One of the great novelties of the current bankruptcy reform is the chapter on business restructuring.

A complicated chapter, but decisive when it comes to refloating companies in insolvency, but with parameters that show possibilities of survival after the procedure.

The new restructuring procedure is one of the tools that the Ministries of Economic Affairs and Justice plan to implement in view of the avalanche of tenders that will be requested once the current moratorium ends.

Suspension of executions The communication of the start of the restructuring procedure is that the debtor can enjoy a temporary stoppage or suspension of singular, judicial or extrajudicial executions, on the assets necessary to continue with their business activity, in order to facilitate the negotiations of this restructuring plan.

This continuity should serve to preserve the value of the company and if the negotiations are successful, maximize the excess value associated with a pre-bankruptcy restructuring.

The Draft Bill for the bankruptcy reform opts for a very broad definition of the concept of restructuring plans and includes the restructuring measures that affect both liabilities and assets.

The standard also includes the option of approving a restructuring plan that provides for the sale of parts or even the entire company, the so-called liquidation plans, which may be an attractive option, in particular, for SMEs.

Guarantees required by law The law links these guarantees to the concurrence of three fundamental elements: a correct configuration of the classes of creditors affected by the plan restructuring, who are going to make the decision; a favorable qualified majority within each of these classes and, finally, respect for a minimum economic value when there are dissident creditors or classes of creditors.

Indefinite professional figure However, as with many other aspects of the articulated future, the figure of the restructuring expert is blurred, since as has indicated the Council of Economists, the Draft is limited “to the mere generic requirement of having specialized knowledge whose sufficiency may be, in any case, evaluated by the contest judge.”

The Council indicates Economists, through their note on the urgent analysis of the draft text, that this lack of specificity is far from the highly qualified professionalized models that are used in other countries where the Directive has already been transposed, such as the United Kingdom. United (with its financial professionals with special license for the exercise of this function -Monitors-) or Italy (where this function falls mainly on the highly qualified financial experts Dottori Commercialisti).

This situation leaves this professional figure in a similar lack of definition, as occurs with the figure of the bankruptcy administrator, whose regulations have been frozen for years and without publication visions, which mediates the training requirements and updating of knowledge of these professionals, among other things.

A very heterogeneous subject The Preamble of the standard recognizes the difficulty of regulating in restructuring matters, since “no two restructurings are the same and, therefore, the regulatory framework must be sufficiently agile, flexible and versatile to be able to adapt to the particularities of each case.”

New pre-bankruptcy instrument Thus, these restructuring plans are introduced, which are a pre-bankruptcy instrument aimed at avoiding or overcoming insolvency, which seeks to act in a situation of difficulties prior to the of the current pre-bankruptcy instruments, which dealt with to eliminate the stigma associated with the contest.

This new procedure tries to contribute to the decongestion of the courts, threatened by an avalanche of competitions as a result of the pandemic.

The role of the judge in this phase As in the law that is repealed, the intervention of a judicial authority is reduced to two moments different and independent: the communication of the opening of negotiations with the creditors and the confirmation or approval of the restructuring plan reached.

The law thus leaves the affected parties to privately negotiate and reach an agreement on the restructuring plan, and limits itself to setting a regulatory framework in order to facilitate collective bargaining, guaranteeing minimum safeguards of the process and the outcome of the negotiation, and

ensure a balance between the protection of the interests of the majority and adequate protection of the dissenting affected parties.

What companies will be accepted? The recipient of this pre-bankruptcy system will be any natural or legal person that carries out a business and professional activity and that is not included within the scope of the new special procedure for micro-SMEs.

In this way, a debtor who is likely to be insolvent cannot be the subject of a bankruptcy, but can use the mechanisms that make up the pre-bankruptcy law.

Companies may avail themselves of restructuring plans in a situation of probability of insolvency, prior to the imminent insolvency required to be able to resort to current instruments. Therefore, the current pre-bankruptcy instruments, which have not worked in practice since their entry into force, are abolished.

In the regulation of restructuring plans, an attempt has been made to eliminate many procedural requirements from the refinancing agreements and elements that the legislator expects to achieve greater efficiency have been incorporated, such as the possibility of dragging out dissident classes, subject to compliance with certain safeguards for creditors, which constitutes the core of the model.

