Corporate Restructuring Plan: Restructure Your Debt Before Insolvency Proceedings

The restructuring plan is the pre-insolvency instrument under Book I of the Texto Refundido de la Ley Concursal (TRLC — Consolidated Insolvency Act, Arts. 616–732), introduced by Law 16/2022 transposing European Directive 2019/1023 on preventive restructuring frameworks. It allows a company facing imminent insolvency — when it foresees that it will be unable to meet its obligations regularly within the next three months — to negotiate a debt restructuring with its creditors under judicial protection, without declaring insolvency proceedings and without losing management control. The plan may include a write-down, payment deferral, debt-to-equity conversion, and operational measures. If it achieves the required qualified majorities in each creditor class, the Mercantile Court may approve it and extend its effects to dissenting creditors through the cram-down mechanism (Art. 639 TRLC). BMC, in collaboration with Herrera García Abogados, advises on the design, negotiation, and approval of restructuring plans for medium and large companies with significant bank, financial, or trade debt.

Does your company need to restructure its debt before insolvency proceedings?

The pre-insolvency restructuring plan is the most powerful tool that the insolvency reform (Law 16/2022) has made available to Spanish companies with debt problems — and also the least used, because many directors and their advisers are unaware of it or arrive too late to activate it.

The window for action is precise: the company must be in a state of imminent insolvency (unable to meet its obligations within the next three months) or, preventively, when there is a reasonable probability of future insolvency. Once insolvency becomes actual — the company can no longer pay — the director has a legal obligation to file for insolvency proceedings within two months, and the pre-insolvency options become conditional on that deadline.

The indicators we repeatedly see: a company with significant bank debt falling due or entering accelerated repayment, credit lines that banks are not renewing on normal terms, growing cash flow tension managed as a “temporary problem” for months, and a bank risk committee that has already changed the internal credit classification. When these signals accumulate, the pre-insolvency window closes quickly.

The good news: if action is taken with sufficient advance notice, the restructuring plan allows debt to be restructured in an orderly manner, under judicial protection, without insolvency proceedings and without losing control of the company. Law 16/2022 has given Spain one of the most advanced preventive restructuring frameworks in Europe — comparable in some important respects to the American Chapter 11.

How the restructuring plan works under the TRLC (Law 16/2022)

The restructuring plan proceeds through three main phases governed by TRLC Arts. 616–732:

Phase 1: Design and court notification (Arts. 616–634)

The company drafts the plan with the assistance of its legal and financial advisers. The plan must contain: viability analysis of the business with restructured debt, classification of affected claims into homogeneous classes, write-down and deferral proposal for each class, operational adjustment measures included in the plan, and an implementation schedule.

Once the plan is sufficiently developed — or, when urgency requires it, even before it is complete — the company notifies the Mercantile Court of the commencement of negotiations. This notification activates the protective shield under Art. 627 TRLC: for four months (extendable to eight), no creditor may enforce security over assets needed for the business or petition for involuntary insolvency proceedings.

Phase 2: Class-by-class creditor negotiation (Arts. 635–638)

Negotiations proceed class by class of creditors. Correct classification is fundamental: claims are grouped according to their economic and legal position (secured, ordinary, subordinated, public). Within each class, creditors vote on the plan.

The required majorities are 60% of the class’s liabilities for the plan to be binding on all who have voted, and 75% for it to be binding on dissenting creditors who have not voted or have voted against. Precision in structuring classes and in the proposal for each one determines the viability of the voting process.

In plans with syndicated bank debt, banks act under internal risk committee protocols with their own decision-making timelines. Distressed debt funds have more agile decision-making structures but very specific return objectives. Designing a proposal acceptable to both within the same plan is one of the most delicate aspects of the negotiation.

Phase 3: Voting and judicial approval (Arts. 639–655)

Once the majorities have been achieved in each class, or where dissenting creditors in a class are blocking unanimous approval, judicial approval is sought. The Mercantile Court examines whether the plan satisfies the legal requirements — majorities, content, viability, no disproportionate prejudice to creditors — and issues the approval order.

The approval order has two central effects: (1) the plan is binding on all affected creditors, including dissenting creditors in each class meeting the 75% majority (cram-down); (2) the plan constitutes an enforceable instrument and its breach activates the enforcement mechanisms provided for in the plan or the TRLC.

The protective shield: negotiating without enforcement pressure

The protective shield makes orderly negotiation possible. Without it, any creditor could enforce its security or petition for involuntary insolvency proceedings while negotiations are ongoing, making it impossible to reach agreements with others.

Art. 627 TRLC establishes that, from notification to the court, the following are suspended:

• Individual enforcement proceedings against assets and rights needed for the continuation of business activity, regardless of who initiated them.
• Enforcement of security interests (mortgages, pledges) over assets needed for the business, even if the secured creditor is not party to negotiations.
• Involuntary insolvency petitions by creditors, throughout the protection period.

This shield is not absolute: it does not suspend enforcement against assets not needed for the activity, does not affect claims against the insolvency estate, and has a time limit. Managing the protection period — including possible extensions if negotiations are ongoing — is one of the areas where expert advice makes the most difference.

Restructuring plan vs. insolvency arrangement: when to use each instrument

The restructuring plan is the appropriate instrument when: (a) the business is genuinely viable with restructured debt; (b) insolvency is imminent, not actual; (c) there is a possibility of reaching agreement with the main creditors; and (d) the objective is to avoid insolvency proceedings and their effects on reputation, contracts, and management.

Sources and Regulatory Framework

• BOE — Texto Refundido de la Ley Concursal (TRLC)
• BOE — Law 16/2022 reforming the TRLC
• EUR-Lex — Directive 2019/1023 on preventive restructuring frameworks
• CGPJ — Juzgados de lo Mercantil (Commercial Courts)

This service is part of our insolvency and restructuring practice.