Measures to support solvency introduced by Royal Decree Law 34/2020

Following the declaration of the state of alarm on 14 March 2020, a series of economic and social measures were adopted to tackle the health crisis resulting from the COVID through the adoption of various royal decrees-laws. In this context, the approval of, among others, took place:

• Royal Decree-Law 8/2020 of 17 March on urgent extraordinary measures to deal with the economic and social impact of COVID-19 (“RDL 8/2020”). Pursuant to RDL 8/2020, among others, it was approved the creation of a line of guarantees (avales) on behalf of the Spanish State, of up to 100 billion euros, which is channelled through the Official Credit Institute (“ICO”). This line was aimed at supporting companies and the self-employed, and was also followed by the extension of the ICO’s net debt limit.
• Royal Decree-Law 16/2020, of 28 April, on procedural and organisational measures to address COVID-19 in the Justice Administration (“RDL 16/2020”). RDL 16/2020 directly affected the field of insolvency proceedings, with measures that focused on making the situation of debtors in compliance with an approved composition or refinancing arrangement more flexible.
• Law 3/2020, of 18 September, on procedural and organisational measures to deal with COVID-19 in the field of the Justice Administration (“Law 3/2020”). Law 3/2020 repeals RDL 16/2020 and adapts the measures provided for therein to the current health situation. In particular, it extends the time-periods and introduces new flexibility measures, in the hope that by the expiry of all these extensions, the health crisis will be overcome.

Given that the effects of the health crisis continue to seriously affect Spanish economy, on 18 November 2020 Royal Decree Law 34/2020, of 17 November, on urgent measures to support business solvency and the energy sector, and on tax matters (“RDL 34/2020”) was published in the Official Spanish Gazette (Boletín Oficial del Estado). Pursuant to RDL 34/2020, the following measures were adopted:

1. Extension of the maturity and interest-only periods (carencia) of transactions guaranteed by the ICO

With regard to the extension of maturity periods, Article 1.1 of RDL 34/2020 establishes that the maturity of the guarantees (avales) released under RDL 8/2020 may be extended for a maximum additional period of three years, provided that the total maturity of the transaction (including this extension) does not exceed eight years.

In addition, and following debtor’s request, the credit institutions, financial credit institutions, electronic money institutions and payment institutions that are operating under the line of guarantees approved by RDL 8/2020, may extend the maturity of the guaranteed transactions for a maximum of three years.

On the other hand, with regard to the interest-only period, Article 1.2 of RDL 34/2020 establishes that, following debtor’s request (and provided that the debtor complies with the requirements referred to below), financial institutions will increase the interest-only period of the guaranteed transaction by a maximum of twelve additional months, (given that total interest-only period of the transaction not be more than 24 months).

In addition, Article 1.3 of RDL 34/2020 establishes that financial institutions must maintain, until 30 June 2021, the limits of the credit lines that were guaranteed pursuant to RDL 8/2020 or Royal Decree Law 25/2020 of 3 July.

Finally, Article 1.4 of RDL 34/2020 sets out the requirements that the debtor must meet in order to apply for the abovementioned measures.

In particular, besides making the relevant application, the requirements to be met by the debtor are as follows:

1. That neither the guaranteed transaction nor any of the financing arrangements granted by the entity to the same client be in a situation of default (non-payment for more than 90 days).
2. That the debtor is not in a situation of default, in accordance with the files of the Central Risk Office of the Bank of Spain (Central de Riesgos del Banco de España, CIRBE). To this end, RDL 34/2020, in its sole Additional Provision, authorises the ICO to access the risks of individuals or entities registered with the CIRBE, in order to speed up the procedures relating to the verification of non-payments.
3. That the financial entity has not communicated to the ICO any default of the guaranteed transaction.
4. That the debtor is not subject to any bankruptcy proceedings.
5. That the transaction in respect of which the extension of the maturity and/or the extension of the interest-only period is requested has been signed prior to the publication of RDL 34/2020.
6. That the request for extension of the expiry and/or extension of the only-interest period is not made later than 15 May 2021.
7. That the debtor complies, in order to request the extension of the guarantee, with the limits established in the European Union’s Public Aids regulations.

Once the debtor’s application is received, financial institutions will have a maximum of 30 calendar days to resolve it and, if it is deemed appropriate, they must notify the ICO of the request to amend the terms of the guarantee.

In order to minimise the costs arising from this extension, Article 2 of RDL 34/2020 provides for a reduction in notary and registry fees, in cases where these would have to be paid for amendment, postponement, registration or public filing or intervention of the corresponding transactions.

2. Amendment and extension of the measures provided for in Law 3/2020

The tenth Final Provision of RDL 34/2020 establishes the following amendments to Law 3/2020:

a) Firstly, the special regimen for the application for the insolvency proceedings, provided for in Article 6 of Law 3/2020 is amended. In particular, RDL 34/2020 extends until 14 March 2021 the suspension of the duty to request for the declaration of insolvency proceedings. In addition, the judges will not admit the applications for the necessary competition until the same date.

Consequently, the debtor who is in a state of insolvency will not have the duty to apply for a declaration of insolvency, whether or not it has notified the opening of negotiations with creditors, until 14 March 2021, inclusive. Nor will the necessary applications for insolvency proceedings submitted up to this date be admitted for legal proceedings.

b) On the other hand, the scope of the measures of inadmissibility to process a declaration of default/noncompliance of a refinancing agreement, or an out-of-court settlement (originally provided for in Article 3 of Law 3/2020) is extended, always subject to the renegotiation of a new refinancing agreement or composition. This regime, which was in force for applications of default submitted up to 31 October, continues to apply on the same terms.

However, RDL 34/2020 considers this regime also applicable to declarations of default/noncompliance submitted between 31 October 2020 and 31 January 2021.

Therefore, the judge will notify the debtor the applications for a declaration of default/noncompliance submitted by the creditors between 31 October 2020 and 31 January 2021, but will not admit them for processing until one month after the latter date.

During that month, the debtor may inform the court competent for the declaration of insolvency that it has initiated or intends to initiate negotiations with creditors to modify the relevant agreement that was in force and approved, or to reach a new one, even if a year has not passed since the previous application.

In addition, from the date of notification referred to in the previous paragraph, the debtor will have an additional period of three months to reach an agreement with its creditors. If no agreement is reached within three months, the judge will allow the applications of default to be processed.

Finally, according to the new regime, in the event that applications for non-compliance have begun to be processed between 31 October and 18 November 2020, the judge must suspend them.