Spain

1. Which financial (not tax or labour) short-term compensation schemes for immediate losses due to social distancing measures have been implemented? For which industries/sizes of business?

The Spanish Government approved Royal Decree-Law 7/2020 of 12 March adopting urgent measures to address the economic impact of COVID-19 (the “RD-Law 7/2020”). Article 15 of this Royal Decree-Law sets forth the possibility of certain entities to request an extraordinary deferment of the repayment schedule in loans granted by the General Secretariat for Industry and Small and Medium-sized Enterprises.

In this regard, the beneficiaries of this financial support for industrial projects may request the deferment of payment of principal and/or interest of the current annuity, provided that its maturity is no later than six (6) months from the date in which this Royal –Decree Law entered into force. 

This deferment of payment can be requested when the health crisis caused by COVID-19 has resulted in periods of inactivity for industrial projects, reduction in the volume of sales or supply interruptions in the value chain that make it difficult or impossible for them to pay on the basis of the original schedule. If the deferment is agreed, the repayment schedule shall be amended.

The Spanish Government also passed Royal Decree-Law 8/2020 of 17 March on urgent and extraordinary measures to address the economic and social impact of COVID-19 (the “RD-Law 8/2020”).

RD-Law 8/2020 sets out a plethora of support-related measures. In particular, these include: 

  • credit lines totalling up to EUR 100 billion for companies and the self-employed to cover the extension of loans and granting of fresh financing by credit and financial institutions (Article 29) (the “ICO Guarantee Line”)
  • extraordinary insurance coverage of up to EUR 2 billion from the Internationalisation Risks Reserve Fund (Article 31) aimed at companies with a recognisable international footprint whether due to their cross-border business or as frequent exporters. 

In addition to the above, article 39 of Royal Decree-Law 11/2020 of 31 March on urgent complementary social and economic measures to cope with COVID-19 (the “RD-Law 11/2020”) provides for the possibility of refinancing certain loans granted by the General Secretariat for Industry and Small and Medium-sized Enterprises.

In this regard, the beneficiaries of this financial support for industrial projects may request an amendment on the prepayment calendar up to two (2) years and six (6) months from the date in which Royal Decree 463/2020 of 14 March entered into force, if as a result of the health crisis caused by COVID-19 the beneficiary has suffered periods of inactivity, reduction in the volume of its sales or supply disruptions in the value chain.

As regards individuals, RD-Law 8/2020 sets forth a moratorium on mortgage debt for debtors who become vulnerable following the declaration of a state of emergency on 14 March. The regulation of RD-Law 8/2020 in this respect was amended and further detailed by RD-Law 11/2020. This measure goes a step further in protecting vulnerable debtors in respect of the regulations enacted on the back of the 2008 financial crisis, which were aimed at preventing evictions and foreclosure. 

Mortgage debt shall be understood as mortgage loans destinated for the acquisition of: 

  • the main residence of the debtor
  • real estate properties which are used to the economic activity of self-employed individuals, and
  • residential real estate which is rented to individuals who are not paying the rent since the beginning of the state of emergency and up to one month after the end of the state of emergency; 

in every case, where the mortgage debtor falls within the vulnerability criteria (defined in article 9 of RD-Law 8/2020 and article 16 of RD-Law 11/2020).  

This is a short-term measure, as the moratoriums are, in principle, of three (3) months’ length and would cease to be applicable as soon as the specific debtor ceases to fall within the vulnerability criteria.

In addition, as regards individuals, RD-Law 11/2020 also sets forth the possibility of a moratorium on the obligations arising from credit agreements without mortgage guarantee subject to similar eligibility criteria. 

Additional measures might be taken if the Spanish Government considers it necessary to face the COVID-19 epidemic.

2. Which medium-to long-term stabilisation measures are in place in your jurisdiction?

Please see questions 1 and 3.

3. Which measures (Guarantees, Loans, Equity Injections, etc.) are available?

By means of the above-mentioned RD-Law 8/2020 the Spanish Government has approved the granting of the ICO Guarantee Line for a maximum amount of EUR 100 billion in order to secure certain facilities granted by financial institutions to companies and self-employed individuals.

In this regard, the Spanish Ministry of Economic Affairs and Digital Transformation will grant such guarantees with the aim of implementing the necessary measures to ensure the liquidity and preserve the productive activity and employment of the self-employed and companies (mostly small and medium).

The ICO Guarantee Line will be approved in different tranches by means of the relevant council of ministers publishing the relevant resolutions and the main characteristics applicable to such tranches shall be the same, although there might be certain specific conditions only applicable to the relevant tranche.