The limit of the necessary competition As long as the company is economically viable, its restructuring is justified to avoid the risks of destruction of value associated with the procedure bankruptcy, which does not mean that the right of every creditor to request the insolvent debtor’s bankruptcy will be restricted. For this reason, the only time limit to the restructuring of companies in a current insolvency situation is the one that has already been admitted for processing a necessary bankruptcy application.

Three months extendable The rule regulates the possibility of extending the effects of the communication for periods of three months up to a maximum period of 12 for very complex negotiations, involving many and diverse creditors and shareholders.

Effects of the communication The most important novelty concerns the cases in which it is the debtor who voluntarily requests the bankruptcy, so that the The application may be suspended when there is a probability of reaching a restructuring plan in a short period of time to prevent the debtor from frustrating the adoption of a restructuring plan with negotiations already well advanced.

An informal vote The negotiation and voting of the plan is informal and outside of any regulated process or the intervention of any judicial authority, without prejudice to the possible appointment of an expert in restructuring, when appropriate imperatively or at the request of the parties. The judge only intervenes at the end of the process, to approve the plan already approved by the classes and majorities required by law.

Dissenting creditors The Recourse to the special regime will be necessary when it is intended to extend its effects to dissident creditors within a class, to entire classes of dissident creditors or even to partners, that is, when the general rules of civil or commercial law are excepted.

In the same vein, recourse to this special regime must be used when it comes to protecting the plan and the guarantees, acts or businesses provided for in the general rules on insolvency rescission actions or, where appropriate, grant certain privileges to the financing granted or committed in the context of a restructuring plan, in the event of subsequent bankruptcy.

Definition of affected credits Affected credits are those that, in accordance with the plan, will undergo a modification of their terms or conditions, with regardless of whether its real value is also altered. The law leaves the interested parties to decide, depending on the needs of each case and the negotiation process, whether they want to affect the entire liability or only a part, and the amount or identity of this. The judicial control over how the credits have been grouped to form the different classes presupposes a control over how the perimeter of affectation has been delimited and guarantees that it responds to objective and sufficiently justified criteria. The only exception to the principle of universality of the liabilities susceptible of affectation are public credits, labor credits, food credits and extra-contractual ones.

Weighting of the vote cast The law contains rules on how credits should be computed for the purposes of weighting the vote cast. Many of them come from current legislation, but an important novelty has been added to solve a common problem in practice, such as the valuation of contingent credits.

As in the case of the communication, the law establishes the general principle of validity of contracts with reciprocal obligations pending compliance, with the novelty that the law declares the clauses of change of control that a capitalization of credits may cause ineffective. The law introduces another novelty taken from the bankruptcy procedure and from other systems in our environment: the possibility of terminating contracts in the interest of restructuring, including, with some additional specialty, senior management contracts.

This novelty is, therefore, one of the few special rules established in the text in relation to asset restructuring.

Voting by class For the approval of the restructuring plan, the affected loans must vote separately by class according to their nature, which is not new, but by extending the Directive the scope of liabilities susceptible of affectation, the class formation is more complex.

The law provides several criteria to determine how these classes should be formed.

After the general clause taken from the Directive, and which refers to the existence of a common interest of the creditors that are members of each class, the law indicates that the main parameter to form the classes must be bankruptcy credit ranges: credits with different bankruptcy ranges must be separated into different classes. In addition, credits of the same rank are allowed to be separated by classes taking into account data such as their financial or non-financial nature; the asset on which its guarantee rests in the case of guaranteed credits; how they will be affected by the plan, when credits of the same nature are to receive instruments of a different nature; and in particular that their owners are small or medium-sized companies that may be particularly affected by the restructuring.

Silence in contractual agreements The law is silent in relation to contractual subordination agreements, leaving it to the internal voting mechanisms themselves that, where appropriate, play and are outsourced. Although the formation of the classes will be controlled later, in the homologation phase, as a novelty, the interested parties are granted the option of requesting a prior judicial confirmation before the competent judicial authority; This option may be useful for cases in which, during the negotiation phase of the plan, there is a disparity of criteria between the affected subjects on the classes formed and it is preferable to clear up doubts without the need for wait until the end of the whole process.

Source:

1-Business – Wikipedia

What is meant by business?

A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. The term “business” also refers to the organized efforts and activities of individuals to produce and sell goods and services for profit.

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