Business Restructuring: Restore Viability Before Options Close

Business restructuring is the process of reorganising a company's financial obligations, operational structure, or ownership to restore viability when the business faces financial distress, unsustainable debt levels, or declining profitability. In Spain, the legal framework for restructuring was substantially reformed by Law 16/2022, which implemented EU Directive 2019/1023 on preventive restructuring frameworks and introduced the homologated restructuring plan procedure, cross-class cram-down mechanisms, and enhanced protection periods for viable businesses negotiating with creditors. Out-of-court restructuring — Refinancing Agreements and Out-of-Court Payment Agreements — allows companies to negotiate directly with creditors without judicial intervention, while formal insolvency proceedings (concurso de acreedores) under the Consolidated Insolvency Act provide court-supervised protection and an orderly framework for business sale or liquidation; directors who fail to declare insolvency within the legally required period face potential personal liability under Spanish insolvency law.

Business restructuring demands speed, discretion, and a well-grounded strategy. Our team has guided dozens of Spanish companies through restructuring processes — from complex bank refinancings to multi-creditor insolvency proceedings — with a consistent focus on preserving business value and employment.

Why Companies That Wait Too Long to Restructure Close Options That Were Available Earlier

Companies facing financial stress consistently wait too long to seek restructuring advice. By the time a company enters formal insolvency proceedings, the negotiating options that existed six months earlier have been foreclosed. Assets have been pledged, suppliers have tightened terms, key employees have begun to leave, and creditors have shifted into defensive mode. The difference between a company that achieves a clean refinancing and one that ends in liquidation is almost always the speed of the initial response — not the underlying viability of the business. If your company has experienced cash flow problems, declining margins, or covenant breaches for two or more consecutive quarters, the time to act is now — not when the bank calls in the loan.

Our Financial and Operational Restructuring Process: From Diagnostic to Creditor Agreement

Early engagement is the foundation of a successful restructuring. We conduct a rapid viability assessment and financial diagnostic, identify the critical path to solvency, and construct a creditor-ready viability plan with credible assumptions that unlock creditor cooperation. We design and manage the creditor negotiation process: coordinating across multiple bank creditors to prevent individual banks breaking ranks, managing trade creditor and public body workstreams in parallel, and structuring the financial solution — haircuts, deferrals, debt-for-equity, new money — that preserves business continuity. For viable businesses where out-of-court solutions are insufficient, we manage pre-insolvency tools under Law 16/2022 and, where necessary, the formal insolvency process with the same focus on preservation of value. Where business sale is the preferred outcome, our coordination with the M&A team ensures the disposal process achieves the highest possible price while preserving employment.

Real Results in Restructuring: €1.2B+ Restructured, 73% Without Formal Insolvency

• 73% of restructuring mandates resolved without formal insolvency proceedings — out-of-court agreements that preserve reputation and relationships.
• EUR 1.2B+ in debt restructured or refinanced across 80+ mandates.
• Pre-insolvency communication (preconcurso) managed strategically to grant three months of protection while creditor negotiations proceed.
• Viability plan development with credible financial projections accepted by financial institutions, trade creditors, and commercial courts.
• Tax coordination: debt write-off tax treatment, employment restructuring authorisations (ERE/ERTE), and tax planning integration throughout the process.

Spanish restructuring law was substantially reformed by Law 16/2022 implementing EU Directive 2019/1023 on preventive restructuring frameworks. Pre-insolvency tools — the restructuring plan homologation procedure, the special protection period, and the cross-class cram-down mechanism — now provide significant new options for viable businesses facing financial difficulty. Formal insolvency proceedings under the Consolidated Insolvency Act provide an orderly framework for sale of business units as a going concern. Directors of Spanish companies have potential personal liability in insolvency proceedings if the company was not declared insolvent in a timely manner — early engagement with a restructuring adviser reduces this risk directly. Tax and employment consequences of restructuring transactions require coordinated advisory across our tax, employment law, and corporate finance teams.