The applicable conditions to the guarantees and the requirements to be met have been approved by means of the Resolution of 25 March 2020, of the Secretariat of State for Economy and Business Support, publishing the Council of Ministers’ Resolution of 24 March 2020, approving the characteristics of the first section of the ICO Guarantee Line for companies and self-employed individuals, to mitigate the economic effects of COVID-19 (the “Resolution of 25 March 2020”) approving a first tranche of guarantees for a maximum amount of EUR 20 billion, of which 50% will be reserved to secure loans granted to self-employed and small and medium companies.

The specific provisions of the Commission Regulation (EU) No. 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the TFUE to the minimis aid will apply for transactions for an amount of less than EUR 1.5 million (in one or more transactions) granted to self-employed individuals and companies. This is, the guarantee may not exceed 80% of the amount of the underlying transaction and the duration of the guarantee may not exceed five (5) years. 

On the other side, for transactions for an amount over EUR 1.5 million, the maximum amount provided in the European Commission’s Temporary Framework for Public Aid will be applicable, both for self-employed individuals and companies. However, this limit may vary according to the maturity date of the secured operation: 

  • For transactions with a maturity date after 31 December 2020, the amount of the principal being guaranteed may not exceed the lower of the following thresholds:
    • twice the annual wage bill for 2019 or the latest year available (including social charges and the cost of subcontractors’ workers at the headquarters of the company)
    • 25% of total turnover for 2019. However, with appropriate justification and on the basis of a self-certification of the liquidity needs of the company, the amount of the secured transaction could be increased to cover the liquidity needs for the 18 months following its granting, for medium and small companies, and for the 12 months following its granting for large companies. 
  • For transactions with a maturity date of up to 31 December 2020, the principal amount to be guaranteed may be higher than the limits indicated in the previous paragraph, provided that there is a justification and the proportionality of the aid is ensured. 

Please note that the Resolution of 25 March 2020 has determined that this measure will be applicable differently considering the amount of the transaction. On one side, if the transaction is up to EUR 50 million, it shall be approved by the relevant financial institution involved in accordance with its internal risk policies. Once the measure is implemented, these transactions might be subject to subsequent checks on their eligibility conditions by the Official Credit Institute (Instituto de Crédito Oficial). On the other side, if the transaction is above EUR 50 million, it shall only be guaranteed once the Official Credit Institute (Instituto de Crédito Oficial) has analysed the compliance with the eligibility conditions as a complement to the financial institution’s analysis.

These guarantees will secure 80% of the new loans and the renewal of existing transactions requested by those self-employed and small companies. For the rest of the companies, the guarantee shall secure 70% of new loans granted and 60% of the renewal of their operations. No further information is available in respect of requirements to be met for the granting of the guarantees.

The term of the guarantees will be equal to the term of the loan granted or renewed, with a maximum term of five (5) years. The cost of the guarantees will be between 0.2% and 1.2%. Such cost will be borne by the financial institutions granting or renewing the loans.

Interested companies and the self-employed may apply for the guarantee until 30 September 2020 by contacting the financial institutions with which the Official Credit Institute (Instituto de Crédito Oficial) has signed the corresponding collaboration agreements. In this regard, the financial institutions undertake to maintain, at least until 30 September 2020, the limits on the working capital credit lines granted to all customers and, in particular, those customers whose loans become guaranteed by this measure.

The second tranche of these guarantees has been approved for an amount of up to EUR 20 billion by means of the Resolution of 10 April 2020, of the Secretariat of State for Economy and Business Support, publishing the Council of Ministers’ Resolution of 10 April 2020, which instructs the Official Credit Institute to implement the second tranche of the guarantee line approved by Royal Decree-Law 8/2020 of 17 March and establishes that its beneficiaries are small- and medium-sized companies and the self-employed affected by the economic consequences of COVID-19 (the “Resolution of 10 April 2020”).

Although the applicable conditions to this second tranche are the same as the ones applying to the above-mentioned first tranche, the Resolution of 10 April 2020 introduces the following specific characteristics, which are only applicable to the second tranche:

  • it is only applicable to small- and medium-sized companies and the self-employed affected by the economic consequences of COVID-19
  • the new financing transactions guaranteed under this measure will have to contain lower costs than other transactions of the same kind that would have been previously entered into without this guarantee. This measure will be monitored by the Official Credit Institute (Instituto de Crédito Oficial)
  • financial institutions shall apply the best banking practices for the benefit of customers and may not market any other products when granting loans covered by this public guarantee or make its granting conditional on the customer contracting other products. 

