Spain: Restructuring Opportunities Under Regulations For Businesses In Crisis

Last Updated: 17 August 2008
Article by Dr. Ignacio Tirado

A look at how the Spanish Insolvency Act 2004 creates possibilities for rescue within insolvency proceedings.

Completing Out Of Court Restructuring In Spain: The Challenges

In Spain there is no system to effect the restructuring of troubled but still solvent companies. Unlike other European neighbouring countries, there is neither a "provisional" procedure (such as Germany's Vorläufiger Insolvenzverfahren) nor an informal code of practice, such as the old "London Approach". As general private and commercial law are fully applicable in the period before insolvency, there should be plenty of room for the interested parties to reach an agreed solution. However, real life offers a wholly different picture: restructuring out of Court rarely happens. The behaviour of the Spanish banks is the most likely reason for this.

Spanish banks have not yet embraced the "rescue culture" that allows for the reorganisation of viable businesses. This is mainly because of the types of security that Spanish banks hold: whereas banks in the UK enjoy floating charges, that "align" the interests of both the company and the financial creditor (the more the business is worth, the better for both), in Spain financial creditors usually have fixed charges over different assets that, due to the banks' superior bargaining position, are normally sufficient to cover all of the debt owed to them. Understandably, banks do not have an incentive to restructure (they can simply execute their security); otherwise they will be assuming a newly added risk that they can do without. Banks also have the further risk of antecedent transactions being legally set aside once insolvency proceedings start (such as voidable transactions, for example). This would affect any preinsolvency restructuring solutions that they may have already implemented.

The Spanish Insolvency Act 2004 (IA 2004) And The Options For Achieving A Rescue Within Insolvency Proceedings

Overview: advantages and disadvantages

The IA 2004 has only one procedure (concurso de acreedores) that is a gateway to all insolvency and composition options. Unlike the UK, France or Italy (and just like Germany) the same procedure may end with a rescue plan, a partial reorganisation of the business or a winding-up of the assets. Creditors must choose which to follow. The idea was to provide the market with an efficient tool to solve economic distress before it was too late (a useful instrument "to heal the sick, not to bury the dead"). From a theoretical perspective, the concurso de acreedores offers some relevant advantages to the participants in the market.

Under the IA 2004, entering into insolvency proceedings can be beneficial for both the company and its creditors. It would no longer be necessary to stay out of Court to achieve the better result. Among others, an early filing for a concurso de acreedores may bring about the following advantages:

  • For the company: a quick and orderly way to reduce its debts or to obtain some extra time for payment; the staying of actions and executions against the company and its assets (and this includes the execution of securities: mortgages, liens or pledges cannot be enforced during the first year in relation to an asset that is needed for the carrying on of the business);
  • For the creditors (also for the company): it provides an easier and cheaper way to reduce the number of employees and, as a whole, to reduce structural costs; and, above all, the IA 2004 offers all sorts of "restructuring possibilities" (mergers, debt renegotiation, exchange of debt for equity, etc.) that do not carry the "legal uncertainty" that applies when such processes are carried out outside insolvency.

Concurso de acreedores has disadvantages too, particularly in terms of cost: lawyers' fees, insolvency administrators' wages, reputational cost, and delay. These disadvantages are common to most formal insolvency procedures in any jurisdiction.

Completing a restructuring within insolvency proceedings

The Spanish legislators realised that offering adequate restructuring tools and a fair means to preserve the value of the company within insolvency proceedings would not of itself be enough to achieve a good result; it was also essential to speed up the time in which companies entered into insolvency so that there was still something to rescue. Up to the time when the IA 2004 came into force, one of the most significant problems had been that businesses in crisis reached the Courts when they were already in deep economic and financial distress. The IA 2004 has made an effort to make insolvency proceedings more attractive to the market, in trying to woo the relevant companies to the newly designed system. These are the most important measures introduced:

An easy way in

If it is the company that files for its own insolvency, the Judge will only check that the company has met formal requirements to initiate the process. There is a presumption that a solvent debtor will not try to put itself into insolvency. Also, when a company seeks to initiate insolvency proceedings, there is no need for it to be "insolvent" (unable to pay its debts as they fall due); it can also allege a situation of "imminent insolvency" (similar to Germany's "threatening insolvency"/ Drohende Zahlungsunfähigkeit).

