Royal decree-law 4/2014, on urgent measures for refinancing and restructuring corporate debt: amends the Insolvency Act and the exemption on mandatory takeover bids for rescue operations, and extends the special regime for calculating losses due tue impairment

On March 18, 2014, the Bank of Spain gave credit institutions consistent criteria to apply the provisions of Circular 4/2004 to restructuring transactions resulting from the refinancing agreements regulated under the Insolvency Act, complying with the stipulations of Additional Provision One of Royal Decree Law 4/2014, which assigned the drafting of those criteria to the Bank of Spain.

Madrid Commercial Court No. 6 order of October 7, 2013: acquirer of a production unit subrogated in employment liabilities because the shareholders and directors had established the company specifically to acquire the insolvent company ("Marco Aldany Case")

The court did not rule out liability for employment obligations because the partners - directors of the insolvent company wished to acquire the production unit through a company created specifically to acquire it.

The fumus boni iuris used to justify the adoption of interim measures, involving blocking the enforcement of a financial guarantee, was counteracted since the pledge was fully enforceable under Luxembourg law, which was the governing law.

The parties had agreed to institute a financial guarantee on certain shares owned by the insolvent company and the pledge was made subject to Luxembourg law, because the account where the shares were deposited was located in Luxembourg.

A credit institution that is the indirect owner of an insolvent company’s share capital is not a person closely related to the insolvent company, unless it uses an intermediary to avoid that status.

The court ruled to allow the sale of the production unit with assignment to the acquirer of the agreements involving the insolvent companies affected by the transfer of the production unit and necessary for its continuance.

The European Commission recently published a recommendation addressed to Member States on a new approach to rescuing businesses and offering a second chance to honest entrepreneurs. It aims to ensure that viable businesses experiencing financial difficulti es have access to restructuring mechanisms at an early stage to prevent insolvency and maximise overall value for creditors, employees and owners. It also proposes a second chance for honest entrepreneurs involved in insolvency proceedings.

I  FRAMEWORK OF AVAL

Legal Framework of Aval

The aval consists of a personal guarantee of obligations that is typical of debt securities – in particular bills of exchange, promissory notes and cheques – and enormously important given how often the same is used in practice in the commercial activity, namely the provision of aval to commercial companies, makers of debt securities.

Introduction: The Question

Financial entities. Royal Decree-Law 14/2013, of November 29, on urgent measures to adapt Spanish law to European Union law on the supervision and solvency of financial entities. (BOE 287, November 30, 2013)

European Union law on the supervision and solvency of financial entities (Basel III) has been incorporated into Spanish law.