Corporate Debt Restructuring: TRLC Restructuring Plans to Avoid Formal Insolvency

Corporate debt restructuring in Spain is governed primarily by Book I of the Texto Refundido de la Ley Concursal (TRLC, Legislative Royal Decree 1/2020, as reformed by Law 16/2022 transposing EU Directive 2019/1023 on preventive restructuring frameworks). A TRLC restructuring plan allows a company facing imminent or current insolvency to negotiate haircuts and maturity extensions with its creditors, organised by creditor classes, and to extend the plan's effects to dissenting creditors within each class through judicial homologation (the "cram-down" mechanism) once the required majorities are met. During negotiations, the company can activate a judicial protection shield under Article 583 TRLC — a pre-insolvency notification to the commercial court that freezes individual enforcement actions for up to six months while management retains full operational control.

This service is part of our legal advisory practice.

Does your company have unsustainable debt but a viable business?

Corporate debt restructuring starts from a fundamental premise: some companies have debt problems, others have business problems. For the former, the solution is to adjust the financial structure, not to liquidate the business. The instrument designed for this in Spanish law is the Book I TRLC restructuring plan, introduced by Law 16/2022 transposing the European Preventive Restructuring Directive.

The typical symptoms of a company with unsustainable debt but a viable business are recognisable: EBITDA generated is insufficient to service debt (interest coverage ratio below 1x), banking covenants are in breach or at the limit, automatic credit line renewals are starting to be refused, and available cash barely covers 3-4 months of normal operations.

What many directors do not know is that the TRLC gives them a specific tool for this moment: to negotiate with creditors under judicial protection, with the ability to impose the agreement on dissenters if the required majorities are achieved.

How a Book I TRLC restructuring plan works

The restructuring plan is an agreement between the debtor company and its creditors that can include a haircut (reduction of the nominal debt amount), maturity extension (deferral of repayment schedules), debt-to-equity conversion (converting debt into shareholdings) and operational measures (workforce restructuring, asset sales, closure of loss-making business lines).

What makes the TRLC restructuring plan more powerful than a simple private renegotiation is the possibility of class voting and judicial homologation:

Creditors are grouped into classes according to the nature of their claim: secured debt (with mortgage or pledge), ordinary debt (without real security), subordinated debt and, where applicable, public debt. Each class votes separately. The plan can be approved with majorities within each class, and if there are dissenting classes but cross-class majorities are achieved (majority of classes with sufficient total liability representation), the court can homologate the plan and extend its effects to the classes that voted against it.

This mechanism — cram-down — is the most important innovation of the 2022 reform. Previously, unanimous consent from all creditor classes was required for the plan to be binding on all of them. Now, a qualified cross-class majority with judicial homologation is sufficient.

Cram-down: how to extend the plan to dissenting creditors

Cram-down (forced extension of the plan to dissenting creditors through judicial homologation) solves the holdout problem: the minority creditor who blocks agreement knowing that if restructuring fails the outcome is formal insolvency, which allows them to negotiate more favourable terms than those agreed by the majority.

For the court to homologate the plan with cram-down effect on dissenting classes, two main conditions must be met:

Cross-class majorities. The plan must have obtained approval from a majority of creditor classes, with a minimum representation of the total liability included in the plan. The Law establishes the specific majorities depending on whether or not lower-ranking classes approve the plan.

Best-interest test. Dissenting creditors cannot be left in a worse position than if the debtor entered liquidation insolvency proceedings. The plan must demonstrate, with an independent expert report, that what it offers to dissenting creditors is at least equivalent to what they would receive in the liquidation scenario. If the test is passed, the court has no discretion: it homologates the plan.

What our corporate debt restructuring advisory includes

Corporate debt restructuring is a multidisciplinary process combining financial analysis, negotiation strategy and legal precision. Our team integrates both dimensions: Raúl Herrera García leads the insolvency law component, coordinating with BMC’s corporate restructuring team when the transaction requires new investor financing components, asset valuation or capital structuring.

