The Government changes the law to streamline bankruptcy processes and avoid traffic jams due to ICOs
- Exonerates the bank from requesting permission from the Treasury for extensions of terms already provided for in the lines of the agency.
- Train the State Attorney to defend the interests of the ICO in the restructuring plans.
The Government has surprisingly modified the recent bankruptcy law to clarify some doubts and inconsistencies related to the loans guaranteed by the ICO that threatened to stall the processes and even put companies at risk, contrary to the spirit of the regulations that seek , precisely, speed up procedures to give companies greater viability.
Among the main changes is that permission from the Treasury will not be required if the solution with the guaranteed financing is within the relief assumptions already provided for in the ICO’s own Covid-19 lines (extend its maximum term to 8 or 10 years or establish deficiencies up to two years) and also trains the State Attorney to defend the interests of the body in the processes, something that was not defined.
The “main modification”, according to the banking and financial partner of Squire Patton Boggs, Manuel Mingot, is that it dispenses with the prior authorization of the State Tax Agency (AEAT) that the law itself required “for the favorable vote of restructuring plans of debt that include ICO Covid-19 financing when the proposed modifications meet the eligibility requirements of the framework agreements with financial institutions and do not entail the extension of the maturity period of the guaranteed operation beyond 8 years or 10 years from maturity the date of initial granting of the loan.
Until now it was required and it was in itself a paradox, since the bank can apply these reliefs directly if requested by the company and, however, the Treasury visa was required to apply the same recipe if it occurs within a bankruptcy process.
The measure “is going to unblock the approval of the clearer debt restructuring files a bit. The need for prior authorization greatly delayed the debt restructuring procedure to the extent that there is a channel of singular authorizations by part of the State Tax Agency”, he added, clarifying that any different solution will continue to require prior permission from the Treasury (that is, to extend the terms beyond those 8-10 years, set grace periods of more than two years and any other restructuring formula such as establishing haircuts, pledging the debt, setting conversions to equity, etc.).
The changes introduced by the Government come barely three months after the bankruptcy reform entered into force on September 26 and it makes them taking advantage of the macro-package of support measures in the crisis caused by the war in Ukraine agreed in the last Council of Ministers. The same bank had asked the ICO and the ministry to clarify the gaps in the law when there is an endorsement from the agency, even urging it to establish a protocol on how to request permits from the Treasury, at which window, at what point in the process or, even, with what documents.
Financial and legal sources value the change, but rule out that it will solve the problem that the debt guaranteed by the ICO entails, since the procedures and permits that will have to be resolved with the Treasury lead to tedious and long processes due to the slowness with which They are managed by the department. A time that, according to the complaint, could limit the chances of survival of companies that already have serious problems.
The articles referring to the treatment of ICO guarantees contained in the bankruptcy reform, in its eighth additional provision, “had given rise to certain doubts about who should vote in the event that a creditors’ agreement was proposed and if, if applicable, prior authorization from the State Tax Administration Agency must be obtained so as not to harm the guarantee”.
The confusion stems from the fact that, on the one hand, it established the subrogation of the Ministry of Economic Affairs and Digital Transformation by the guaranteed principal and “contradicted itself”, on the other hand, by stating that, “regardless of this subrogation, the In any case, the credit institution will continue to represent all the credits derived from the financial operation, including the part of the subrogated principal, in the terms provided in the previous section”.
The new wording solves the problem, by stating that in the restructuring plans the right to vote will correspond to the financial institution that owns the main guaranteed loan, but will issue it separately for the part of the guaranteed and non-guaranteed credit. These measures should initially be valued positively, to the extent that they should facilitate restructuring and the approval of agreements or continuation plans in special procedures, as indicated in the Statement of Motives of the Royal Decree-law 20/2022.
We understand that the only positive thing is that it clarifies that financial institutions have the freedom to vote for the part of the ICO loan that is not guaranteed. We understand that the reform does not solve the problem of the need for prior authorization from the AEAT to vote in favor of the restructuring plans. It limits itself to saying that financial institutions must submit a reasoned report to the AEAT that justifies the favorable vote, but without establishing a specific procedure or protocol.
On the other hand, it is pointed out that a more relevant role in the procedure is given to the State Attorney, which may assume the representation and defense of ICO loans when there may be a conflict of interest with the financial institution that owns the loan or considers it the Ministry of Economic Affairs”.
The changes should put an end to the uncomfortable situation for banks of not being able to act, vote or decide for fear of losing the guarantee of the ICO, which protects between 70 and 80% of the risk incurred in these financings, even if they have debts on the margin or much higher and that implied a brake on the processes.
But, despite the new wording, the banks themselves and other experts warn of the existence of important unresolved gaps, such as the question of whether it is possible to impose restructurings on guaranteed loans when they have been approved by a majority of creditors due to the drag effect, something that incorporates such as this reform to prevent processes from being blocked.