Corporate restructuring: the spectrum of interventions

Restructuring advisory encompasses a spectrum of interventions — from proactive operational improvements designed to prevent financial distress through to formal insolvency proceedings under Spain’s Ley Concursal (as reformed by RDL 16/2022, implementing the EU Insolvency Directive). The appropriate intervention depends on the severity and nature of the financial challenge, the timeline available, and the interests of the key stakeholders.

Our philosophy is that early intervention consistently produces better outcomes than delayed action. The options available to a business that identifies financial difficulties while it still has liquidity are substantially more favourable than the options available to a business that has already exhausted its cash resources and its creditors’ patience.

Pre-insolvency restructuring: the preferred route

Spain’s reformed insolvency framework introduced significant new tools for pre-insolvency restructuring — in particular, the homologación judicial de plan de reestructuración (judicial endorsement of restructuring plan), which allows a restructuring agreed by a qualified majority of creditors to be imposed on dissenting creditor classes, subject to conditions designed to protect their interests.

Pre-insolvency restructuring tools include:

• Refinancing agreements (acuerdos de refinanciación): negotiated with principal lenders, typically involving maturity extensions, covenant waivers, and in some cases principal reductions. The homologación process provides these agreements with protection against rescission in any subsequent insolvency.
• Out-of-court payment agreements (acuerdos extrajudiciales de pago): a simplified restructuring mechanism for businesses below certain thresholds, conducted through a court-appointed mediator without formal concurso proceedings.
• Restructuring plans (planes de reestructuración): the new RDL 16/2022 mechanism for more complex multi-creditor restructurings, including cross-class cram-down. Requires court endorsement but significantly more flexible than the formal concurso.

Operational restructuring: addressing the underlying causes

Financial restructuring addresses the symptoms of distress — unsustainable debt, covenant breaches, liquidity shortfalls. Operational restructuring addresses the causes: cost structures that are too heavy, business models that are no longer viable, or management organisations that are misaligned with the current size and complexity of the business.

Our operational restructuring work covers: cost reduction programme design and implementation, working capital optimisation (debtor acceleration, inventory reduction, creditor management), strategic portfolio rationalisation (divesting non-core businesses or assets), and management capability reinforcement where leadership gaps have contributed to the distress.

Formal insolvency: concurso de acreedores

When pre-insolvency options are exhausted or unavailable, the formal concurso de acreedores is the legally required framework for addressing insolvency in Spain. The concurso can have two outcomes: an agreement with creditors (convenio) — typically a debt reduction and extension — or an orderly liquidation. Our role in concurso proceedings is as financial adviser to the debtor or, in selected cases, to a creditor committee, rather than as an insolvency administrator (administrador concursal).

Our tax compliance and corporate secretarial teams support the administrative continuity of businesses in formal insolvency proceedings, ensuring that compliance obligations are maintained throughout a period when management attention is necessarily focused on the restructuring process.

Contact our restructuring team for a confidential diagnostic conversation — the earlier the discussion, the more options are available.

Tax-efficient restructuring under Spanish law

Many corporate restructurings — mergers, spin-offs (escisiones), and asset contributions (aportaciones de rama de actividad) — can be structured as “neutral” transactions for IS purposes under the special neutrality regime (régimen especial de reestructuraciones, Chapter VII Title VII LIS). This regime defers the recognition of capital gains that would otherwise arise on the restructuring transaction, allowing the reorganisation to proceed without a current IS cost. Qualifying conditions must be met, and the AEAT must be notified before filing the IS return for the year in question. Our corporate tax team manages the qualification assessment and AEAT notification process for restructuring transactions.

Sectors most commonly requiring restructuring

Retail and distribution: margin compression from e-commerce competition, supply chain disruption, and rising energy costs has driven significant restructuring activity in Spanish retail. Key issues include: commercial lease renegotiation under LAU and individual negotiation where statutory protection is limited, inventory liquidation, working capital optimisation, and where applicable, the formal ERTE (temporary employment regulation procedure) to reduce payroll during a reorganisation period without permanent redundancy costs.

Hospitality and tourism: the hospitality sector’s high fixed cost base (leases, staffing, debt for property or fit-out) creates acute distress when revenue falls. Hotel groups, restaurant chains, and travel agencies require rapid cash flow stabilisation combined with lease renegotiation and, where the business is viable, refinancing of acquisition debt that was structured for pre-COVID operating conditions.

Industrial manufacturing: Spanish industrial companies carry legacy cost structures from periods of high activity that become unsustainable during demand downturns. Operational restructuring — workforce right-sizing via agreed collective redundancy (ERE) procedures under Article 51 of the Workers’ Statute, asset disposal, and overhead reduction — often accompanies financial restructuring. We coordinate employment and financial restructuring workstreams simultaneously to ensure the operational improvements are reflected in the creditor negotiation.

Real estate development: developers with unsold inventory or stalled projects face a specific restructuring challenge — illiquid assets secured by creditors who prefer orderly sale over a depressed liquidation. Pre-insolvency management of the creditor relationship, combined with controlled marketing of assets through our M&A team, produces better outcomes than waiting for formal concurso.

Professional services firms: law firms, consulting practices, and other professional services businesses face restructuring challenges driven by partner departures, client concentration risk, and billing collection delays. These businesses have few hard assets but significant human capital — the restructuring strategy must preserve client relationships and key talent whilst addressing the financial imbalance.

Company size segmentation

Microenterprises and autónomos (turnover below EUR 1M): access to the acuerdo extrajudicial de pago (out-of-court payment agreement) mechanism under Article 231 TRLC, conducted with a mediador concursal rather than requiring full concurso proceedings. This is the most accessible formal pre-insolvency tool for smaller businesses and individuals. Our team assesses eligibility and manages the mediation process.

SMEs (EUR 1M–EUR 30M): the most active restructuring market in Spain. Typically involve bilateral negotiations with 2–5 bank creditors and a parallel trade creditor workstream. The acuerdo de refinanciación with homologación protection is the target outcome. Pre-insolvency communication (comunicación de negociaciones, Article 583 TRLC) provides three-months of protection against individual enforcement whilst negotiations proceed.

Mid-size companies (EUR 30M–EUR 150M): complex multi-creditor restructurings involving syndicated bank debt, bondholder negotiations, and in some cases PE fund creditors with specific restructuring rights under their loan agreements. The planes de reestructuración mechanism (RDL 16/2022 Chapter II) with judicial endorsement and cross-class cram-down is the primary tool for restructurings at this level.

Large corporates and groups (above EUR 150M): coordinated restructurings involving CNMV notification obligations (where listed), public bondholder communications, and coordination across multiple jurisdictions where group entities are incorporated. Our team acts as financial adviser on the Spanish-side component of international restructurings involving English law governed facilities.

Worked example: hospitality group refinancing — EUR 28M debt restructuring

A hospitality group operating four hotels in the Costa Brava and Costa del Sol (320 rooms, 180 employees) engaged our restructuring team after breaching the net debt/EBITDA covenant on its main EUR 28M loan facility. The two lead banks had issued formal default notices and appointed an external monitoring accountant.

Phase 1 — Rapid diagnostic (3 weeks):

• 13-week cash flow model developed confirming liquidity shortfall of EUR 1.8M within 8 weeks.
• Business plan revised: two hotels profitable on EBITDA basis; two properties non-strategic (1 underperforming urban hotel, 1 seasonal resort requiring EUR 2.8M capex).
• Creditor mapping: 2 bank creditors (senior secured, 78% of debt), 1 mezzanine lender (EUR 4.2M, 15%), EUR 2.4M trade creditors, EUR 1.6M deferred tax liabilities (AEAT deferred COVID ERTE contributions).

Phase 2 — Creditor engagement (6 weeks):

• Communication of negotiations (comunicación de negociaciones Article 583 TRLC) filed — three-month enforcement moratorium obtained.
• Proposal to senior banks: 18-month principal deferral, covenant reset at EBITDA/debt ratio of 4.5x (vs. 3.2x in original facility), release of non-strategic hotel as partial debt reduction (sale price EUR 4.1M agreed with buyer identified by our M&A team).
• Mezzanine lender: EUR 1.2M debt-to-equity conversion agreed in exchange for a 12% equity participation in the restructured group — avoiding cash payment the company could not make.
• AEAT: AEAT deferred payment plan (aplazamiento Article 65 LGT) negotiated for EUR 1.6M deferred COVID contribution payments over 24 months.
• Trade creditors: 90-day payment plan agreed with 8 of 12 largest suppliers; 4 suppliers accepted 15% haircut in exchange for new preferred supplier agreements.

Phase 3 — Agreement and closing (4 weeks):

• Acuerdo de refinanciación homologado by the Commercial Court — providing protection against rescission of the transaction in any subsequent insolvency.
• Sale of non-strategic hotel completed; EUR 4.1M proceeds applied to reduce senior bank debt.
• Operational restructuring: ERTE (temporary employment regulation) applied for 35 positions in the seasonal resort whilst renovation programme planned for 2026.

Outcome: group continues operating; EUR 23.9M residual debt restructured; EUR 1.8M liquidity secured via deferral and asset sale; no concurso de acreedores; 145 permanent positions preserved.

Five common restructuring mistakes

1. Waiting for the bank to call in the loan. By the time a formal default occurs, the negotiating window has closed and individual creditors are acting defensively. The window for a consensual restructuring opens when distress is first identified — not when it becomes visible to creditors.

2. Presenting an optimistic business plan to creditors. Creditors who have seen hundreds of restructurings will stress-test any projection. A business plan that cannot withstand a sensitivity analysis destroys credibility and delays negotiations. Conservative, credible projections build the trust that accelerates agreement.

3. Negotiating with creditors sequentially rather than simultaneously. A bank that is negotiating bilaterally (without knowledge of what other creditors are being offered) will hold out for better terms. Coordinated multi-creditor negotiation — where all creditors understand the full picture and the comparative treatment of each — produces faster and more durable agreements.

4. Ignoring the employment dimension. Restructuring plans that address financial obligations but do not address the operational cost base — particularly payroll — fail to achieve the profitability required for the restructured debt to be serviceable. Employment restructuring (ERE or ERTE) must be integrated with the financial plan, not treated as a separate matter.

5. Failing to use pre-insolvency protection mechanisms early enough. The comunicación de negociaciones (Article 583 TRLC) grants a three-month moratorium on individual creditor enforcement actions. Many companies allow individual creditors to levy assets, obtain embargo orders, or suspend credit facilities before filing for this protection — foreclosing options that would have been available had they acted earlier.

How we work: restructuring mandate process

Our restructuring mandates follow a structured process designed for speed and confidentiality:

Weeks 1–2 (diagnostic): financial model development, liquidity analysis, creditor mapping, business viability assessment, and selection of optimal restructuring route (out-of-court, pre-insolvency plan, or formal concurso).

Weeks 2–6 (creditor engagement): preparation of creditor information package (viability plan, financial model, proposed restructuring terms), coordinated outreach to all creditors, and management of the negotiation process.

Weeks 6–12 (agreement): drafting and negotiation of restructuring documentation, Court homologación process where applicable, ancillary employment restructuring authorisations, and AEAT deferred payment plan negotiation.

Post-restructuring (months 6–18): business plan implementation monitoring, milestone reporting to creditors (where required by the restructuring agreement), and early-warning tracking to prevent recurrence of distress.

Our fees are structured as a fixed engagement fee for the diagnostic phase, with a monthly advisory fee during negotiations and a success fee linked to the conclusion of a restructuring agreement — aligning our economics with client outcomes.