Synopsis: The implementation of Directive (EU) 2019/1023 has transformed Spanish insolvency law, paving the way for restructuring plans without the debtor's consent. A recent ruling in the "Celsa case" demonstrates the power shift as creditors can enforce restructuring without consent, a departure from UK law. This legal shift impacts the distribution of power within limited liability companies, potentially altering the economic and political landscape.Article: A little over a year ago, Directive (EU) 2019/1023 triggered a significant transformation in Spanish insolvency law, introducing a new framework for restructuring. This European directive has brought about a substantial shift, akin to Chapter 11 of the US Bankruptcy Act in substantive law and the UK's Schemes of Arrangement in procedural law.The nascent restructuring model has already seen notable developments, exemplified by the recent judgment of the Barcelona Commercial Court on September 4, 2023, known as the "Celsa case." This ruling is considered a benchmark in implementing the directive, particularly in cases involving restructuring plans with corporate governance measures.The Celsa Group, Europe's second-largest steel producer and recycler, had a 2022 turnover of €6.1 billion and an EBITDA of €875 million, employing over 4,500 people in Spain.The judgment sanctioned a restructuring plan proposed by the group's creditors, granting them effective control of the company through credit capitalization. Remarkably, this is the first instance of creditors and not the debtor or its shareholders imposing a restructuring in Spain.The legal ramifications are substantial, confirming the possibility of approving a restructuring plan at the creditors' behest, even without the debtor's consent, a departure from UK law. A critical element is the valuation of the company. When shareholders are left with a deficit (debt exceeding capital valuation), they lose influence over the restructuring plan.The plan includes provisions for an independent expert to execute it if shareholders or directors of the debtor fail to cooperate. However, this aspect has garnered criticism from those who question its alignment with the expert's legal scope.The ruling also has implications for the power distribution within limited liability companies, as it eliminates the requirement for the debtor entity's consent, leaving shareholders with reduced authority. This change affects agreements made at shareholders' meetings, like debt-to-capital conversion, asset sales, or capital adjustments.Another concern arises when decisions can be made by company directors without the need for a shareholders' meeting. In this context, restructuring plans may focus on specific measures related to creditors, disregarding the debtor's interests.The ruling delivers a message to shareholders, emphasizing the importance of negotiating with creditors to avoid losing control. It underscores the need for early negotiations when insolvency risk looms, preserving bargaining power.Beyond the legal realm, the Celsa ruling carries economic and political implications. Creditors are now incentivized to take control through restructuring, potentially driving the recovery and future profitability of companies. Simultaneously, it could fuel the acquisition of distressed companies by investment funds.At a higher political level, the ruling raises questions about the takeover of strategic companies by private funds and the role of governments in safeguarding public interests.The incorporation of non-consensual restructuring plans into the Spanish legal system extends far beyond insolvency, touching on corporate regulation and the nation's economic structure.Conclusion: The reform in Spanish insolvency law, inspired by the EU directive, reshapes the power dynamics in corporate restructuring. The recent "Celsa case" ruling demonstrates the ability of creditors to drive restructuring without the debtor's consent, altering the balance of influence within companies. This legal shift has ramifications that transcend the realm of insolvency, impacting corporate regulations and the nation's economic structure.
Synopsis: The implementation of Directive (EU) 2019/1023 has transformed Spanish insolvency law, paving the way for restructuring plans without the debtor's consent. A recent ruling in the "Celsa case" demonstrates the power shift as creditors can enforce restructuring without consent, a departure from UK law. This legal shift impacts the distribution of power within limited liability companies, potentially altering the economic and political landscape.Article: A little over a year ago, Directive (EU) 2019/1023 triggered a significant transformation in Spanish insolvency law, introducing a new framework for restructuring. This European directive has brought about a substantial shift, akin to Chapter 11 of the US Bankruptcy Act in substantive law and the UK's Schemes of Arrangement in procedural law.The nascent restructuring model has already seen notable developments, exemplified by the recent judgment of the Barcelona Commercial Court on September 4, 2023, known as the "Celsa case." This ruling is considered a benchmark in implementing the directive, particularly in cases involving restructuring plans with corporate governance measures.The Celsa Group, Europe's second-largest steel producer and recycler, had a 2022 turnover of €6.1 billion and an EBITDA of €875 million, employing over 4,500 people in Spain.The judgment sanctioned a restructuring plan proposed by the group's creditors, granting them effective control of the company through credit capitalization. Remarkably, this is the first instance of creditors and not the debtor or its shareholders imposing a restructuring in Spain.The legal ramifications are substantial, confirming the possibility of approving a restructuring plan at the creditors' behest, even without the debtor's consent, a departure from UK law. A critical element is the valuation of the company. When shareholders are left with a deficit (debt exceeding capital valuation), they lose influence over the restructuring plan.The plan includes provisions for an independent expert to execute it if shareholders or directors of the debtor fail to cooperate. However, this aspect has garnered criticism from those who question its alignment with the expert's legal scope.The ruling also has implications for the power distribution within limited liability companies, as it eliminates the requirement for the debtor entity's consent, leaving shareholders with reduced authority. This change affects agreements made at shareholders' meetings, like debt-to-capital conversion, asset sales, or capital adjustments.Another concern arises when decisions can be made by company directors without the need for a shareholders' meeting. In this context, restructuring plans may focus on specific measures related to creditors, disregarding the debtor's interests.The ruling delivers a message to shareholders, emphasizing the importance of negotiating with creditors to avoid losing control. It underscores the need for early negotiations when insolvency risk looms, preserving bargaining power.Beyond the legal realm, the Celsa ruling carries economic and political implications. Creditors are now incentivized to take control through restructuring, potentially driving the recovery and future profitability of companies. Simultaneously, it could fuel the acquisition of distressed companies by investment funds.At a higher political level, the ruling raises questions about the takeover of strategic companies by private funds and the role of governments in safeguarding public interests.The incorporation of non-consensual restructuring plans into the Spanish legal system extends far beyond insolvency, touching on corporate regulation and the nation's economic structure.Conclusion: The reform in Spanish insolvency law, inspired by the EU directive, reshapes the power dynamics in corporate restructuring. The recent "Celsa case" ruling demonstrates the ability of creditors to drive restructuring without the debtor's consent, altering the balance of influence within companies. This legal shift has ramifications that transcend the realm of insolvency, impacting corporate regulations and the nation's economic structure.
