Allocation of credits with public guarantee by Royal Decree-Law 5/2021

Royal Decree-Law 5/2021 develops new measures aimed at providing liquidity to the self-employed and companies. Among the novelties, we would like to highlight the one that mentions the consideration of credits with a public guarantee in the framework of a possible future insolvency, regulated in article 16.

Royal Decree-Law 5/2021, on extraordinary measures to support business solvency in response to the COVID-19 pandemic, came into force on 13 March. As on previous occasions, when the State adopted different packages of measures to support SMEs and the self-employed, on this occasion the focus has once again been placed on the need to support and maintain the activity of companies that are viable and profitable, but which, due to the outbreak of the pandemic, have seen their activity reduced to the point of generating a temporary state of insolvency due to a lack of liquidity. The new measures adopted therefore aim to protect and support those companies, sectors and territories that are potentially more vulnerable due to the duration and economic impact of the pandemic, in order to strengthen liquidity and solvency and avoid over-indebtedness of the national economy as a whole, thus preserving the productive fabric and employment, boosting investment and avoiding an unproductive destruction of the value of economic activity in the country.

The Royal Decree-Law implements a series of mechanisms to achieve the proposed objectives, such as: (i) the creation of the COVID line of direct aid to the self-employed and companies, known as “finalists”, to which 7,000 million euros are allocated and which will be managed directly by the Autonomous Regions; (ii) the COVID line for the restructuring of financial debt, for which a maximum allocation of 3,000 million euros is set.3 billion and which provides for the possibility of extending the maturity of publicly guaranteed loans and converting them into participating loans; and (iii) the Fund for the recapitalisation of companies affected by COVID, whose duration is limited to 8 years and for which an endowment of 1 billion euros is provided.

In addition to the fund allocations mentioned in the previous paragraph, RDL 5/2021 also introduces a series of measures in the insolvency and preinsolvency sphere that we consider to be of interest, since they affect credits for which a public guarantee has been granted and which are the subject of analysis in this article.

Thus, article 16 of the aforementioned RDL delegates the power to manage the collection of public guarantees granted for the relevant credits to the financial institutions, which must apply the same legal regime for the recovery of the guarantee as for the part of the principal of the credit that is not guaranteed by the State.

In this regard, these credit institutions shall be responsible for taking action to recover the credits and guarantees, including the formulation of actions and claims, both extrajudicial and judicial, in the name and on behalf of the State. Despite this delegation of powers to the credit institutions, it should be noted that these credit institutions will not be authorised to decide unilaterally on the granting of deferrals, instalments and reductions of the credits affected, and must necessarily obtain prior authorisation from the State through the Collection Department of the State Tax Administration Agency.

Another highly relevant aspect is that the guarantees granted under article 29 of Royal Decree-Law 8/2020, of 17 March, on extraordinary urgent measures to address the economic and social impact of COVID-19 and article 1 of Royal Decree-Law 25/2020, of 3 July, on urgent measures to support economic recovery and employment, would, in the event of non-payment and enforcement, be included in the debtor’s overall liabilities to be taken into account in insolvency proceedings, whether in the case of an out-of-court payment agreement or an arrangement with creditors declared by court order.

Consequently, in the eventual insolvency scenario that may arise for a company or individual entrepreneur, and whose solution is provided by means of a pre-insolvency proceeding, either an out-of-court payment agreement or a refinancing agreement, article 16.3 of the RDL establishes that the credits derived from the execution of these guarantees may be affected in these proceedings, and will be included in the corresponding majority quorums for the eventual adoption of agreements with creditors.

In the same sense, it also highlights the possibility that the aforementioned credits, even though they are considered public credits, may be exonerated from payment by those natural persons who, meeting the characteristics set out in the Law, avail themselves of the Benefit of Exoneration of Unsatisfied Liabilities (the so-called 2nd opportunity).

Finally, the credits of the Treasury derived from the execution of the guarantees granted under Royal Decree-Laws 8/2020, of 17 March, and 25/2020, of 3 July, will have the status of ordinary credit in the event of a possible declaration of insolvency of the corporate or individual employer affected by said guarantees, in such a way that they will be counted as liabilities for the purposes of a possible proposal for an Agreement.

This measure is an exception to what was previously provided for in insolvency legislation, since in no case could public law credits be included in the liabilities that could be taken into account for the adoption of the out-of-court payment agreement or be affected by the agreed measures, nor could they be taken into account as liabilities for the constitution and/or adoption of the corresponding quorum for the approval of an insolvency agreement, in the part recognised as having general privilege (thus, the Judgment of the Supreme Court, Civil Chamber, of 472/2013, of 16 July; or the Judgments of the Provincial Court of Vizcaya (4th Section), no. 112/2015 of 2 March and of the Provincial Court of Biscay (4th Section), no. 112/2015 of 2 March and of the Provincial Court of A Coruña (4th Section), no. 283/2015, of 16 September).

The AddVANTE legal team believes that these measures, in the form of finalist aid and equalisation of credit ranking, are positive for companies and the self-employed to be able to boost their reactivation by returning to profitability, although those that unfortunately cannot recover and must undergo insolvency procedures, should take into account the consideration and rank of public credits and guarantees in order to prepare an efficient negotiation strategy with their liabilities, thus allowing the adoption of global agreements with creditors that incorporate reductions and delays leading to overcoming insolvency.