We have experience in restructurings involving syndicated bank debt, distressed debt funds, bonds and significant trade debt. We know the internal protocols of the major financial institutions and the negotiating patterns of the distressed funds operating in the Spanish market, which allows us to design realistic negotiation strategies from day one.

Restructuring plan versus formal insolvency proceedings

The most common question is: when is the restructuring plan the better option and when is formal insolvency better?

The restructuring plan is preferable when: (i) the company has a viable business with restructured debt, (ii) there is a critical mass of creditors with whom private negotiation is possible, (iii) the company wants to retain management control and avoid the stigma of formal insolvency, and (iv) the debt structure is primarily financial (banks, funds) rather than an atomised liability of many small trade creditors.

Formal insolvency proceedings are the right route when: (i) insolvency is already current and there is no prospect of a pre-insolvency agreement, (ii) atomised trade creditors make private negotiation impractical, (iii) orderly liquidation is the best outcome for creditors and the business has no real viability, or (iv) a creditor has already petitioned for involuntary insolvency.

In many cases the optimal route is to combine both: start pre-insolvency negotiations under Art. 583 TRLC protection, and if sufficient agreement is not reached, transition in an orderly fashion to formal insolvency proceedings with an anticipatory arrangement proposal.

Regulatory Framework: Book I TRLC and EU Directive 2019/1023

The legal basis for corporate debt restructuring in Spain is Book I of the Texto Refundido de la Ley Concursal (TRLC, Legislative Royal Decree 1/2020), as reformed by Law 16/2022. Law 16/2022 transposed EU Directive 2019/1023 on preventive restructuring frameworks, which harmonised restructuring law across EU Member States with the objective of reducing barriers to cross-border restructuring and ensuring that viable businesses have access to effective tools to avoid unnecessary liquidation.

Key provisions of Book I TRLC include:

• Art. 583 TRLC — pre-insolvency notification granting a three-month enforcement shield during creditor negotiations.
• Arts. 616-631 TRLC — the restructuring plan content requirements, class composition rules, and voting majority thresholds.
• Art. 640 TRLC — the best-interest test (creditors must receive no less under the plan than in a formal insolvency liquidation scenario).
• Arts. 641-649 TRLC — judicial homologation of the plan and the cram-down mechanism for dissenting classes.

Cross-border restructurings involving creditors or assets in other EU Member States must additionally account for EU Regulation 2015/848 on insolvency proceedings, which determines which member state’s courts have jurisdiction (based on the debtor’s COMI — Centre of Main Interests) and governs mutual recognition of restructuring measures across EU jurisdictions.

Sectors Most Affected by Corporate Debt Restructuring

Retail and consumer: the structural shift to e-commerce and post-COVID demand volatility have generated repeated debt restructuring scenarios in traditional retail. The main challenge is lease liability — under TRLC a landlord holding a lease over a key business location may be a significant secured creditor whose consent is critical to the restructuring plan.

Construction and real estate: project-based debt structures with concentrated maturities tied to project completion and sale create repeated refinancing crises when market conditions shift. Banks holding mortgage security over development land or partially completed projects have specific recovery incentives that must be addressed in the class negotiation.

Hospitality: hotel groups with acquisition debt and operating lease liabilities face complex restructuring scenarios in which the bank debt, the operating lease, and the trade creditors must each be addressed simultaneously. The operational continuity of the hotel during negotiations is a key constraint on the restructuring timeline.

Manufacturing and industrial: supply-chain disruption and energy cost shocks in 2022-2025 have created debt sustainability crises across the Spanish manufacturing sector. These companies typically have significant secured bank debt, trade credit from key suppliers, and occasionally bond or private placement debt that requires coordination across three creditor classes.

Company Size Segmentation

Microenterprises and SMEs (fewer than 50 employees, liabilities under EUR 5 million) are eligible for the simplified micro-enterprise insolvency procedure under Law 16/2022, which is faster and cheaper than the full restructuring plan route. However, for companies with significant bank debt or where the debt structure requires negotiations with sophisticated financial creditors, the full Book I TRLC framework provides stronger protection and better outcomes.

