New Spanish law measures to support solvency in the context of COVID-19 and extend certain insolvency measures

The Spanish Government has taken a step forward in the protection of Spanish enterprises from a cashflow and insolvency perspective by means of Royal Decree-law 34/2020, of 17 November ("RDL 34/2020").

The following will provide you with a snapshot of the most relevant measures that have been approved in this respect:

1. Extension of the maturity date and grace periods in financings backed by ICO guarantees ("ICO backed financings") to individuals and companies.

1.1 Extension of the maturity date of ICO backed financings and the ICO guarantee attached thereto (the "ICO Guarantee")

RDL 34/2020 establishes that, if expressly required by the relevant debtor, the maturity date of the ICO backed financings provided in the frame of the COVID 19 scheme enacted by Spanish Royal Decree-law 8/2020, of 17 March (the "Guarantee Scheme"), will be extended by up to 3 additional years provided that: (i) all the requirements set out in RDL 34/2020 (which we will go into subsequently) are duly satisfied and, (ii) the aggregate tenor of the ICO backed financings does not exceed 8 years. In any case, the maturity date of those ICO Guarantees shall (absent any termination event thereof) finish on the same date as the ICO backed financing.

1.2 Extension of grace periods of ICO backed financings

If required by the relevant debtor, and to the extent that the conditions set out in RDL 34/2020 are duly satisfied, credit institutions and other entities benefitting from the Guarantee Scheme, will extend the grace periods for the repayment of the principal under the ICO backed financings for up to an additional twelve months, provided the overall provided always the aggregate grace period – there including any initial grace period - does not exceed 24 months.

The parties will have certain flexibility to allocate the amounts affected by the extended grace period in the repayment schedule, either including it as a balloon repayment, distributing it pro rate between the different instalments or a combination of both (which seems to exclude a non-pro rata distribution in instalments other than the last instalment in the repayment schedule). If there is no agreement between the parties, that amount will be prorated in the remaining instalments.

1.3 Working capital

Banks and other credit entities which provided the loans backed by the ICO Guarantees will maintain the agreed limits on working capital financings provided to debtors until 30 June 2021 to the extent that such debtors (i) satisfy the requirements set out in RDL 34/2020 and, (ii) have received ICO backed financing. It is worth noting that a literal reading of RDL 34/2020 seems to indicate that it doesn't impose this obligation on the entity granting the ICO backed financing to the relevant debtor, but to all credit institutions benefitting from the Guarantee scheme.

1.4 Requirements to be satisfied by the debtor

• Express request from the debtor.

• The ICO backed financings and any other financing granted by the relevant credit institution not to be in payment default exceeding 90 days as well as in any other financing provided by the relevant bank to such debtor.

• The debtor should not be registered as a payment defaulter in the Bank of Spain (CIRBE) on the date of execution of the relevant extension.

• That the credit institution granting the ICO backed financing has not notified ICO any payment default of such financing as of the date of the extension.

• The debtor not to be in insolvency proceedings.

• The affected ICO backed financing to be extended must have been executed before 18 November 2020.
• The extensions have to be requested by the debtor by 15 May 2021.
• The debtor should comply with the EU limits to State aids.

1.5 Main requirements to be satisfied by the finance entities

• Lenders shall apply their best practices and procedures for the benefit of the debtors, and may not make the amendments to the ICO backed financings conditional on the acquisition of any other product offered by such finance entity.

• The costs associated to the extension of the ICO backed financings will be in line with those existing before the extension, and may only be increased to mirror an increase in the yield of the guarantee.

2. NOTARIAL, TAX AND REGISTRAR COSTS

In order to minimize the costs derived from the extension of maturity RDL 34/2020 provides for a decrease of 50 percent in notarial and registry fees (aranceles notariales y registrales) in those cases where these costs need to be satisfied for the effective amendment, extension, registration of the relevant financing transaction.

In addition, in those transactions secured by means of guarantees subject to registration with any public registry, the public deeds by virtue of which the extension of maturity are raised to public will be exempt from the gradual quota of stamp duty.

3. INSOLVENCY MEASURES

3.1 Insolvency to be filed by a debtor

The Royal Decree extends up to 14 March 2021 the moratorium of the obligation to file for insolvency in case of actual or imminent insolvency. Filings by creditors will also be stayed. This however doesn't impair a debtor from filing for insolvency if they wish to do so. There are doubts as to whether a delay in filing for insolvency in cases when it is clear that additional time will not solve the situation will not result in the director's liability for aggravating the insolvency situation.

3.2 Insolvency to be filed by the creditors

The Judge may not analyse insolvency applications submitted by creditors until 14 March 2021.

On or after 14 March 2021, should the debtor itself have submitted a petition for insolvency this will be given preference to any filing made by its creditors even if filed at an earlier date.

3.3 Lack of extension of the so-called "5bis" filing

It is worth noting that the timing for a 5bis filing has not been amended to align it with the new timing for insolvency filing.

3.4 Refinancings

Until February 28, 2021 any refinancing agreements in place which are in breach may be renegotiated or a new agreement entered into, even if the existing one is less than one year old. Until such date judges will not accept any requests for breach of the agreement so as to give the debtor time to renegotiate.

The same applies, until 30 April 2021, with respect of creditor's voluntary arrangements in place in the context of insolvency proceedings.