Restructuring & Insolvency Newsletter - April 2021 | Judgments

Suspension of special shareholders’ meeting until insolvency receiver’s appointment and acceptance of that appointment

Decision by Seville Commercial Court No 3 on February 26, 2021 (“Abengoa” case)

To preserve the interests of the insolvency proceeding, in the insolvency order decision, the court ordered suspension of a special shareholder's meeting that had been called, at least until the insolvency receiver had accepted the appointment and was able to attend that meeting to defend the creditors’ interests.

Territorial jurisdiction to hear an insolvency proceeding is determined by the debtor’s center of main interests not by its registered office

Judgment by the Supreme Court (Chamber One) on February 16, 2021

The attribution of territorial jurisdiction to the insolvency judge is determined by reference to the debtor company's center of main interests, meaning the place where that company adopts its decisions and centralizes management of the business, even though it may carry on its activities and have its registered office elsewhere.

Appointment of silent administrator in the pre-insolvency phase to prepare sale of debtor’s productive unit

Decision by Malaga Commercial Court No 2 on February 15, 2021

The silent administrator is appointed in the pre-insolvency phase to assist with the process of selecting a purchase bid for the productive unit, verify that it fulfills the publicity, transparency and open competition requirements, and to become familiar with the business. The subsequent petition for an insolvency order must be accompanied with the final report by that silent administrator (who will be appointed insolvency receiver) on the steps taken to obtain authorization to accept the binding bids received for the productive unit.

Appointment of a silent administrator to prepare the sale en bloc of the productive units of a group of companies

Decision by Barcelona Commercial Court No 11 on January 21, 2021

Sale processes in the context of a pre-pack insolvency process are coordinated by appointing a single silent administrator for the whole group, whose functions must be in line with the procedure published by Barcelona's commercial court judges.

The purpose of the pre-pack insolvency process is to bring forward the preparation of a sale process for a productive unit, so it is not useful for transferring the debtor’s isolated assets

Decision by Barcelona Commercial Court No 1 on February 10, 2021

The pre-pack procedure allows a public, transparent and competitive process to be prepared for the sale of a productive unit overseen by an independent expert although it should not be used to bring forward to a pre-insolvency phase the sale of a few isolated assets of the debtor, which is something that may only be authorized by the judge after the insolvency order has been issued.

Modification of a court-sanctioned refinancing agreement before a year has run from when it was sanctioned (under the COVID-19 legislation)

Decision by Barcelona Commercial Court No 9 on January 28, 2021

A modification of the refinancing agreement fulfills all the formal requirements for it to be sanctioned by the court, including the existence of the necessary majorities of financial liabilities, which must be the same as those required to have the original agreement sanctioned and for its effects to be binding.

No standing for debtor’s shareholders to challenge court sanctioning of its refinancing agreement

Judgment by Pontevedra Commercial Court No 1 on January 17, 2021 (“Nueva Pescanova” case)

To be able to question the court sanctioning, the requirements are: (i) the person must be a financial creditor; (ii) their claim must be bound by the sanctioned agreement; and (iii) they must not have signed the arrangement or they must have expressed disagreement with it. In this case, a shareholder was a debtor’s creditor but his claim was not bound by the terms of the refinancing agreement, and it is not sufficient for the purposes of their having standing to challenge for their participation as shareholder to be bound by the terms of the sanctioned agreement. Notwithstanding the foregoing, the refinancing agreement is not sanctioned as the main financial creditor: (i) is considered a especially related person with the debtor; (ii) is the majority partner; (iii) has the majority of the voting rights in the shareholders meeting; (iv) has appointed the largest part of the council members; and (v) is considered part of the same group and de facto administrator of the debtor. Therefore, his credits should not be taken into account for the computation of majorities.

Subordination of shareholder's claim derived from exercising right of withdrawal before the insolvency order

Judgments by the Supreme Court (Chamber One) on February 2, 2021 and January 15, 2021

A claim for repayment to a shareholder who exercised their right of withdrawal before the insolvency order is subordinate, without limitation to the potential contingency arising from any lawsuit over its amount. For further information see our related alert.

In a court homologation process for refinancing agreements the existence of a disproportionate sacrifice cannot be assessed beforehand

Decision by Madrid Commercial Court No 5 on February 17, 2021

If the formal requirements are fulfilled for a refinancing agreement to be sanctioned the judge must sanction it, and there cannot be a prior examination by the court of the existence of an unjustified sacrifice. Analysis of the existence of a sacrifice must be carried out, if needed, at a later stage and only in the event of a challenge of the court sanctioning decision by the creditor concerned.

Value given is presumed for collateral provided by companies in a same group simultaneously with the provision of loans to other companies in its group

Judgment by Madrid Provincial Appellate Court on October 2, 2020

The value given and therefore the validity and legal certainty involved in contextual collateral during the refinancing of a group of companies is strengthened by the existence of a cash pooling system for the companies signing the refinancing agreement, which shared business synergies. The collateral cannot be clawed back because there was no disproportionate sacrifice in the provision of that collateral, since: (i) before the agreement a considerable number of companies in the group had unpaid debt; (ii) the financing terms for the group’s liabilities were enhanced; and (iii) the refinancing secured by the disputed mortgages and payment guarantees allowed the guarantor companies to continue trading for almost two years before petitioning for the insolvency proceeding.