Jose Christian Bertram is the co-head of Ashurst Madrid’s banking and finance department, and over the past decade he has been involved in significant debt restructurings and insolvencies, including the loan-to-own and subsequent homologation of Bodybell, the homologation of the debt of Abengoa, SA, the restructuring within an insolvency of Promociones Habitat, SA and the liquidation of Reyal Urbis, SA. His particular focus is on sophisticated restructuring and insolvency structures, meeting the client’s needs with a can-do approach. Jose’s other significant areas of focus in the Spanish market include acquisition finance, structured finance, asset-based lending and project finance, both in Spain and in other jurisdictions as a lead counsel for certain Spanish companies. Jose is also a professor on the banking and finance law LLM programme at Madrid University CUNEF.
GTDT: In the last year, have you seen any developments or trends in the nature and volume of insolvency filings?
Jose Christian Bertram: The trends of the past year have continued, in the sense that we are seeing more sophisticated pre-insolvency filings, which grant the company an additional period of three months to negotiate a restructuring, failing which it will have to file for insolvency within an additional month. These are generally coupled with documentation for a restructuring that is intended to be implemented and sanctioned by the court following the homologación procedure, which basically allows the cramdown of dissenting creditors when certain majorities are achieved in the restructuring.
While traditionally the larger companies, which were mostly hit by insolvency filings or large restructuring processes were construction companies and companies within the real estate sectors, this filtered some time ago in to other sectors and we are seeing companies in the retail space and in the industrial sectors undergoing difficulties.
Additionally, where a company has filed for insolvency and failed to reach a creditors voluntary arrangement (CVA) or, even if it managed to close one, it fails to comply; liquidation would kick in and a liquidation plan would be drawn up. Now what we are seeing in the market is different; stakeholders engaging in endless challenges and court writs about the liquidation plan in order to tweak it so they can obtain certain advantages arising therefrom.
GTDT: Describe the one or two most notable insolvency filings in your jurisdiction in the past year.
JCB: There have been several relevant insolvency filings this year but none as relevant as in previous years, which meets expectations given the macroeconomic change in the country. There have been, however, a number of significant restructurings (and others are currently ongoing) where the main discussion points revolved around the treatment of new money providers in case of a subsequent insolvency, and the structuring of mandatorily convertible tranches and the triggers and mechanics for such conversions.
GTDT: Have there been any recent legislative reforms? Is there a perceived need for reform?
JCB: There have not been any recent reforms in the Spanish insolvency regime. The reason for this is that there is a general perception that the regime works, although practically speaking there is a perception that certain aspects of the regime could benefit from slight changes. On the one hand, the delay that the challenging of the liquidation plan causes to a liquidation is having an impact on the IRR of investors (and it has to be borne in mind that such investors play a significant role in monetising creditor positions in Spain). On the other hand, we have a very solid restructuring regime that has proven efficient in recent years but is seeing its limits tested on all fronts in the most recent restructurings. From that perspective it would be good to take a step back and analyse what could be done better on two fronts:
- developing the different categories of financial creditors for the purposes of a homologación, which currently only distinguishes between secured (up to the underlying value of security) and unsecured creditors and hence throws into the same pot bondholders and senior lenders, for example; and
- providing a solution for contingent financial creditors, ie, those that have provided guarantees and those having committed revolving facilities. Can they be crammed down in a homologación and if so, are undrawn amounts still available post-restructuring for the restructured entity? Should this be the case, then on what basis does the contingent creditor vote in the restructuring: is it just with the crystallised(or drawn) amount or is it with all the committed amount?
GTDT: In the international insolvency field, have there been any legislative or case law developments in terms of coordination of cross-border cases? What jurisdictions are you most likely to have contact with?