There is much controversy as to what this expression actually means. The better interpretation is that the company must be on the verge of insolvency which will inevitably occur within a short period of time ( a few months maximum).

The duty of Directors to file for insolvency

The Directors (in a broad sense) of the company are now under a legal duty to file for insolvency within two months from the moment in which they know (or they should have known) that the company is insolvent. The breach of this duty may be a reason to disqualify the Directors and even to make them liable for the company's debts that remain unpaid after the realisation of the assets.

Softening the effects of insolvency on the debtor

If the company files for its own insolvency, the Judge (except in clear cases of deep economic distress or doubts about the credibility of the directors' behaviour) will leave the board of directors in control (similar to America's Chapter 11 "Debtor in possession") throughout the entire procedure (under the supervision of three Court appointed Insolvency Officers). On top of that, the company will not cease day to day trading unless it is evident that it is worth less as a going concern than on a break up basis.

Not investigating the directors' behaviour

According to the IA 2004, if an insolvency procedure ends with the payment of two thirds or more of all debts, and is concluded within less than 3 years, there will not be an investigation into the Directors' behaviour prior to insolvency. Therefore, Directors will not face disqualification in any such case (unless they have committed a criminal offence). This is a clear trade-off between the public interest of punishing misbehaviour and the need to ensure businesses and creditors suffer the least prejudice through the operation of an insolvency procedure. Sadly insolvency "as early as possible" will therefore offer company Directors a fresh start.

The three possible ways to rescue inside insolvency proceedings

Inside the concurso de acreedores there are three different ways to reach a solution that rescues – at least part of – a business as a going concern.

The "Pre-packaged Plan" (Convenio anticipado)

This is the preferred restructuring solution It consists of an agreement reached initially by the debtor and creditors owed at least 20% of the company's liability. This agreement must include the continuation of the business, and can be proposed to the rest of the creditors from the start of proceedings (together with the insolvency petition) or in the weeks thereafter. There are no legal constraints to the proposal of such a plan and it is applicable to all sorts of restructuring operations: debt cancellation, exchanges of debt for equity, and mergers. It is also the cheapest possible route for a restructuring, since it reduces drastically the duration of the insolvency procedure. The plan must be approved by creditors representing the majority of the debt.

The "Insolvency Plan" (Convenio ordinario)

If no pre-packaged plan is submitted, there is still one last chance for an agreed solution to the insolvency: the ordinary "Plan". This solution is less attractive. It has legal restriction: for instance, there cannot be a debt cancellation beyond 50% or a payment adjournment longer than 5 years. Although the opportunities for reorganising or rescuing the business as a going concern are the same as for a Pre-packaged Plan, the Insolvency Plan takes longer to put into effect and is more costly. This Plan also implies the continuation of the business and can give effect to numerous restructuring operations involving third parties.

Winding-up (Liquidación)

It is legally considered the "last solution". However, the IA 2004 has made a considerable effort to design a winding-up system that captures the real value of the company. Unlike Spain's former Insolvency Law, winding-up in this new law moves the process away from a liquidation on a break up basis (traditionally a way to destroy value), and requires the sale of the business (or part of it) as a going concern. It is about "liquidating the debtor (company), not the business". In a liquidation, the liquidator is given a free reign to obtain the best price reasonably possible for the business. The liquidator must draft a "Liquidation Plan", that need not be approved by the debtor or the creditors. It is purely a technical decision taken by three "experts". Third parties must be included in the picture. Usually, liquidators create subsidiaries and transfer the viable parts of the businesses to those subsidiaries. They will then sell the subsidiaries (by means of an Auction or by direct sale). If a liquidation takes place within the concurso de acreedores, Directors who have breached their duties to the company may face disqualification and personal liability for the company's debts.

Key Points

  • There has not been much of a restructuring tradition in Spain.
  • The IA 2004 offers adequate restructuring tools, that are prompt and a fair way to preserve the value of the company within insolvency proceedings.
  • This makes the possible solutions in concurso de acreedores all the more appealing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions