Restructuring is not failure. It is acting before it is too late.
The stigma surrounding corporate restructuring in Spain has cost many perfectly viable businesses dearly. Restructuring is associated with failure, with insolvency proceedings, with liquidation. That fear leads business owners to wait too long — until the available options have closed and what could have been an orderly six-month process becomes a three-year court proceeding that destroys what took decades to build.
The reality is very different. Law 16/2022 of 5 September, which transposed the EU Directive on Preventive Restructuring Frameworks (Directive 2019/1023) into Spanish law, was designed with one explicit purpose: to save viable businesses before they reach formal insolvency. The European — and Spanish — legislature recognised that concurso de acreedores (insolvency proceedings) was too late a tool and too destructive a process, and created an ecosystem of pre-insolvency instruments that allow financial difficulties to be addressed while there is still room to act.
This guide covers that ecosystem: the legal tools available, when to use each, and how to distinguish between different types of business difficulty. It is written primarily for international business owners, PE investors, corporate development teams and the management of foreign parent companies dealing with Spanish subsidiaries in financial distress.
Three Types of Restructuring: Debt Is Not the Whole Story
The word “restructuring” is used so frequently and in so many different ways that it has lost precision. Before analysing the legal tools, it is worth distinguishing the three types of restructuring that a distressed company may need.
Financial Restructuring
This is the type that receives the most attention and that Spanish insolvency law primarily regulates. It focuses on the liability side: renegotiating debt with banks and financial creditors, reducing outstanding principal (haircut or quita), extending amortisation schedules (espera), establishing principal moratorium periods, or converting debt into equity.
Financial restructuring is necessary when the underlying business is viable — it generates or can generate positive EBITDA — but the debt structure is unsustainable. The company does not have a business problem; it has a balance-sheet problem. From an international investor’s perspective, this is the most tractable scenario: the value exists, it simply needs to be liberated from an overleveraged capital structure.
Operational Restructuring
This focuses on the business model and cost structure. It involves closing loss-making business lines, reducing headcount to align fixed costs with the actual activity level, optimising working capital (days sales outstanding, inventory levels), renegotiating lease agreements and service contracts, or pivoting towards more profitable segments.
Operational restructuring is necessary when the problem is not in the balance sheet but in the income statement: the company generates negative or insufficient EBITDA to cover its financial commitments. Without operational restructuring, financial restructuring has no foundation to rest on. This point is frequently underestimated by financial creditors who focus exclusively on debt terms while the operating business continues to deteriorate.
Corporate Restructuring
This affects the group structure: separating assets or subsidiaries for sale, merging loss-making subsidiaries into the parent to simplify the structure and reduce administrative costs, demerging business units that may be worth more separately than together, or bringing in new financial partners to inject capital.
In most real-world restructurings, all three types are combined. A process that addresses only the debt without reviewing the business model has a low probability of success: creditors refinance, but the company continues failing to generate the cash flows that the new debt structure requires.
The Reformed Legal Framework: Law 16/2022 and the TRLC
Law 16/2022 of 5 September comprehensively reformed the Spanish Consolidated Insolvency Act (Texto Refundido de la Ley Concursal, TRLC — Royal Legislative Decree 1/2020), introducing substantive changes that have modernised the Spanish restructuring and insolvency framework.
The EU Directive and European Harmonisation
Law 16/2022 transposes Directive (EU) 2019/1023 on preventive restructuring frameworks, debt discharge and insolvency efficiency. The Directive aimed to create a European standard for preventive restructuring that would allow financially distressed but viable businesses to access restructuring tools before reaching formal insolvency.
The result, for the first time in Spain, is a system that places emphasis on prevention: acting when the company faces a “likelihood of insolvency” in the future, rather than waiting until it is already insolvent. This is a fundamental philosophical shift in approach — and one that aligns Spain with the practices long established in the US, UK, and Germany.
Key Changes Introduced
New restructuring plan (Title III TRLC). The centrepiece of the reform. A financially distressed company can propose a restructuring plan to its creditors — incorporating haircuts, deferrals, debt conversions, or any combination — which, if approved by the statutory majorities within creditor classes, can be imposed even on those who vote against it (cross-class cram-down), subject to judicial homologation.
Notification of negotiations (Art. 583 TRLC). A company actively negotiating a restructuring plan may notify the commercial court. For a period of up to three months (extendable by one further month), the obligation to file for insolvency is suspended and, under certain conditions, individual creditor enforcement actions are stayed. This is the negotiation shield — the procedural protection that creates space to negotiate without the process being derailed by a single creditor acting unilaterally.
Special procedure for micro-enterprises (Book III TRLC). A simplified procedure, faster and less costly, for companies below specified size thresholds. Accessible through standardised forms and including a business continuation plan option.
