managers could be replaced of its management faculties of the company.

    Public creditors are not affected by the refinancing agreements, and labor credits has certain privileges and prior ranking in payments. Commercial creditors do not usually take part of the restructuring process. Thus, the financial creditor provides working capital financing to satisfy the key suppliers or providers of the debtor to continue with its activity during the restructuring process.

  8. Can a debtor in restructuring proceedings obtain new financing and are any special priorities afforded to such financing (if available)?

    The new money granted in the framework of a refinancing agreement, that accomplish requirements set forth in article 71.bis of the Spanish Insolvency Act, will privilege of a high priority of payment (50% of the amount will be satisfied as it becomes due (crédito contra la masa) pursuant to article 84.2.11 of the Spanish Insolvency Act and the remaining 50% will be considered a general privilege claim (crédito con privilegio general) according to article 91.1.6 of the Spanish Insolvency Act.

    However, the new moneys privileges has certain limitations: (i) does not have a super priority in a liquidation scenario and it will rank junior to administrative expenses; and (ii) there are no priming liens over previous encumbered assets. In addition, the insolvency administrator could modify the term of payments with the judge approval which lead us to a high uncertainty to creditors and do not encourage such kind of creditors rescue. Notwithstanding the aforesaid, certain provisions could be established in the amended facilities to avoid potential risks in the repayment of the new money.

    As previously stated, the Spanish Law does not provide a debt-in-possession financing and there is no incentives or privileges for granting additional financing during the in-court procedure. The entirety of the new financing claim would have the status of an administrative expenses but junior to certain expenses, as the labour law claims.

  9. How are existing contracts treated in restructuring and insolvency processes? Are the parties obliged to continue to perform their obligations? Will termination, retention of title and set-off provisions in these contracts remain enforceable? Is there any an ability for either party to disclaim the contract?

    Under article 61 of the Spanish Insolvency Act, all clauses that entitle any party to terminate an agreement based solely on the other party’s declaration of insolvency are deemed void

    However, there are cases in which the law expressly allows agreement for termination in the case of insolvency (i.e., insurance policies, administrative contracts and powers of attorney, and cases falling under the scope of special legislation such as the close-out netting agreement).

    A declaration of insolvency does not affect agreements with reciprocal obligations pending performance by either the insolvent or the other party (the insolvency estate will fulfill the insolvent’s obligations pending performance). However, the insolvency authorities (together with the insolvent party or by themselves if the insolvent party is not allowed to run its business) may request the court to terminate the agreement if they believe that termination is in the interest of the insolvency estate. Recent court rulings have been guided by the criterion of upholding agreements that are vital for maintaining the insolvent as a going concern.

    Further, financial securities granted under RDL 5/2005 including set-off agreements would not be affected by the insolvency declaration and will remain enforceable.

  10. What conditions apply to the sale of assets/the entire business in a restructuring or insolvency process? Does the purchaser acquire the assets “free and clear” of claims and liabilities? Can security be released without creditor consent? Is credit bidding permitted?

    A declaration of insolvency does not trigger suspension of the commercial activities of the debtor and the sale of assets within the debtor’s ordinary commercial activities are permitted. Moreover, the insolvency administrator may provide directors with a general authorization to enter into certain transactions, notwithstanding their obligation to report to the insolvency administrator upon transactions entered into by the debtor.

    During the insolvency procedure and before approval of a reorganization plan, other debtor’s assets cannot be sold without court authorization.

    The insolvency administrator must attempt the sale of business units as a going concern (as the best way to protect creditor’s interests). Within the framework for the sale of the business unit (preferably by public auction), the law enables, among other things: (i) assumption or rejection of executory contract, licenses and administrative permits; (ii) release of debts, aside from certain social security and labour claims and (iii) the release of the security interests, so long as the 75% of secured creditors consent.

    Secured creditors who fail to enforce their security interest prior to liquidation to lose control over the collateral, although they are entitled to a percentage of the price achieved equivalent to the value of the collateral.

    In order to promote the sale of a distressed debtor’s business, the Spanish Insolvency Act, envisages an abbreviate procedure if the debtor files a pre-packaged, plan or reorganization plan that includes the transfer of all its assets and liabilities through a structural change in the company. Additionally, abbreviated procedures also apply when the debtor files, along with the petition for insolvent, a liquidation plan containing a binding written offer to purchase a business unit, or when the debtor has ceased carrying out its activity and has no employment contracts in force.