JCB: There have not been any developments in this respect involving Spain, although we would expect things to happen in 2019 off the back of Brexit and potential impact on restructurings of Spanish companies where English courts take jurisdiction due to facility agreements being subject to English law. This ties in directly with the query as to what jurisdictions we have more contact with: given that large debt financings in Europe are generally subject to English law we tend to have close contact to the jurisdiction of England and Wales. A second tier of jurisdictions we tend to work with are Luxembourg and the Netherlands off the back of ‘double Dutchco/Luxco’ structures that are implemented in certain types of financings and that then give rise to certain queries from an insolvency and security enforcement perspective, especially where there is a risk that the vehicles incorporated in those jurisdictions file for insolvency in Spain on the basis of a COMI shift. A third group of jurisdictions are all other EU jurisdictions given that we tend to advise on large, international insolvencies. A fourth tier of jurisdictions are Latin American jurisdictions, due to historical reasons and to the large presence of Spanish companies in the area. It is worth noting as well that the legal regime of some of those jurisdictions closely resembles to Spanish law and hence it is a natural way of expansion of the practice.
GTDT: In your country, is there a particular court or jurisdiction that sees a higher concentration of insolvency filings? What is the attraction of that forum?
JCB: This is generally not the case in Spain: the competent court is not left to the choice of the company filing for insolvency but is determined on the basis of where such company has got its COMI. This of course leads to more insolvency filings in the larger cities of Spain, but that is catered for by having a higher number of specific insolvency courts in those cities. However, what does happen in larger cities is that insolvency judges tend to sit down periodically and discuss certain aspects they are finding controversial in order to issue some ‘informal’ guidelines on how they see each of such points, which provides a degree of certainty.
GTDT: Is it fair to describe your jurisdiction as either ‘debtor-friendly’ or ‘creditor-friendly’ in terms of how insolvency filings proceed?
JCB: This has varied throughout the years. Although it obviously depends on what jurisdictions you establish the comparison with, there has been a conscious effort by the people entrusted with the drafting of the insolvency law to make the regime more flexible and creditor-friendly. A more flexible CVA regime, enhanced room for contractual agreements in the context of restructurings and the ability for a (substantial) majority of creditors to cram down dissenting creditors have all been perceived by stakeholders as a creditor-friendly push. There are, however, still some features of the Spanish insolvency regime that are not perceived as creditor-friendly, notably issues around equitable subordination (and more specifically about shadow directorship, which caters for some difficult decisions in the drafting of finance documents that differ from what players are used to in England, for example) and around stoppage on enforcement of security interests.
GTDT: What opportunities exist for businesses wanting to purchase assets out of an insolvency, and how efficient is the process? What are the best ways to take advantage of opportunities in this area?
JCB: This area has attracted significant interest over the last few years. There are a lot of opportunities, be it in the context of buying entire business units in the timespan of an insolvency or buying assets in liquidation, which has been enhanced by electronic auction portals. The first step will always be to thoroughly analyse the liquidation plan and try and tweak certain aspects to the favour of the bidder (for example, if the bidder is a creditor in the insolvency proceedings, it is entitled to credit bid), but secondly the auction guidelines and sale processes need to be monitored regularly. Mastering the bidding process and its potential pitfalls can make the difference between being awarded with certain assets or going back home empty-handed.
The Inside Track
What two things should a client consider when choosing counsel for a complex insolvency filing in this jurisdiction?
The first point is to analyse what the strategy of the client is, and how the counsel’s experience fits with that strategy. Mastering insolvency law will be a key factor but is not enough: the ability to draw comparisons with other jurisdictions and hold the client’s hand through the practical steps of the process should be a key factor, together with the ability to implement groundbreaking structures.
What are the most important factors for a client to consider and address to successfully implement a complex insolvency filing in your jurisdiction?
It is important to see when the two-month period for directors to file for insolvency starts, as that will determine a lot of strategic decisions in the process and gauge potential alternatives. The second key element is to draw up a plan for the insolvency that will allow for a realistic but favourable CVA to be voted in favour and implemented.
What was the most noteworthy filing that you have worked on recently?
We are currently involved in a large process that is confidential, and have recently been involved in a number of restructurings that are testing the boundaries of the Spanish restructuring regime.
Jose Christian Bertram