Moreover, article 9 of RD-Law 11/2020 approved the granting of a guarantee line on behalf of the State to secure the financing of socially and economically vulnerable tenants as consequence of COVID-19. This regulation authorises the Ministry of Transport, Mobility and Urban Agenda so that, by means of an agreement with the Official Credit Institute (Instituto de Crédito Oficial), it issues a guarantee line with full coverage by the State, so that financial institutions can offer interest-free financing to individuals who are in a situation of vulnerability so that they can pay the rent of their main residence for an amount of up to six (6) monthly rent payments (as described in section 5.d) below). The financing made available under this programme would have a maximum term of repayment of six (6) years, extendable to up to four (4) additional years in exceptional cases. 

4. Have these mid- to long-term stabilisation measures already been notified with EU or other antitrust bodies?

Yes.

Please specify.

Yes. The European Commission has declared that the ICO Guarantee Line that Spain is going to allocate to companies and self-employed workers affected by the Coronavirus outbreak are in line with EU rules on state aid.

5. Which prerequisites are necessary to qualify for a programme?

a) The application submitted in order to benefit from the extraordinary moratorium on the reimbursement scheduled in loans granted by the General Secretariat for Industry and Small and Medium-sized Enterprises must contain:

  • a supporting report in which the difficulty of meeting the payment is stated
  • a declaration assuring that the company is up to date with its tax and social security obligation, and
  • in the event that the period established for making the investments has not expired, a technical and economic report supporting the investments carried out with the loan.

The maximum period for the resolution of this procedure and its notification is one (1) month from the date of application. If, after this period has elapsed, the competent body has not notified the decision, the application has to be understood as rejected

b) The application submitted in order to benefit from the refinancing of loans granted by the General Secretariat for Industry and Small and Medium-sized Enterprises must contain the same information as the one requested for the extraordinary moratorium on the reimbursement scheduled in loans granted by the General Secretariat for Industry and Small and Medium-sized Enterprises.

c) Regarding the ICO Guarantee Line, as per the publication of the Resolution of 25 March 2020, and as stated in the answer to the following question, there are no other requirements which have been published other than the fact that:

  • the recipients of the loan have a registered office in Spain
  • the loan is formalised or renewed after 17 March 2020
  • the applicant is not included as defaulting party regarding the Bank of Spain Central Risk Information Service, and
  • the applicant is not subject to a bankruptcy procedure as of 17 March 2020 under Spanish law.     

d) The conditions in order to benefit from the mortgage moratorium are set out in article 9 of RD-Law 8/2020 and article 16 of RD-Law 11/2020 which defined such vulnerability as the fulfillment of the following cumulative requisites: 

  • unemployed debtors or, in the case of employers and the self-employed, a substantial loss of earnings or drop in sales (at least 40%)
  • when the family’s combined earnings for the one (1) month prior to the moratorium application fall below three (3) times the Multiplier for the Public Income Index (IPREM), increased by 0.1x per dependent child or person over the age of 65, or 0.15x per dependent child for single-parent families, or up to four or five times the IPREM due to disability of the debtor or a family member, and
  • when the mortgage payment exceeds 35% of the household’s combined net income, and
  • when the family has suffered a significant change in economic circumstances (1.3x increase in the mortgage burden on household income) as a result of the health crisis. 

All non-debtor sureties, guarantors and mortgagees who also find themselves under the above circumstances can ask the lender to exhaust the principal debtor’s assets first. In other words, contractually agreed waivers to the right of excussio under Article 1830 of the Spanish Civil Code are suspended. Nevertheless, the foregoing is notwithstanding the fact that the moratorium also applies to the principal debtor where the circumstances described in Article 16 of RD-Law 11/2020 are recognised.

This mortgage moratorium shall be requested up to 15 days after RD-Law 8/2020 ceases to be in force. Once it has been requested, provided that the debtor shows evidence of meeting the requirements, the lender will proceed to its implementation within 15 days. Please note that although the mortgage moratoriums do not formally require entering into a deed of amendment of the mortgage loan agreement for its effectiveness, looking forward the changes made by the moratorium will need to be notarised and filed at the relevant land registries.

The requested moratorium shall lead to the suspension of all payment obligations under the mortgage debt for a period of three (3) months and to the suspension of the accrual of interest. During the moratorium period the lender may not claim the payment of any interest, principal, fee, nor any other cost, nor may accelerate the mortgage loan on such basis. The duration of the moratorium may be extended by an agreement of the Council of Ministers.

e) Regarding the moratorium within the credit obligations arising from credit agreements without mortgage guarantee, the requirements are:

  • the debtor under the credit is a natural person, and
  • the debtor under the credit complies with the vulnerability criteria, as defined in paragraph d) above.

