Greater powers for creditors following the insolvency reform

Following the recent reform of the insolvency law, the rules have changed for creditors both during the pre-insolvency proceedings and in the insolvency proceedings themselves.

So, what does this new role for the creditor entail?

Until now, a creditor could only appear in person and little else, as their submissions were merely taken into account as the basis for the report drawn up by the insolvency administrator or the Public Prosecutor’s Office, but they had no legal recourse.

Under the new insolvency reform legislation, creditors now have more tools and resources at their disposal to enforce their rights to debt recovery and to monitor and intervene in the various stages of insolvency proceedings. This means that, depending on the debt and the actions of the debtor company and its board of directors, it will be worthwhile seeking advice to establish a strategy in advance and, using the tools that the new insolvency law provides to creditors, to intervene in the insolvency proceedings.

We will now briefly describe these new options available to creditors:

1. During the pre-insolvency phase, creditors have the opportunity to impose and approve restructuring plans (which replace the previous refinancing agreements and out-of-court settlement agreements)

This means that, under certain conditions, creditors may require corporate transactions to be carried out that allow them to acquire a stake in the share capital or the redemption of existing shares, thereby altering the shareholding structure, through the approval of restructuring plans, even against the wishes of the debtor company’s own shareholders. Notwithstanding the above, this possibility does not apply where the debtor company is an SME.

2. The possibility of playing an active role in the ranking process, so that the procedure can continue regardless of the insolvency practitioner’s report.

Creditors are given a prominent role in the insolvency assessment phase, in which they may participate on a voluntary basis. It should be borne in mind that, if the insolvency proceedings result in a finding of liability, the directors responsible may be required to settle any debts not covered by the company’s assets.

(a) Under the new law, a creditor may email the insolvency administrators any documents and information they deem appropriate to support the classification of the insolvency proceedings as culpable.

It is also important to note that, at present, amongst the grounds for classifying insolvency proceedings as culpable, the provision of seriously inaccurate or false information or documentation is also considered a presumption of culpability, against which no evidence may be adduced.

(b) Creditors who represent at least 5 % of the liabilities or who hold claims amounting to more than 1,000,000 euros and who have submitted submissions in support of classifying the insolvency proceedings as culpable, may also submit a reasoned and substantiated report on the facts relevant to the classification of the insolvency proceedings as culpable, together with a proposed resolution, within ten days of the date on which the insolvency administrator’s classification report was submitted.

If the report from the insolvency administrators requests that the insolvency proceedings be classified as fortuitous and the entitled creditors have not submitted a classification report, the judge shall order the case to be closed. No appeal may be lodged against the order closing the case.

Another new development is the possibility for the insolvency administrators, creditors who have submitted a valuation report, and any persons who may be affected by the valuation or be declared accomplices to reach a settlement agreement regarding the financial terms of the valuation.

(c) Under the special procedure for micro-enterprises, creditors holding at least 10% of the liabilities may apply for the commencement of the abbreviated assessment. It is also possible for any creditor to do so without the 10% threshold if the debtor has committed a serious inaccuracy in any of the insolvency forms or has attached or submitted false documents.

3. The right of creditors to object to the order for simultaneous conclusion in insolvency proceedings without an estate.

Once the insolvency proceedings have been declared to be ‘without assets’, a period is granted to creditors representing at least 5% of the liabilities, to enable them to apply for the appointment of an insolvency administrator. The insolvency administrator’s remuneration shall be borne by the creditors who have applied for their appointment.

The insolvency practitioner appointed must draw up a report on whether or not there have been any voidable acts, grounds for bringing a corporate liability action against the directors, or evidence of culpability.