Enhanced second chance mechanism. Law 16/2022 broadened access to the discharge of unsatisfied liabilities (exoneración del pasivo insatisfecho, EPI) for natural persons, including the self-employed and individuals who have personally guaranteed business debts, removing several of the obstacles present in prior legislation.
The Restructuring Plan (Title III TRLC): Spain’s Chapter 11
The restructuring plan is the flagship instrument of the reform. It allows a financially distressed company to address its situation before becoming insolvent, under a legal framework that protects the process and gives the resulting agreement legal force.
How It Compares to Chapter 11 and Scheme of Arrangement
For readers familiar with US or UK insolvency law, the Spanish restructuring plan occupies a position similar to — but distinct from — two international reference points.
The US Chapter 11 reorganisation plan is the most widely known international restructuring mechanism. Like Chapter 11, the Spanish restructuring plan allows the debtor to continue operating whilst restructuring its debts, can be confirmed over the objection of dissenting creditor classes (cram-down), and requires a best-interest-of-creditors test (creditors must receive at least what they would receive in liquidation). Unlike Chapter 11, the Spanish plan does not require court supervision during the negotiation phase — it operates primarily as an out-of-court negotiation, with the court’s role confined to homologation of the final agreed plan.
The English Scheme of Arrangement and Restructuring Plan (under the Companies Act 2006 and the Corporate Insolvency and Governance Act 2020 respectively) are also relevant reference points for UK-based creditors or parent companies. The Spanish mechanism is closer in structure to the English Restructuring Plan than to the older Scheme of Arrangement, particularly in its cross-class cram-down capability and its application to distressed — rather than merely solvent reorganisation — scenarios. However, following Brexit, automatic recognition within the EU no longer applies to English proceedings, which creates complexity for groups with operations in both Spain and the UK.
Who Can Use the Restructuring Plan
The restructuring plan is available to companies experiencing a “likelihood of insolvency” — meaning they anticipate they will be unable to meet their obligations in the future, even if not yet technically insolvent — and to companies that are already insolvent but have not been so for more than two months. It is not a tool reserved for large corporations: any company with sufficient debt complexity can access it.
Creditor Classes and Voting Majorities
The plan classifies creditors into homogeneous groups: financial creditors, trade creditors, subordinated creditors, employees. Each class votes separately. For the plan to be approved within a class, it requires the affirmative vote of creditors representing at least two thirds of the liabilities in that class.
Cross-Class Cram-Down: The System’s Core Mechanism
If not all classes approve the plan but a majority of them do, the court may impose the plan on the dissenting classes, provided certain conditions are met. The most important is the best-interest test: dissenting creditors must receive at least what they would receive in a hypothetical liquidation of the company. This mechanism — equivalent to the cram-down in US Chapter 11 — is what gives the plan its genuine binding force and prevents any single creditor class from holding the entire process to ransom.
The absolute priority rule (analogous to the Chapter 11 rule) also applies: more junior classes cannot receive value if more senior dissenting classes are not paid in full — unless those senior classes consent, or unless the plan satisfies the inter-class fairness criterion as assessed by the court.
The 3-Month Negotiation Shield (Art. 583 TRLC)
One of the most practically significant protections introduced by Law 16/2022 is the negotiation shield available under Article 583 TRLC. By notifying the commercial court that restructuring negotiations are under way, the company obtains three immediate protections:
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Suspension of the insolvency filing obligation. The two-month deadline to file for insolvency (Article 5 TRLC) is suspended for the duration of the negotiation period. This is critical: it prevents directors from being held liable for failure to file while actively seeking a restructuring solution.
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Stay of individual enforcement actions. Creditors included in the restructuring negotiations cannot commence or continue individual enforcement actions against assets necessary for the business to continue operating. This prevents a single aggressive creditor from collapsing the process by enforcing a guarantee.
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Protection of existing contracts. Ipso facto clauses — contractual provisions allowing counterparties to terminate contracts upon the debtor’s insolvency or financial difficulty — cannot be invoked whilst the negotiation protection is in place.
The three-month period can be extended by one further month. If negotiations fail and no plan is approved, the insolvency filing obligation revives immediately.
Director Liability: Critical Considerations for International Parent Companies
One of the most significant concerns for the management of foreign parent companies with Spanish subsidiaries in financial distress is director liability under Spanish law. This risk is frequently underestimated until it is too late.
Article 363 LSC — mandatory dissolution trigger. When accumulated losses reduce a Spanish company’s net equity below 50% of its share capital, the directors are obliged under Article 365 LSC to convene a general meeting within two months to resolve dissolution, recapitalisation, or the filing of an insolvency petition. Failure to do so activates Article 367 LSC, under which directors — including shadow directors and, in certain circumstances, the management of a foreign parent company exercising de facto control — become jointly and severally liable for company debts arising after the trigger date.