  11. What duties and liabilities should directors and officers be mindful of when managing a distressed debtor? What are the consequences of breach of duty?

    Directors have a duty to be diligent and loyal to the company, regardless of the company’s financial situation.

    The main criterion governing directors’ performance is that they must act in the company’s best interests. In this case, this means choosing the course that will produce the least damage to the company’s assets. In other words, seeking ways to refinance the company’s debt and obtain write-offs and grace periods, and avoid the company entering into insolvency proceedings. Some scholars argue that this refers to the directors’ obligation of responsible management, protecting the company’s interests in a reasonable manner, that is, maximizing, in the medium- and long-term, the value of the company, its sustainability, its reputation, and ensuring that its adverse economic situation does not worsen, thus affecting the company’s interests.

    However, directors should also to take into account all the interest at stake, even more when managing distressed debtors. If such is the case, they need to take a cautious approach in the decision-making process, considering the creditors’ interests so that, without focusing on the payment of the remaining debts, they can ensure the debts do not increase and avoid any risky transactions that could prevent subsequent payment to creditors.

    In addition, it’s worth stressing that directors may incur in civil liability within the insolvency proceedings when:

    1. the categorisation phase of the insolvency proceedings is opened; and
    2. it is proved that directors’ negligent or culpable behavior is what has triggered or worsened the insolvency situation.

    Said civil liability could consist on (i) being those directors disqualified between two to fifteen years, (ii) losing any claim they may have before the insolvent debtor, and (iii) a condemn to indemnify the insolvent debtor for damages.

  12. Is there any scope for other parties (e.g. director, partner, parent entity, lender) to incur liability for the debts of an insolvent debtor?

    When any such categorisation is carried out as a result of the commencement of the liquidation phase, the court may also order the directors or liquidators, whether de iure or de facto, the attorneys with general powers (including those who held such offices in the two years preceding the date of declaration of insolvency) and the shareholders that have refused, with no reasonable cause, to the capitalisation of credits or the issuance of convertible instruments established in a refinancing agreement, to cover all or a part of the deficit of the insolvency proceeding.

    The concept of de facto director is based, according to the most recent case law, on three fundamental pillars, namely:

    • Habitual or continuous discharge of that duty (excluding one-off intervention), an effective and real presence in the corporate management area being necessary;
    • Autonomy, which involves the independent exercise of management powers, without following instructions or being subject to the approval or direction of another person; and
    • A certain quality in the discharge of such duties, those whose action remains in the area prior to the decision being excluded. In other words, the action must be of importance.

    As referred, it should be highlighted that shareholders can be affected by the categorisation of an insolvency procedure as guilty. Act 17/2014 (previously Royal Decree-law 4/2014) added a new section 4 to article 165 of the Spanish Insolvency Act establishing a further iuris tantum assumption of culpability for any director or shareholder who denies any capitalization of credits or the issuance of convertible securities without any reason, blocking the achievement of a refinancing agreement.

    The aim of this new event of liability could be encouraging the directors and even the shareholders of any company to avoid a petition for insolvency proceedings while there is still a reasonable possibility of paying off the creditors.

  13. Do restructuring or insolvency proceedings have the effect of releasing directors and other stakeholders from liability for previous actions and decisions?

    The declaration of insolvency could not be seen as a remedy to release liabilities; in any event, not all actions and decisions taken by directors or stakeholders may be enough to be considered as affected by the categorisation of the insolvency proceedings as guilty.

    In fact, two elements are required to categorize insolvency as guilty: (i) willful misconduct or gross negligence on the part of the formal or de facto directors or managers with general power and any person who had that status within the two years before the declaration of insolvency, and (ii) the insolvency situation must have been created or aggravated, in addition to a causal relationship between the two elements.

    In addition, directors’ liability is not automatic. Rather, an action or omission must be proved to have caused or worsened the insolvency of the debtor, by means of an intended or negligent conduct.

  14. Will a local court recognise concurrent foreign restructuring or insolvency proceedings over a local debtor? What is the process and test for achieving such recognition?

    In Spain, cross-border insolvency proceedings declared within the EU (except Denmark) are automatically recognized under the Regulation 2000/1346.

    The effects of said recognition will be increase once Insolvency Regulation 2015/848 enters into force (June 26, 2017). From then on, any judgement opening new insolvency proceedings in one Member State automatically produces the same effects in any other Member State. Said new Regulation also broadens the legal framework allowing the insolvency administrators appointed in the insolvency proceedings which have been opened to enforce their rights abroad and, if necessary, to be assisted by local authorities when performing said function.

