Restructuring & Insolvency Newsletter - December 2021 | Judgments

Court-validation of the refinancing of the Naviera Armas Group

Order of Commercial Court No. 1 of Las Palmas de Gran Canaria of 27 October 2021

The Naviera Armas Group has reached a Court-validated refinancing agreement of its financial debt, which is close to 1,000 million euros. With this refinancing, the Naviera Armas Group (comprising 14 companies) has achieved, among other goals, to reduce its net debt by an amount that could reach 600 million euros, as well as to obtain liquidity for an amount of more than 200 million euros. This refinancing has been Court-validated in order to (i) extend its effects to dissenting creditors; (ii) shield the transactions, acts and payments carried out under it against possible claw-back actions; (iii) give priority to the fresh-money in the event of subsequent insolvency proceedings; and (iv) bind all syndicated creditors, as the refinancing has been subscribed by at least 75% of the syndicated liabilities.

Admission of appeal against publication of auction rules departing from terms approved in liquidation rules

Decision by Valencia Provincial Appellate Court on October 5, 2021

At first instance, an interlocutory order was issued to publish a set of auction terms and conditions containing cost allocations and tax charges that varied from those set out in the liquidation plan approved by a court. The Provincial Appellate court held that the contents of that interlocutory order, regardless of the form of the decision used by the court, are characteristic of an order to amend the liquidation rules, which may be appealed to a higher court. For this reason the appeal against the denial of leave to appeal was accepted and an order was issued to admit the appeal to a higher court.

The beneficiary of a condition precedent may waive it at any time

Judgment by the Supreme Court (Chamber One) on June 29, 2021

A buyer under condition precedent of several brands participates in the auction of a business unit that includes the licenses for the use of said brands. After not being a successful bidder, the buyer waives the condition precedent included in the purchase agreement and requests that the transfer of the trademarks in his favor takes full effect. The Supreme Court confirms the request of the buyer indicating that: (i) the participation of the buyer in the auction to obtain the licenses of use does not imply an act of its own that implies the will to annul the purchase agreement; (ii) the buyer may waive the condition precedent agreed in his favor; and (iii) the transfer of the trademarks in favor of the buyer does not affect the successful bidder of the business unit, by simply changing the identity of the person to whom he must pay the royalties for the use of the trademarks.

Debt discharge relief should apply to public claims also

Decision by Barcelona Provincial Appellate Court on June 17, 2021

Article 491 of the Recast Insolvency Law, which does not allow a public claim to form part of a discharge of unpaid liabilities, in addition to involving an overstepping of the lawmaker’s powers in the mandate to recast the insolvency legislation, is contrary to Directive (EU) 2019/1023 of the European Parliament and of the Council, of June 20, 2019, which does not contain any such exception to debt discharge relief. Therefore, the exception provided in that article with respect to public claims should not be applied.

Only parties with legitimate interests in the insolvency proceeding are entitled to be heard in the application procedure for court authorization

Decision by Bilbao Commercial Court no 2 on May 31, 2021

Any interest that public authorities may have in the projects of parties interested in the productive units in a competitive bidding process is not sufficient for them to have to be heard in the application procedure for court authorization to carry out the auction. That interest is not the same as a legitimate interest in the insolvency proceeding, which lies in maximizing the assets to obtain the best and quickest payment of creditors’ claims, and is the only interest that gives the right to be heard in that procedure.

Alternative proposal for an arrangement targeted only at creditors and consisting of converting debt into shares is valid

Judgment by the Supreme Court (Chamber One) on May 27, 2021

An alternative proposal consisting of converting debt into shares, equity interests or participation loans may be targeted only at subordinated creditors, and constitutes special treatment for some creditors which will have to be accepted by the holders of the other unaffected claims.

Petition for insolvency order cannot be refused from the outset due to plurality of creditors not originally existing

Decision by Barcelona Provincial Appellate Court on May 11, 2021

Although the plurality of creditors requirement is a pre-condition for an insolvency proceeding, a petition for an insolvency order cannot be refused on the ground of the insolvency proceeding only including one creditor, instead the insolvency practitioner should be given the chance to accurately determine the number of creditors and creditor status, and dismiss the petition for an insolvency order if there is only one creditor on the final list.

No 'ex ante' judicial control required for disproportionate trade-off in the sanctioning of a refinancing agreement

Decision by Madrid Commercial Court no 5 on April 30, 2021

The refinancing agreement must be sanctioned by the court if it meets the related requirements, and any potential analysis as to whether it involves an unjustified trade-off should be postponed to a later date, following a challenge by the affected creditor.

Insolvency proceeding does not displace the jurisdiction of public authorities over a concession on public property and its potential termination

Judgment by the Jurisdictional Disputes Tribunal on March 24, 2021

In the analyzed case, regarding port public property, the insolvency judge does not have the jurisdiction over management and termination of a concession on public property, because that jurisdiction lies with the port authority.

Jurisdiction of insolvency judge to hear a mortgage foreclosure during performance of the arrangement or after end of a year from the insolvency order

Decision by Madrid Provincial Appellate Court on February 26, 2021 

The subject-matter jurisdiction of the insolvency judge was recognized with respect to the start or resumption of foreclosures of collateral in the performance phase of the arrangement or where the liquidation has not been commenced within a year, in both foreclosures on assets needed for the insolvent debtor to continue trading and on assets that are not classed as necessary.