The implementation, just over a year ago, of Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on Preventive Restructuring Frameworks, has meant a real Copernican shift in Spanish insolvency law. In particular in the field of pre-bankruptcy law, as it has established a new model based on Chapter 11 of the US Bankruptcy Act in substantive law and UK Schemes of Arrangement in procedural law.
The new model of restructuring plans has begun to develop and the recent judgement of the Barcelona Commercial Court on 4 September 2023 in the so-called “Celsa case” is already a leading case in the implementation of the directive, specifically with regard to the consent of the debtor and the shareholders in restructuring plans involving corporate governance measures.
The Celsa Group is Europe’s second largest steel producer and recycler. It had a turnover in 2022 of 6.1 billion euros with an Ebitda of 875 million euros and employs more than 4,500 people directly in Spain.
The ruling approves the steel group’s restructuring plan submitted by its creditors, allowing them to take effective control of the company through the capitalization of credits.
It is therefore the first restructuring imposed by creditors on the debtor and its shareholders in Spain.
The impact of the judgment has not only legal implications, but also financial and political.
In terms of legal effects, the judgment confirms that it is possible to approve a restructuring plan requested by creditors without the debtor’s consent. Something which is not possible in the UK under a Scheme of Arrangement or UK restructuring plan.
The valuation of the company is an essential element of this since, in cases where the shareholders are out of the money (as the debt is higher than the valuation of the capital), they lose control over the restructuring plan.
The plan provides for the possibility for an independent expert to execute and implement the restructuring plan if the shareholders or directors of the debtors do not voluntarily carry out the necessary actions to implement the plan. However, this is being criticized by some who consider that this goes beyond the legal scope of an expert’s functions.
The ruling also impacts the distribution of power of limited liability companies, because by establishing that the consent of the legal entity debtor is not required, it leaves the shareholders with no power. Shareholders at a shareholders’ meeting will be unable to enter into certain agreements, such as the conversion of debt into capital, capital increases or reductions, sale of essential assets, etc.
A different issue arises in respect of resolutions for which a shareholders’ meeting is not required, but which can be adopted by the company’s directors. This is especially the case regarding waivers and extensions of credits terms or the provision of guarantees. In this respect, some authors question whether creditors can submit restructuring plans that deal exclusively with such measures without regard to the debtor.
This ruling sends the message to shareholders that it is in their interest to negotiate with creditors under the threat of losing control of the company. Indeed, if a company is at risk of insolvency, the sooner the shareholders themselves initiate a negotiation process, the more bargaining power they will have. If they wait for a situation where the company becomes insolvent, they run the risk of losing control. In that respect, despite some criticisms, the ruling is an essential step forward in the reform of Spanish insolvency law because it should encourage more restructurings.
In addition to the strictly legal effects, the Celsa ruling has economic and political effects.
Creditors will now be more motivated to take control of a company through a restructuring plan that gives the company a chance to recover and create future profits.
On the other hand, it may encourage the sale of bank debt to funds that want to acquire companies in crisis.
On a more political level, the ruling raises the issue of the takeover of strategic companies by private funds and how governments can prevent such companies from being taken over by shareholders whose interests do not necessarily coincide with public interests.
The inclusion in the Spanish system of non-consensual restructuring plans has, therefore, consequences at levels that reach beyond insolvency and extend to corporate regulation and the economic structure of the nation.