    However, when the insolvency proceeding is not declared in a Member State, and there is no bilateral treaty in force between the two countries, Spanish Insolvency Act rules apply. The application of the Spanish internal rules on the recognition of the insolvency proceedings resolutions will be subject to the reciprocity principle, meaning that they cannot be alleged by the parties when there is no reciprocity or cooperation with the authorities of the foreign country where the resolutions were issued.

    Foreign rulings that declare the opening of insolvency proceedings (whether main or secondary ones) will be recognized by means of the exequatur process regulated in the Spanish Civil Procedural Act. Once a foreign resolution is recognized, any other resolution issued after the former does not need to fulfil an exequatur procedure. Recognition can only be rejected if its effects are contrary to Spain’s public policy.

  15. Can debtors incorporated elsewhere enter into restructuring or insolvency proceedings in the jurisdiction?

    The Spanish courts’ jurisdiction to deal with an insolvency or restructuring proceeding (having in mind homologation as foreseen under the Fourth Additional Provision) is not determined by the place where a company is incorporated but by the place where the company has its center of main interest (COMI).

    If that can be defined as somewhere in Spain, this country will have full jurisdiction over the proceeding.

    Even if a company is not only incorporated elsewhere but also has its COMI abroad, it can be declared insolvent by a Spanish court, regardless of whether it as an establishment in Spain. If that is the case, the proceeding will be territorial, and its effects will only be limited to the debtor’s assets located in Spain. However, article 36 of the Regulation 2015/848 provides the possibility to avoid the opening of secondary insolvency proceedings in case the insolvency administrator of the main insolvency proceedings “may give a unilateral undertaking (the ‘undertaking’) in respect of the assets located in the Member State in which secondary insolvency proceedings could be opened, that when distributing those assets or the proceeds received as a result of their realisation, it will comply with the distribution and priority rights under national law that creditors would have if secondary insolvency proceedings were opened in that Member State”.

  16. How are groups of companies treated on the restructuring or insolvency of one of more members of that group? Is there scope for cooperation between office holders?

    Unlike other jurisdictions, Spain does not have an insolvency procedure for group of companies, although there are some rules which seek coordination between individual proceedings concerning each company within a group: (i) joint petition for insolvent of companies within the same group before a single court pursuant to article 25 of the Spanish Insolvency Act, relevant court at the COMI of the parent company of the group; (ii) accumulation of insolvent procedures of companies within the same group according to article 25.bis of the Spanish Insolvency Act; (iii) appointment of an insolvency administrator to the insolvency procedure of companies belonging to the same group in accordance with article 28.2 of the Spanish Insolvency Act; or (iv) a single refinancing agreement to restructure the debt of the group companies pursuant to article 71.bis of the Spanish Insolvency Act.

  17. Is it a debtor or creditor friendly jurisdiction?

    The reforms introduced in the last years to the Spanish Insolvency Act have introduced changes that remove some of the practical problems arising in relation to refinancing process. The amendments introduced has included better tools to debtors and creditors to achieve out-of courts refinancing agreements and investors acquiring assets or business units in the in-court proceedings.

    However, public creditors remains with privileges and they are not affected by the pre-insolvency status (5.bis notice), the stay in the enforcement of their security or the cram down related to the refinancing agreement sanctioned in courts (homologación).

  18. Do sociopolitical factors give additional influence to certain stakeholders in restructurings or insolvencies in the jurisdiction (e.g. pressure around employees or pensions)? What role does the state play in relation to a distressed business (e.g. availability of state support)?

    Public administrations get involve in some of the restructuring process when the company is relevant in the region in terms of gross domestic product or number of employees. Its informal influence is made through the collaboration of public financial institutions in the restructuring process or its relationships with the main creditors of the debtor.

    Non availability of direct state support is given in the restructuring proceedings.

  19. What are the greatest barriers to efficient and effective restructurings and insolvencies in the jurisdiction? Are there any proposals for reform to counter any such barriers?

    Financing in the in-court proceeding is a great barrier that impede to achieve a composition agreement and the most likely scenario is liquidation.

    Authors criticizes that public creditors (social security or tax claims) should take part also of the sacrifice to refinance a company. Nowadays, private creditors are the only ones entering into refinancing agreements, public credits are not crammed-down and no possibility of write off or any other measure is usually adopted by public creditors.

    Better raking or priority to new money financings is another proposal to achieve more successful out-of courts restructuring process.