On March 8, 2014, significant changes to the Spanish Insolvency Act (the "Act") became effective that implement urgent reforms to the rules and procedures governing the refinancing and restructuring of corporate debts. The primary objective of Spanish Royal Decree law 4/2014, dated March 7 ("RDl 4/2014"), is to improve the legal framework for refinancing agreements and remove legal obstacles that have previously impeded the successful execution of restructuring and refinancing transactions.

Among the most significant amendments to the Act implemented by RDl 4/2014 are:

  • Enforcement of security: Extending the stay on enforcement action in pre-insolvency proceedings to assets required for the trading of the debtor's business. However, the moratorium on enforcement by secured creditors upon commencement of insolvency proceedings no longer applies where the relevant collateral is shares in an SPV holding company (provided that this will not impact on the ability of the debtor to trade);
  • Insolvency claw-back: A new safe harbor regime for refinancing agreements removing the risk of claw-back in certain circumstances;
  • New money priority: Priority as administration expense for new monies injected as part of a refinancing;
  • Insider rules for "compulsory subordination": New rules governing the priority of related party claims so that debt held by holders of equity obtained following a debt-for-equity swap is no longer at risk of being subordinated as an "insider" transaction;
  • Personal liability for equity: Personal liability for equity holders who unreasonably reject a debt-for-equity swap as part of a refinancing agreement where the debtor is later declared insolvent and is forced into liquidation;
  • Voting: Modified thresholds and procedures for creditors and court approval of refinancing agreements to make it easier for a debtor to propose and obtain approval for a refinancing agreement; and
  • Takeover act exemptions: Certain exemptions from the rules regarding takeover bids where a controlling stake in a company is acquired by means of a debt-for-equity swap.

A more detailed discussion of RDl 4/2014 is available here.

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