Medium companies (50-250 employees, EUR 5-50 million in liabilities) are the primary users of the Art. 583 TRLC pre-insolvency notification and the full Book I restructuring plan. The typical scenario involves syndicated bank debt with 2-4 lenders, trade credit from a manageable number of key suppliers, and potentially AEAT and TGSS public debt managed in parallel through deferral mechanisms.

Large companies and corporate groups (250+ employees, liabilities above EUR 50 million) require structuring plans that address multiple creditor classes simultaneously — often including international financial creditors, distressed debt funds that have purchased positions in the secondary market, and bond or private placement holders. These cases require the full cram-down mechanism and frequently involve judicial homologation with contested proceedings.

Worked Example: Retail Group Debt Restructuring

A Spanish multi-format retailer (380 employees, EUR 45 million revenue, EUR 22 million in financial debt across three banks) faced maturity of EUR 18 million in term loans within 8 months. EBITDA had fallen from EUR 4.2 million to EUR 1.1 million over three years due to online competition and lease cost inflation. One of the three banks had sold its position (EUR 5 million) to a distressed debt fund at 65 cents in the euro; the fund was pushing for acceleration.

BMC managed the process:

• Filed Art. 583 TRLC pre-insolvency notification, immediately suspending the fund’s acceleration threat.
• Conducted a financial diagnostic confirming business viability with a 35% debt reduction and 5-year maturity extension.
• Negotiated with each creditor class separately: the two remaining banks agreed to a 30% haircut and 5-year extension with a covenant package; the distressed fund, after a contested negotiation, accepted a 40% haircut in a separate class (their different purchase economics allowed a lower acceptance threshold).
• Coordinated a parallel AEAT deferral for EUR 1.8 million of accumulated VAT debt.
• Applied for judicial homologation; the commercial court homologated the plan within six weeks, binding all creditors.

Result: EUR 7.7 million debt reduction, 5-year maturity profile, company trading profitably 12 months post-homologation.

Common Mistakes We Fix

1. Starting negotiations without pre-insolvency protection. Companies that begin creditor negotiations without filing the Art. 583 TRLC notification first run the risk that an aggressive creditor enforces during negotiations — effectively destroying the negotiation environment. The Art. 583 notification costs very little to file and provides significant protection. There is almost never a good reason not to file it before starting substantive negotiations with financial creditors.

2. Treating all creditor classes as one. Banks, distressed debt funds, trade creditors, and public administrations have completely different decision-making processes, return expectations, and negotiating margins. A single restructuring proposal presented to all creditors simultaneously will fail with at least one creditor class. Class-by-class negotiation with differentiated proposals is the only approach that works.

3. Underestimating the distressed debt fund. Funds that buy debt positions at a discount have a fundamentally different economic position from the original lender. A fund that bought EUR 10 million of debt at 60 cents (EUR 6 million investment) has break-even at a different haircut than the bank that lent EUR 10 million. Not understanding the fund’s purchase economics is one of the most frequent errors in distressed debt restructurings.

4. Not documenting the directors’ diligence during negotiations. The pre-insolvency negotiation period is a high-risk time for director liability: if the restructuring ultimately fails and formal insolvency follows, the insolvency administrator will scrutinise decisions and payments made during the negotiation period. A director who cannot demonstrate diligent conduct during this period faces a significantly higher risk of culpable insolvency classification.

5. Delaying too long before seeking advice. The most common factor in failed restructurings is delay. Companies with viable businesses that delay seeking restructuring advice until current insolvency is reached have significantly fewer options than those that act when insolvency is merely imminent. The Art. 583 TRLC mechanism is only available in imminent insolvency — once current insolvency is reached, the mandatory filing obligation begins and the restructuring tools become more constrained.

