Antonio Illán Box Lawyer at Bierens Abogados, S.L.P. Barcelona, May 12, 2014

The newly created extrajudicial payments agreement in Spain & a comparison with the rest of Southern Europe.

OUTLINE A little bit of stats on insolvency. Procedures aimed to avoiding insolvency proceedings: -What we had before. -What we have today. How do our neighbors handle it: Portugal, Italy and France. So, what if my client enters into a pre-insolvency procedure?

STATISTICS ON INSOLVENCY Source: Instituto Nacional de Estadística.

STATISTICS ON INSOLVENCY Source: Instituto Nacional de Estadística.

STATISTICS ON INSOLVENCY Source: Instituto Nacional de Estadística.

STATISTICS ON INSOLVENCY Source: Instituto Nacional de Estadística.

PRE-INSOLVENCY PROCEDURES a)Communication from debtor to court of negotiations with creditors: article 5 bis Ley Concursal (Insolvency Act). a.1) New: Special treatment for financial debt: Petition from debtor to court to endorse debt restructure agreements: Disposición Adicional Cuarta Ley Concursal. Effective from March 9, b) New: Extrajudicial payment agreement: articles 231 to 242 Ley Concursal. Effective from October 18,

PRE-INSOLVENCY PROCEDURES a) Communication to court of negotiations with creditors: article 5 bis Ley Concursal. For a period of four months, the administrator of the debtor is not obliged to file for insolvency. During such period, the insolvency declaration petition cannot be filed by any creditor either. The debtor can choose to ask the court not to publish it. It stops all seizures and prevents new ones, during the negotiations and for a maximum of four months, of those assets necessary for the debtor´s activity. Should the debtor not have reached an agreement in 3 months from the communication to court, it has to file for insolvency during the next month

PRE-INSOLVENCY PROCEDURES a) Communication to court of negotiations with creditors: article 5 bis Ley Concursal. Debtor cannot file a new communication until one year after the previous one. Safe port: Should the debtor finally be declared insolvent, the following agreements reached, prior to the insolvency declaration, will not be voidable by the insolvency judge: -Those approved by creditors holding 60% of the liabilities. -Those approved by financial creditors holding 51% of the financial liabilities (item a.1) hereof). -Those that do not meet the required majority but, increase the proportion of assets with regards liabilities or liquid assets with regards short tem liabilities.

PRE-INSOLVENCY PROCEDURES a.1) Petition from debtor to court to endorse debt restructure plan: Disposición Adicional Cuarta Ley Concursal. Effective from March 9, Only applicable to financial creditors. The plan is not binding for commercial creditors, but they can choose to join it. The plan is not binding for public law creditors. The agreement of financial creditors holding 51% of the financial liabilities is required to approve the plan.

PRE-INSOLVENCY PROCEDURES a.1) Petition from debtor to court to endorse debt restructure plan: Disposición Adicional Cuarta Ley Concursal. Effect of judicial endorsement: to a certain extent, the agreement may also bind financial creditors who did not agree, depending on the liability percentage agreement obtained: If 60% of the liability agreed: moratoriums and debt conversion agreements will affect all financial debtors, even those who did not agree. If 75%: the above, plus debt reduction. Once the judge accepts to proceed, the procedure becomes public and declares the suspension of all seizures. The plan is not voidable, in case of an insolvency declaration of debtor.

PRE-INSOLVENCY PROCEDURES b) Extrajudicial payment agreement: articles 231 to 242 Ley Concursal. Effective from October 18, Who can ask for it: -Professionals whose liabilities are lower than 5 Million €. -Legal entities (companies) which assets and liabilities are lower than 5 Million € and declare less than 50 creditors. Managed by an “insolvency mediator” (mediador concursal). Debtor asks for it to a Notary Public or to the Commercial Registry, depending on whether debtor is subject or not to logging in said Registry.

PRE-INSOLVENCY PROCEDURES b) Extrajudicial payment agreement: articles 231 to 242 Ley Concursal. Once the “insolvency mediator” appointed, the procedure becomes public. It does not affect public law debtors (government, usually tax and social security). It does not affect creditors with real estate securities, unless they so choose. It stops all seizures and prevents new ones, during the negotiations and for a maximum of three months, of any assets belonging to the debtor. Insolvency petitions cannot be filed in court while the procedure is on going.

PRE-INSOLVENCY PROCEDURES b) Extrajudicial payment agreement: articles 231 to 242 Ley Concursal. The mediator will propose creditors a payment plan with a maximum debt reduction of 25% and a spread of payments during a maximum of 3 years. The agreement of creditors holding 60% of the liabilities is required to approve the payment plan. If payment plan is approved, it will be published. If not, mediator will automatically file for insolvency in court. None of the creditors affected can start any legal actions or seizures while the payment plan is in force.

SOUTHERN EUROPE

WHAT IF My client communicates court negotiations with creditors (procedure a) ? Check if your debt is secured by personal guarantee from administrator or other (joint debtor). If it is, do not enter the deal. Have the agreement drafted in a public deed, so it becomes not voidable in case of insolvency declaration of the debtor (it requires the vote of 3/5 of the liability or a significant increase on the debtors assets). Be ready to ask for insolvency yourself after the 4 months leeway granted by the law. You still can initiate legal actions, but you cannot proceed with enforcements against the debtors assets or with insolvency petitions. Check that the debtor has not used this procedure for at least a year ago.

WHAT IF My client files a petition in court to endorse debt restructure agreements (procedure a.1)? If you are a financial creditor: -If you have a property secured debt: do not enter the agreement, if the debt is sufficiently covered, attending to the debt reasonable value and to the rank or your security with regards others on the same asset. -If you have a solvent joint debtor: do not enter the agreement.

WHAT IF My client files a petition in court to endorse debt restructure agreements (procedure a.1)? If you are not a financial creditor: -Be informed on the contents of the agreements, since you can enter it, even if your favorable vote will not count as quorum to approve the agreement, since once approved the agreements are not voidable, even if the debtor is declared insolvent. -You are not affected, so, you can start any legal action, but we aware judge can declare void the seizures deeming from creditors who entered the agreement.

WHAT IF My client starts an extrajudicial payment agreement (procedure b) ? Check if your debt is secured by property, personal guarantee from administrator or other. If it is, do not enter the deal. Check if there are other people responsible for the debt (joint debtor), for example, wife or husband in the case of professionals. Should a payment plan be approved, follow up execution and check the mediator asks the judge to declare insolvency in case of noncompliance. Do react when you receive the payment plan proposal from the mediator, or else your credit classification will be harmed.

Thank you for the attention and have a great day.