Article 367 LSC — joint and several liability. This provision is one of the most potent liability mechanisms in Spanish corporate law and one that catches international management teams by surprise. A director of a Spanish subsidiary who knew the net equity threshold had been breached, and who failed to call the required meeting within two months, can be sued personally by any subsequent creditor for the full amount of debts incurred after the trigger date. The liability is strict — the creditor need not prove fault or causation beyond the factual breach of the procedural obligation.
Culpable insolvency classification. If insolvency proceedings are ultimately declared, the court issues a classification (calificación) determining whether the insolvency is fortuitous or culpable. A culpable classification — triggered by fraud, gross negligence, or failures such as late filing of the insolvency petition, inadequate accounting, or asset dissipation — can result in directors being disqualified from managing companies for up to fifteen years and being ordered to cover the insolvency shortfall (the gap between assets and liabilities) from their personal assets.
Practical guidance for international boards. Directors of financially distressed Spanish subsidiaries should: maintain formal board minutes documenting decisions and their rationale; obtain independent Spanish legal advice on their specific obligations at each stage; avoid prioritising payments to shareholders or group companies over third-party creditors; and activate the restructuring process early — before liquidity is exhausted and options close.
Out-of-Court Refinancing: When Consensus Is Achievable
For many companies, the path forward involves a negotiated refinancing agreement reached directly with banks, without the formal structure of the restructuring plan. This is the most common scenario when debt is concentrated in a small number of financial institutions and there is genuine willingness to negotiate.
Judicial Homologation of Refinancing Agreements
Articles 615 and following of the TRLC regulate the possibility of judicially homologating a refinancing agreement reached between the company and its financial creditors. Homologation produces two principal effects: it gives the agreement the enforceability of a court judgment, and it allows certain effects of the agreement to be extended to financial creditors who did not vote in favour, provided the agreement was subscribed by creditors representing at least 51% of financial liabilities.
Refinancing Tools
The instruments available in refinancing negotiations are the same whether conducted out of court or through the formal restructuring plan:
Haircut (quita): reduction of outstanding principal. The hardest to negotiate because it generates an accounting loss for the bank that must be provisioned. Banks typically prefer deferrals and conversions over outright haircuts.
Payment deferral (espera): extension of the amortisation schedule. Converts short-term debt into long-term debt, relieving immediate cash pressure. The most commonly used tool because it does not generate an accounting loss for the bank if the company is not already in arrears.
Principal moratorium (carencia): a period — typically one to three years — during which the company services interest only, without repaying principal. This releases cash flow during the critical implementation phase of the operational plan.
Debt-to-equity conversion: financial creditors receive equity stakes in exchange for reducing or extinguishing their claim. Reserved for situations where the required haircut is large enough that banks prefer to take an equity position and recover their investment through future appreciation.
The Role of the Independent Expert
In many refinancing processes, the parties agree to appoint an independent expert to validate the financial projections presented by the company and certify that the proposed plan is viable. Article 616.2 TRLC regulates the appointment of the independent expert in the context of judicial homologation. The expert’s report does not bind creditors, but provides an objective basis for evaluating the company’s proposal — and signals to banks and their own credit committees that the projections have been independently stress-tested.
Micro-Enterprises: The Simplified Book III TRLC Procedure
Law 16/2022 introduced a specific procedure for smaller businesses, recognising that the cost and complexity of standard insolvency proceedings discouraged their use and pushed micro-enterprises towards faster, more disorderly closures.
Eligibility Thresholds
The special micro-enterprise procedure is available to natural persons or legal entities that, at the time of application, simultaneously satisfy three thresholds:
- Fewer than 10 employees
- Total assets below €700,000
- Annual turnover below €1,400,000
How It Works
The procedure is faster (timescales are halved compared to standard insolvency), cheaper (the insolvency administrator’s fees are lower and the process requires less professional involvement) and more accessible (it is commenced using standardised forms that do not require legal representation in the initial phases).
The special procedure allows two principal outcomes: the continuation plan, which is an agreement with creditors allowing the business to continue operating under restructured debt conditions; and simplified liquidation, which realises assets more quickly and economically than in standard proceedings.
Access to the Second Chance Mechanism
If the debtor is a natural person — which includes self-employed individuals who have operated the business in their own name or who have personally guaranteed business debts — the micro-enterprise procedure includes access to the discharge of unsatisfied liabilities (EPI). This discharge means that after liquidation of available assets, debts that could not be paid are extinguished, allowing the individual debtor to start afresh.
The Second Chance Law has its own procedure for natural persons who do not meet the micro-enterprise thresholds, but the micro-enterprise procedure integrates it more efficiently for those who do.
