First decisions on the court-sanction of refinancing agreements and extension of effects to dissenting entities under the new text of the Fourth Additional Provision, and analysis of the concept of disproportionate sacrifice when there is opposition to the agreement
On October 1, 2014, the Official Gazette of the Spanish State (“BOE”) published Act 17/2014, on urgent measures for refinancing and restructuring corporate debt (“Act 17/2014”). This act arises from Royal Decree-Law 4/2014, of March 73 (“Royal Decree-Law 4/2014”), which was approved by the Spanish Congress of Deputies and subsequently processed as a draft bill through the urgent procedure.
The lender’s credit in respect of the joint-and-several guarantor declared insolvent is contingent unless existence of p
Rescission of an extension to a mortgage granted by the insolvent company securing a preexisting debt of a company of its group
Spanish Royal Decree-Law 4/2014, passed on March 7 2014, has considerably changed the rules for the court-sanctioning of so-called Spanish schemes of arrangement. Amongst those changes, the reform has lowered the majorities required to achieve a Spanish scheme. Currently, a majority of at least 51% of the financial liabilities held by all creditors at the time of the refinancing agreement (acuerdo de refinanciación) approval, will suffice to request the insolvency judge to sanction the agreement, so it is considered ringfenced and protected from any challenge for rescission.
Financial institutions are not de facto directors of the insolvent company because they do not significantly affect the performance of the insolvent company’s activity, but only ensure that certain costs do not affect the repayment of their loan.
The extension of the term for the delivery of works not authorized by the guarantor that had secured the penalty for delay does not harm it and, therefore, the guarantee is not extinguished; any increase in the penalty agreed does not extinguish the guarantee, but cannot be enforceable on the guarantor that will be liable in the terms agreed in the initial agreement. This decision discussed the effects on the guarantee of the novation of the secured obligation agreed without the guarantor’s knowledge.
The rescission was declared of a mortgage the insolvent company granted over a warehouse it owned in guarantee of the loan a credit institution had granted to a company of its group. The Supreme Court declared (i) that the contextual guarantee was for consideration and (ii) the need for proof of the profit (even indirect) of the guarantor company without merely belonging to the group sufficing, and confirmed that the rescission only affected the guarantee and not the loan.
SUPREME COURT RULING OF APRIL 9, 2014, NO. 175/2014: IN THE RESCISSION OF THE ASSIGNMENT IN PAYMENT AGREEMENT (DACIÓN EN PAGO), THE CREDIT OF THE NONDEFAULTING PARTY IS AN INSOLVENCY CLAIM AND NOT AGAINST THE INSOLVENCY ESTATE
The assignment in payment (dación en pago) of debt is an act extinguishing obligations and not a bilateral agreement. Therefore, its rescission leads to an insolvency claim for the non-defaulting party.
A creditors’ composition agreement has been approved for Pescanova, and section six of the insolvency proceedings (categorisation of the insolvency) has not been opened, as there is a type of creditor whose moratorium is less than three years and whose debt relief is below one third.