Written by Josep Conesa
Employment and insolvency lawyer
A debtor — whether an individual or a legal entity — who is currently or imminently insolvent and has not yet been declared bankrupt may enter into a refinancing agreement with their creditors at any time. If the debtor has notified the competent court of the commencement of negotiations with creditors, the refinancing agreement must be reached within three months of the date of that notification.
There are two types of refinancing agreement:
- Collective refinancing agreements, entered into by the debtor with their creditors, with or without judicial approval.
- Singular refinancing agreements, entered into by the debtor with one or more individual creditors.
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COLLECTIVE AGREEMENTS:
REQUIREMENTS for a collective agreement:
- It must be grounded in a viability plan that allows the debtor's professional or business activity to continue in the short and medium term.
- It must have as its purpose, at a minimum, a significant increase in available credit or the modification or extinguishment of the debtor's obligations:
- either through the extension of the maturity date
- or by establishing new obligations in place of those being extinguished.
- That the agreement has been signed by creditors representing at least 3/5 of the debtor's total liabilities.
- That the agreement has been formalised by all signatories in a public deed.
- That the following shall be incorporated as annexes:
- the viability plan
- the auditor's certificate
- all documents evidencing that the requirements prescribed by law for the type of agreement in question were met at the date of the agreement.
- The independent expert's report, if one was requested
VOTING ON THE COLLECTIVE AGREEMENT:
The following rules apply when calculating the required majorities:
- When calculating the percentage of total liabilities, amounts owed to parties with a special relationship with the debtor shall be excluded.
- Where liabilities are subject to a syndication arrangement or agreement, the collective refinancing agreement shall be deemed accepted by all syndicated creditors when the signatories represent at least 65% of the syndicated liabilities. However, if a lower majority threshold has been established under that arrangement, the lower threshold shall apply.
- In the case of a collective refinancing agreement covering a group or sub-group of companies, the percentage of liabilities shall be calculated both on an individual basis — in relation to each and every affected company — and on a consolidated basis — in relation to the claims of each affected group or sub-group — with intra-group loans and credit facilities excluded in both cases.
EFFECTS OF THE COLLECTIVE REFINANCING AGREEMENT:
From the date of the public deed, the collective refinancing agreement shall be binding on the debtor with respect to:
- all creditors who have signed it.
- all syndicated creditors, where the signatories represent the required percentage of the syndicated liabilities.
INDIVIDUAL agreements:
REQUIREMENTS FOR INDIVIDUAL AGREEMENTS:
- That the agreement is underpinned by a viability plan that enables the continuation of the debtor's professional or business activity in the short and medium term.
- That it increases the ratio of assets to liabilities as compared with the position at the date the agreement is adopted.
- The resulting current assets must be equal to or greater than current liabilities.
- The percentage of credits secured by personal or real guarantees held by creditors signing the agreement must be:
- Less than what existed prior to the agreement
- Less than 90% of the total liabilities affected by the agreement.
- The interest rate applicable to the credits remaining or arising from the agreement must be more than 1/3 lower than the average interest rates applicable before the agreement.
- The agreement must have been formalised in a public deed:
- setting out the reasons justifying it
- setting out the documents relating to acts and transactions between the debtor and the creditors signing the agreement.
Judicial approval of the refinancing agreement:
Before filing for insolvency, the debtor — whether an individual or a legal entity — may apply for judicial approval of any refinancing agreement reached with its creditors.
If the debtor has notified the competent court of the commencement of negotiations with creditors, the application must be submitted within the following three months.
Individual refinancing agreements may not be subject to judicial approval.
Full information on insolvency proceedings:
