What innovation does Directive 2019/1023 introduce for creditors and how is it reflected in the text of the Law?
With the transposition of the Directive 2019/1023 by Spanish Law 16/2022, which amends the Consolidated Text of the Bankruptcy Law (hereinafter, TRLC), creditors have the possibility to take the initiative in a restructuring scenario requesting the approval of a restructuring plan developed by themselves. This represents a clear innovation in our legal system.
The Spanish legislator, in the transposition of the Directive, contemplated this possibility in Section 643.1 of the TRLC when stating that: the request for approval of the restructuring plan may be submitted by the debtor or by any affected creditor who has signed it (...).
Is the Spanish legal system designed to favour creditors taking the initiative in a restructuring?
Creditors can request the approval of a restructuring plan as recognised in the law, but it is also true that the model seems to have been designed, primarily, for those cases where the restructuring plan comes from the debtor company itself, which is more common in practice.
The content of a restructuring plan is reflected in Section 633 of the TRLC. However, the presence of information asymmetries becomes clear when it is the debtor company that takes the initiative and requests the approval of a restructuring plan, and conversely, when it is the creditors who intend to carry out such approval, some information not being accessible by creditors. For the latter, the high degree of disclosure required by this precept not only represents an issue of considerable difficulty but, in most situations, is impossible to comply with.
Are there coercive mechanisms in place to compel the debtor company to provide the necessary information for a restructuring?
In the new version of the TRLC no coercive mechanisms have been envisaged to force the debtor company to provide such information. However, the creation of these mechanisms is not a simple task, considering that the debtor remains in possession. Since it is optional for both, the debtor and creditors, to benefit from a restructuring plan any coercive mechanism intending the supply of such information would dissuade its use as it could lead to the opposite effect (i.e. encouraging the debtor to request an early declaration of bankruptcy).
How have the courts interpreted the scope of the requirements for restructuring plans?
In the a decision by the Commercial Court No. 2 of Barcelona of 4 September 2023, known as the Celsa Case, a different scope of the legal requirements has been specified, depending on who takes the initiative (debtor or creditors). . Thus, the judicial body emphasizes that the same information that can be provided by the company, such as the economic situation of the debtor, cannot be demanded from the creditor/s requesting the approval, due to the evident information asymmetry. The literal wording of the resolution states that:
Article 633 of the TRLC that regulates the content of the PDR does not contain a formal bureaucratic content form, but a set of data and relevant information so that, all those affected by the Plan can know, with more or less accuracy, its scope and its consequences. The relevant aspect is, therefore, the information that the content of the PDR provides. (...) In general, the standard of interpretation of the formal requirements must be rigorous and demanding, as its observance guarantees rights and establishes obligations for the parties, in the process of approving the Plan, but mere allegations of non-compliance without material significance in the approval process cannot prosper.
Not every formal breach of the procedure or legal requirements should result in the ineffectiveness of the Restructuring Plan, as a whole, or the non-extension of effects to the party objecting to it. As opposed to that, the materiality of the specific infringement should be analysed, to deduce the consequences (if any) that should be attached to it, possibly being none when such defect lacks material relevance. This was already made clear in a court ruling of the Provincial Court of Pontevedra dated 10 April 2023 (Decision 179/23), also known as the Xeldist Case. In this case, the those opposing the plan alleged the existence of a formal defect that invalidated the plan (they did not include the public instrument the certification of the majorities by an expert. The Court understands that the requirement of documentary unity is merely practical, causing the same result and fulfilling the purpose of such requirement with the same efficiency, when the expert's certification is contained in a different public instrument as long as, in addition, as is the case, it is provided in time and form when requesting judicial approval.
What is the importance of addressing information asymmetries in the context of restructurings?
While the EU Directive transposition and its subsequent incorporation into the Spanish legal framework, evidence a huge progress in the financial restructurings area, they have unveiled the urgent need to address and mitigate the informational asymmetries inherent in the dynamics between debtors and creditors. This disparity in access to and availability of essential information hampers procedural fairness and undermines the effectiveness of restructuring mechanisms designed to safeguard business viability. Only through legislation that insightfully and fairly considers the multifaceted realities of business crises we can aspire to a bankruptcy system that, in its highest expression of justice and efficiency, promotes economic recovery and corporate sustainability.
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