Insolvency Proceedings (Concurso de Acreedores): When It Is Unavoidable
Formal insolvency proceedings (concurso de acreedores) are the judicial procedure that addresses the situation of an insolvent company under the supervision of the commercial court (juzgado de lo mercantil). They are not an end in themselves: they can conclude in a convenio — a court-approved arrangement with creditors that allows the company to continue operating — or in liquidation.
When There Is No Alternative
Insolvency proceedings are unavoidable when the company is already insolvent (unable to meet its current obligations), when no agreement is achievable with creditors through pre-insolvency mechanisms, or when a creditor petitions for involuntary insolvency because the company is not meeting its obligations.
Filing for insolvency is mandatory within two months of the date on which the debtor knew or should have known of its insolvent position (Article 5 TRLC). Delaying this filing exposes directors to personal liability and may result in a culpable insolvency classification.
Voluntary vs. Involuntary Proceedings
Voluntary insolvency is filed by the debtor itself. Its advantage is that the debtor can propose the appointment of the insolvency administrator and retains management powers (subject to supervision). This is always the preferred route when the company acts in time.
Involuntary insolvency is filed by a creditor or group of creditors. In this case, the debtor loses management powers from the date of the declaration, and the insolvency administrator assumes control. This is significantly more prejudicial for the company and is invariably a signal that action was taken too late.
The Classification: Fortuitous vs. Culpable
At the conclusion of proceedings, the court issues a classification (calificación) determining whether the insolvency is fortuitous (due to external circumstances or business errors without bad faith) or culpable (due to fraud or gross negligence by the debtor or directors in causing or aggravating the insolvency).
A culpable classification carries serious consequences: directors classified as affected persons may be disqualified from managing third-party assets and representing legal entities for up to fifteen years, and may be ordered to cover the insolvency shortfall from their personal assets.
The statutory presumptions of culpable insolvency most relevant to international directors are: breach of the obligation to file for insolvency within the two-month period; disposal of assets to the detriment of creditors; and maintaining manifestly irregular or incomplete accounting records.
Case Study: Industrial Group — From €45M Turnover and -€4M Losses to EBITDA Positive in 14 Months
Restructuring works when the underlying business is viable and action is taken with sufficient lead time. The following case illustrates this.
An industrial group with €45 million in revenue and four subsidiaries had accumulated €4 million in losses over two consecutive years of margin compression, with a debt structure consuming 40% of EBITDA in interest service. The banking pool — three institutions — had activated the covenant review clause and demanded a viability plan as the condition for not enforcing their security.
Our team prepared the viability plan in eight weeks. The diagnosis identified that one of the four subsidiaries — a distribution business — had operated with negative margins for three consecutive years and had been draining group resources. The other three subsidiaries were profitable at the operating EBITDA level but were being strangled by the financial cost of debt taken on specifically to fund that loss-making subsidiary.
The plan proposed three measures: divestment of the loss-making subsidiary, sold to a sector competitor for €3.5 million; refinancing of €12 million of debt with an extension of the amortisation schedule from five to ten years and a two-year principal moratorium; and a cost-reduction map of €2.8 million per year across the remaining three subsidiaries, primarily through sales force reorganisation and consolidation of support functions.
The banking pool approved the plan within ten weeks. By month fourteen, the group reported positive EBITDA for the first time in three financial years.
The critical element was not the sophistication of the plan: it was timing. The company acted when it still had options, not after the bank had already enforced its security.
Decision Map: Which Tool to Use and When
| Situation | Recommended tool |
|---|---|
| Liquidity pressure with viable business; debt concentrated in few banks | Out-of-court refinancing |
| Material financial difficulty; debt restructuring needed across multiple creditors | Restructuring plan (Title III TRLC) |
| Company under 10 employees, under €700K assets, under €1.4M turnover | Special micro-enterprise procedure |
| Already insolvent; no realistic prospect of arrangement | Insolvency proceedings (convenio or liquidation) |
| Natural person with unpayable debts after liquidation | Second Chance Law (EPI discharge) |
Act Before the Bank Calls
The difference between a restructuring that works and insolvency proceedings that destroy value is rarely the severity of the situation. It is almost always timing.
Business owners who contact us when there is still room to manoeuvre — when liquidity problems are recurring but the company is still operating, when banks have not yet activated covenants, when there are still assets to divest at value — have real options on the table. Those who wait until the situation has deteriorated arrive when the options have closed.
If your company is showing any signs of financial pressure — cash-flow difficulties, compromised covenants, persistent losses — the time to assess your options is now, not when external pressure forces the issue. Contact our restructuring and insolvency advisory teams for a confidential initial assessment.
If a second chance outcome is also relevant — whether for the company’s directors personally or for shareholders who have guaranteed debt — our guide on the Second Chance Law sets out the available options in detail.
Does your business need to restructure? The first conversation is confidential and without commitment. BMC’s team combines financial, tax and legal expertise to support the process from diagnosis through to creditor negotiation and implementation.
