Refinancing agreements are mechanisms created by Spanish legislation to facilitate companies to obtain financing in difficult times. Companies that are still viable but are in economic difficulties, may in financial crises sign refinancing agreements for financial debt.
The objective of the refinancing agreements is that companies can agree on different repayment terms of the loans they have signed and, at the same time, they can reduce the debt pending payment.
What are the refinancing agreements?
A refinancing agreement is one adopted between a debtor company and its creditors, with the aim of avoiding bankruptcy.
The company may agree to a decrease in its debts (remove) or an extension of the term to pay them (wait).
In short, it is a mechanism that companies in crisis, but viable ones, can resort to, without having to declare bankruptcy.
Therefore, the objective of the financing agreements is threefold:
– Avoid going to court for lack of financing and business crisis
– Prevent the company from going into bankruptcy
– Have positive effects in the subsequent contest, in the event that it must finally be declared.
What types of refinancing agreements does the Spanish Bankruptcy Law considers?
Traditionally, there are two main categories of refinancing agreements:
– Agreements with risk of bankruptcy reintegration; and
– Agreements without risk of bankruptcy reintegration.
It is also possible to classify the agreements according to their extension of effects to dissident and absent creditors or, conversely, without the possibility of extension of effects. But the only agreements that can really extend their effectiveness to dissident and absent creditors are those judicially ratified.
After the reform of the Bankruptcy Law, the new Consolidated Text of the Bankruptcy Law introduces a new classification in the refinancing agreements:
– Collective refinancing agreements, established by the debtor (or company in crisis) with its creditors, the agreement is approved or not judicially.
– Singular refinancing agreements, established by the debtor – natural or physical person, in current or imminent insolvency situation, that has not been declared bankrupt – with one or more creditors, according to the following requirements:
o That the agreement involves a feasibility plan that allows the continuity of the debtor’s activity (professional or company) in the short and medium term
o That the proportion of assets over existing liabilities increases on the date of adoption of the agreement.
o That the resulting current assets are equal to or greater than current liabilities
o That the proportion of credits with personal or real guarantees of the creditors who sign the agreement is not greater than that which existed before the agreement, nor greater than 90% of the total liabilities affected by the agreement.
o That the interest rate that applies to the credits that subsist or result from the agreement in favor of the creditors involved in said agreement does not exceed by more than a third the average of the interest applicable to the credits before the agreement.
o That the agreement is formalized in a public deed granted by the debtor and all the creditors that intervene in it, by himself or through a representative.
It is interesting to highlight that the singular agreements cannot be approved by the judge in any case.
If you are considering the possibility of establishing refinancing agreements for your company, to improve your viability in a period of crisis, do not hesitate to contact the Pérez Parras Economists and Lawyers firm. We are experts in Bankruptcy and Commercial Law.