Cross-border Spanish rules on restructuring plans

Spain’s insolvency regime is deeply integrated with EU insolvency law. The TRLC incorporates provisions from:

• EU Insolvency Regulation No. 2015/848 (EIR) which governs jurisdiction, recognition, and cooperation between EU member states in insolvency proceedings.
• Directive (EU) 2019/1023 on preventive restructuring frameworks which harmonises preventive restructuring tools to enhance debtor viability and maximise creditor recoveries.

In particular, the TRLC incorporates provisions from these instruments in relation to cross-border restructurings involving entities, creditors, or assets located in multiple jurisdictions.

Jurisdiction for insolvency and restructuring proceedings is generally based on the debtor’s Centre of Main Interests (COMI), defined as the place identifiable by third parties as being where the debtor regularly administers its interests. If the debtor’s COMI is in Spain, Spanish courts have exclusive jurisdiction to commence main insolvency or restructuring proceedings.

If the debtor has assets or branches in other EU member states, those jurisdictions may commence secondary insolvency proceedings to protect local interests, subject to the rules in the EIR Spanish courts maintain jurisdiction over the main restructuring plan but must cooperate with courts in other jurisdictions.

The terms of the restructuring plan affecting creditor rights and debtor obligations are primarily governed by Spanish law when proceedings are commenced in Spain. However, contracts governed by foreign law remain subject to that law in respect of validity and enforcement, which can complicate cross-border restructurings.

Preventive Restructuring Plans: Designed for debtors facing financial difficulties but not yet insolvent, these plans aim to restructure liabilities and avoid insolvency. They can be implemented extrajudicially or with court supervision.

Insolvency Restructuring Plans: If insolvency proceedings have begun, restructuring plans are proposed to reorganise the debtor’s business and liabilities, often with increased court oversight.

Group Restructuring Plans: Recognising the complexities of multinational groups, the TRLC allows for coordinated restructuring plans for groups of companies, including those with cross-border elements. Courts can designate a group representative to facilitate cooperation between multiple proceedings.

Spanish restructuring plans allow significant flexibility, including debt rescheduling or deferral, debt forgiveness (i.e. haircuts), debt-to-equity conversions, modification of creditor ranking and asset or business transfers.

In cross-border cases, plans must consider the rights of foreign creditors and the enforceability of plan provisions under foreign laws. Modifications affecting creditors outside Spain require international cooperation and sometimes additional procedures to ensure recognition and enforcement abroad.

Creditors are grouped by similarity of rights, ensuring equitable treatment. Typical classes include secured creditors, unsecured creditors, employees, and public creditors. Foreign creditors are classified according to the nature of their claims, even if governed by foreign law.

Voting mechanism: Each creditor class votes on the restructuring plan. Approval generally requires a majority by number and amount within each class. The TRLC also permits a cram-down mechanism allowing courts to approve plans despite opposition from some creditors, provided the plan meets fairness and feasibility criteria.

Inclusion of foreign creditors: Foreign creditors have the right to participate in the process. Spanish courts ensure proper notification and respect procedural rights, enabling them to vote and object where appropriate. Their participation is crucial for plan legitimacy and for securing recognition in foreign jurisdictions.

Spanish courts play an active role in supervising restructuring plans, both in preventive and insolvency proceedings. Their responsibilities include reviewing the restructuring plan’s compliance with legal requirements, ensuring the plan treats creditors fairly and respects priority rules and also verifying the debtor’s viability and the plan’s feasibility.

Courts coordinate with foreign jurisdictions, particularly in EU member states, through mechanisms established by the EIR and bilateral cooperation. This cooperation aims to harmonise restructuring efforts across borders and avoid conflicting rulings.

EU recognition: Under the EIR, insolvency and restructuring proceedings, that were opened in an EU member state, are recognised across other member states, including Spain. Spanish courts enforce foreign restructuring plans approved by competent foreign courts unless such enforcement violates Spanish public policy.

Non-EU jurisdictions: Recognition and enforcement of restructuring plans from non-EU jurisdictions depend on treaties, Spanish private international law or principles of reciprocity. These cases may require separate local proceedings for enforcement in Spain.

Group restructuring addresses the challenge of coordinating the restructuring of multiple entities within a corporate group. The TRLC permits the appointment of a group representative to coordinate proceedings involving multiple group members; submission of joint or coordinated restructuring plans for group companies, whether located domestically or abroad; and enhanced cooperation between courts overseeing different group members’ restructurings.

This mechanism facilitates holistic restructuring strategies that maximise value preservation across the entire corporate group.

Spanish law ensures the protection of creditors’ rights in cross-border restructurings.  Secured creditors generally retain their rights although the plan may include agreed modifications. In addition, employee claims enjoy privileged treatment, and public creditors, including tax authorities, are provided with protections.

Spanish courts retain the authority to refuse enforcement or recognition of foreign restructuring decisions that conflict with fundamental Spanish legal principles or public policy.

Cross-border restructurings are inherently complex due to differences in insolvency laws, creditor rights, and court procedures across different jurisdictions. Coordination among courts, insolvency representatives, and advisors are essential to harmonise timelines and outcomes.

Enforcement of restructuring plan modifications on foreign creditors or assets may require additional steps, such as recognition procedures or separate enforcement actions, potentially causing delays and uncertainties.

Effective communication, including translation of key documents and proper notification to foreign creditors, is critical to ensure their meaningful participation and reduce any litigation risks.

Cross-border restructurings demand multidisciplinary expertise, involving insolvency lawyers, tax advisors, and financial consultants familiar with multiple jurisdictions.

Spain’s Consolidated Insolvency Law provides a modern framework for restructuring plans, effectively integrated with EU insolvency law. Its provisions enable Spanish courts to manage complex cross-border restructurings through clear jurisdictional rules, flexible plan mechanisms, creditor protections, and cooperation with foreign jurisdictions.

For multinational debtors or groups, the TRLC’s group restructuring tools and judicial coordination mechanisms offer practical means to achieve comprehensive, cross-border restructuring solutions. Nevertheless, successful cross-border restructurings require meticulous planning, cooperation, and expertise to navigate jurisdictional nuances and enforcement challenges.