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Alternatives to Bankruptcy Proceedings

Spain overhauled bankruptcy rules to make it easier for troubled companies to avoid liquidation

The new regulation will make it easier to get agreements on write-offs, maturity extensions and debt-for-equity swaps and reduces the majority needed for creditor agreements to be approved

Individual creditors will be able to agree to refinancing during preliminary bankruptcy proceedings.

Currently there are two formal measures considered as pre-insolvency procedures:

1.    To promote restructuring agreements with some of the creditors of the company and making such agreements valid in case of a future insolvency proceeding.

2.    To promote out-of-court agreements for refinancing the company. These agreements will be profitable for the signing creditor and also the other creditors. money paid by the creditors to the company within the refinancing agreement.  50% of this “fresh money” qualifies as “crédito contra la masa” (more than a privileged credit), which means that it will be repaid before other ordinary and privileged credits. This constitutes a higher guarantee for the creditor refinancing the company.

The negotiation with creditors can last for a period of three months in order to try to reach the agreement.