Geographic Coverage

We manage corporate debt restructuring proceedings across Spain: Madrid, Barcelona, Valencia, Málaga, Marbella, Murcia, and Las Palmas de Gran Canaria. For cross-border restructurings involving creditors in other EU Member States, we coordinate with insolvency and restructuring counsel in the relevant jurisdictions under the EU Regulation 2015/848 framework. We have experience coordinating Spanish restructuring plans with parallel proceedings in Luxembourg (for structures with Luxembourg holding companies), the Netherlands, and the United Kingdom.

Creditor Class Composition: a Critical Design Decision

The design of creditor classes in the restructuring plan is one of the most consequential decisions in the process and one of the areas where specialist legal advice makes the biggest difference to outcomes. The law establishes certain mandatory class divisions — secured and unsecured creditors must be in different classes, subordinated creditors must be in their own class — but within these mandatory divisions there is significant flexibility that can be used strategically.

Creating more granular classes — separating bank creditors into senior secured and mezzanine, or separating significant trade creditors from small ones — allows the restructuring team to design a plan where the dissenting holdout is isolated in a single class that can be subjected to cram-down, while the majority of classes by value and number approve the plan. Alternatively, aggregating creditors into broader classes may be necessary when no majority is achievable within narrower groupings. Getting this design right requires detailed modelling of creditor positions and recovery scenarios under multiple plan variants before the negotiation begins.

The Independent Expert and the Viability Report

Under Art. 625 TRLC, the restructuring plan must be accompanied by an independent expert report where the plan contains specific features — notably, cross-class cram-down or specific protections for new financing. The independent expert (experto independiente) is appointed by the commercial court from the list of insolvency administrators, or alternatively by the parties by agreement.

The expert’s report must assess: the viability of the restructuring plan, whether the plan satisfies the best-interest test for dissenting creditors, and — where new financing is provided — whether the financing conditions are appropriate. The expert report is the key document in any contested homologation proceeding, as dissenting creditors who challenge the plan must demonstrate that the expert’s conclusions are incorrect.

We coordinate the independent expert appointment and advise on the preparation of the supporting documentation — the viability analysis, the liquidation scenario analysis, and the financial projections — to ensure that the expert’s conclusions support the plan’s homologation.

Operational Restructuring: Aligning the Business Plan with the Financial Plan

A financial restructuring plan that reduces debt to a sustainable level is only as durable as the operational plan that generates the cash flows to service it. Companies that negotiate a financial restructuring without simultaneously implementing the operational improvements necessary to generate the projected EBITDA typically find themselves in financial distress again within 18-24 months.

The operational restructuring component of a typical plan includes: rightsizing the cost base (workforce adjustment through ERE or individual dismissals), renegotiation of lease agreements and material supplier contracts, rationalisation of the product or service portfolio to focus on the highest-margin segments, and — where the business model requires transformation — investment in the capabilities needed for the new model. We coordinate the operational restructuring with our employment law team (for the ERE component), our commercial contracts team (for lease and supplier renegotiations), and the company’s own management team to ensure the plan is implementable within the financial restructuring timeline.

How We Work

Our corporate debt restructuring practice is led by Raúl Herrera García (Of Counsel, Derecho Concursal), coordinating with BMC’s tax, employment law, and corporate teams. A typical engagement:

Phase 1 — Diagnostic (2-3 weeks): financial position analysis, viability assessment under restructured debt scenarios, director liability assessment, preliminary creditor mapping and class design.

Phase 2 — Protection and preparation (3-6 weeks): Art. 583 TRLC notification filing, preparation of the draft restructuring plan and supporting viability analysis, commissioning of independent expert (where required), first creditor engagement.

Phase 3 — Negotiation and voting (2-4 months): class-by-class creditor negotiations, management of voting process, resolution of holdout positions.

Phase 4 — Homologation (6-8 weeks): judicial homologation application, management of any creditor objections, implementation of the homologated plan.

Fixed-fee options are available for the diagnostic phase and for companies meeting the micro-enterprise threshold under Law 16/2022.