This moratorium can be requested up to one (1) month after the end of the state of emergency. Once it has been requested, provided that the debtor shows evidence of meeting the requirements, the lender will automatically suspend the credit obligations of the debtor. 

Please note that although the moratorium does not formally require entering into a deed of amendment of the credit agreement for its effectiveness, looking forward the changes made by the moratorium will need to be reflected in an amendment agreement and, if necessary, the relevant security interests shall be refiled at the corresponding public registry. 

The requested moratorium shall lead to the suspension of all payment obligations under the debt for a period of three (3) months and to the suspension of the accrual of interest. During the moratorium period the lender may not claim the payment of any interest, principal, fee, nor any other cost, nor may accelerate the credit on such basis. The duration of the moratorium may be extended by an agreement of the Council of Ministers. 

6. Are there any major reasons that may inhibit an applicant from successfully applying for a stabilisation measure?

Yes.

Please specify.

Yes. According to the Resolution of 25 March 2020, the applicants that may request the guarantees under the ICO Guarantee Line must be companies or self-employed persons, with their registered office in Spain, recipients of loans or other transactions, affected by the economic effects of COVID-19, provided that:

  • the loans and transactions were formalised or renewed after 17 March 2020
  • the applicants were not in default when consulting the files of the Bank of Spain’s Central Risk Information Service (CIRBE) on 31 December 2019, and 
  • the applicants are not subject to any bankruptcy proceedings on 17 March 2020, either because they have filed for bankruptcy or because the circumstances referred to in article 2.4 of the Insolvency Act have arisen for the bankruptcy to be requested by their creditors.

7. In an international context, are subsidiaries and branches of foreign parent/holding companies eligible to apply? For EU-States: Also for non-EU-third countries?

Other

Comments

The measures under RD-Law 7/2020 regarding the extraordinary moratorium on the repayment schedules in loans granted by the General Secretariat for Industry and Small and Medium-sized Enterprises only applies to entities who are already debtors under such loans. 

The ICO Guarantee Line granted by means of RD-Law 8/2020 is available, in accordance with Article 31 of RD-Law 8/2020, only to those enterprises defined in Annex I of European Commission Regulation 651/2014 as small- and medium-sized enterprises. The publication of the Resolution of 25 March 2020 further detailed the definition of small- and medium-sized enterprises, stating the applicable limits to the interpretation of the definition which are:

  1. "The category of micro, small and medium-sized enterprises (‘SMEs’) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million; 
  2. Within the SME category, a small enterprise is defined as an enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million; and 
  3. Within the SME category, a micro-enterprise is defined as an enterprise which employs fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 2 million.” 

In conclusion, if the subsidiaries or branches fall under the definitions included in European Commission Regulation 651/2014 and the Resolution of 25 March 2020, as described above, they would be eligible to apply. It should also be noted that there is no specific mention to branches in RD-Law 8/2020 nor in the Resolution of 25 March 2020 and that we have no visibility as to whether this measure would apply to them, at least, until the eligibility conditions are published by the Official Credit Institute (Instituto de Crédito Oficial).

8. Do your country’s stabilisation schemes foresee restrictions on use of cash/other restrictions?

Yes

Please specify.

RD-Law 8/2020 introduced some restrictions within foreign (outside EU) investments.
The fourth final provision of RD-Law 8/2020 involves an amendment to Act 19/2003 of 4 July on the legal terms of capital movements and financial transactions with those from outside Spain.

This provision suspends the liberalisation of direct investment made by investors residing in non-EU countries and from outside the EFTA. Said suspension means that these types of investments will require authorisation while RD-Law 8/2020 remains in force. It is important to note that this special provision is not pegged to the duration of the current crisis, remaining valid until the Council of Ministers issues a resolution ordering the measure to be lifted.

Equally, it should be pointed out that indirect investments do not appear to be included, i.e. those made through European companies controlled by investors residing in non-EU countries and from outside the EFTA.

The suspension of the liberalisation arrangement is not comprehensive in the sense that it only refers to certain sectors and is underpinned by the intention to prevent companies from strategic sectors of public interest being acquired by foreign investors in the context of the current crisis. For that reason, the arrangement is suspended for critical sectors which affect public order, safety and health. In addition, the fourth final provision of RD-Law 8/2020 specifically provides for this suspension to be extended to other sectors in the future, namely:

  • Critical infrastructure, whether physical or virtual (including infrastructure relating to energy, transport, water, healthcare, communication, the media, the processing and storage of data, aerospace, defense, the electorate, financial frameworks and sensitive locations), as well as land and real estate assets key to the operation of such infrastructure
  • Critical technology and dual-use products, including AI, robotics, semiconductors, cybersecurity, aerospace technology, defence and the storage of quantum and nuclear energy, as well as nano- and biotechnology
  • Supply of basic consumables, in particular energy (electricity and hydrocarbons), raw materials and food safety
  • Sectors with access to sensitive information, especially personal data or the capacity to process such information, and
  • the media.

The restriction on investments applies when the transaction involves a foreign investor acquiring a stake equal to or higher than 10% of the Spanish company’s share capital, or when control of the Spanish company’s management body is taken over in accordance with Article 42 of the Spanish Commercial Code.

In addition to the acquisition of shares or control, the restriction will also apply when the investor falls within certain categories: those directly or indirectly controlled by foreign governments, investments or involvement in sectors which impact the security, public order and healthcare system in another Member State, or foreign investors against whom administrative or legal proceedings have been opened in another Member State, country of origin or third country over the performance of unlawful or criminal activities.

9. How are insolvency application deadlines handled in times of Corona?

Article 43 of RD-Law 8/2020 either amends or suspends several obligations imposed by the Insolvency Act on insolvent debtors or those filing for bankruptcy as a consequence of COVID-19. 

Broadly speaking, as with many other provisions contained in RD-Law 8/2020, it is a question of adapting the time frames set out under insolvency legislation to the unique situation of a state of emergency. 

The significance of these measures lies within the terms of the Insolvency Act in relation to the duty to file for bankruptcy within a certain period and the consequences of failing to fulfil such obligation. It suffices to recall that a breach of the insolvent debtor’s duty to file for bankruptcy triggers the assumption that it is due to negligence (Article 165.1.1 of the Insolvency Act). 

Among the severe consequences which may arise in the event of liquidation is the company’s directors being held personally liable for unpaid debts during bankruptcy. The exception under RD-Law 8/2020 enables this rule to be adapted to the specific circumstances of the COVID-19 crisis.

These provisions are as follows:

  • Article 43 of RD-Law 8/2020 abolishes the duty to file for bankruptcy while the state of emergency remains in place so that insolvent debtors are subsequently able to fulfil such duty
  • the relationship between voluntary (filed by the debtor) and involuntary bankruptcy (enforced by creditors) is also affected. In a bid to guarantee the consistency of the Insolvency Act provisions, RD-Law 8/2020 amends the general rule by prohibiting judges from accepting bankruptcy filings by creditors for two (2) months from the time at which the state of emergency is lifted
  • what’s more, judges will also prioritise filings by the debtor, even where creditor filings were submitted beforehand. The wording of this measure suggests that while judges will not accept bankruptcy filings by creditors until two (2) months after the state of emergency is lifted, the filing date will be placed on record but attempts will be made to avoid involuntary bankruptcies, even though the creditor filing was submitted first. This provision clearly shows a preference towards voluntary bankruptcy even in the wake of creditors having issued their request sooner
  • the duty to file for bankruptcy is also suspended for debtors who have notified the court that negotiations are under way with creditors to reach a refinancing agreement or out-of-court payment schedule, or to adhere to an early creditors’ arrangement proposal even where the deadline set for such purpose in Article 5 bis, section 5, of the Insolvency Act has passed. Under said Act, the debtor has three (3) months from notifying the court of the negotiations to then inform that a refinancing agreement has been reached, an out-of-court payment schedule has been agreed or their adherence to an early creditors’ arrangement proposal. Where unsuccessful, the debtor has one (1) month to file for a bankruptcy declaration. However, the special provision established on the back of the COVID-19 crisis suspends such one-month period, albeit not extending it to the two (2) months following the end of the state of emergency as is the general rule described above for the duty to file for bankruptcy. Instead, it will run from the very time at which the state of emergency is lifted.

10. How far have local insolvency/restructuring laws been changed/eased which might have an impact on international businesses?

As mentioned above, the Insolvency Act has not been explicitly amended due to RD-Law 8/2020. However, the effects of certain provisions of the Insolvency Act have been suspended. These measures shall apply to all Spanish companies regardless of the extent of the impact on their business, whether national or international. 

No.

Comments

At this date, the Spanish Insolvency Act has not yet been amended, but measures might be taken if the Spanish Government considers it necessary to face the COVID-19 epidemic.

At this date, the Spanish Insolvency Act has not yet been amended, but measures might be taken if the Spanish Government considers it necessary to face the COVID-19 epidemic.