Prolongation of ICO loans and extension of the bankruptcy moratorium

The Government has approved by Royal Decree-Law 34/2020 of 17 November, the moratorium on the obligation to file for insolvency proceedings until 14 March 2021 and an extension of the maturity and grace period for ICO loans.

Situation prior to RDL 34/2020 of 17 November 2020

Since the state of alarm was first declared in March 2020, the Government has been approving various measures aimed at providing liquidity to an economy that has been seriously affected by the restrictions that have been adopted to combat the COVID-19 pandemic.

These measures took the form of, among others, the granting of financing lines guaranteed by the Government (the “guaranteed ICO lines”) and approved by Royal Decree-Law 8/2020 of 17 March and Royal Decree-Law 25/2020 of 3 July.

At the same time, a series of measures have been enacted to avoid a flood of bankruptcy and insolvency proceedings. In this regard, first through Royal Decree 16/2020 of 28 April and subsequently through Law 3/2020 of 18 September, a series of tools were approved to help reduce the number of insolvency proceedings and encourage continuity solutions (whether via refinancing agreements, out-of-court payment agreements or creditors’ agreements) over solutions via insolvency liquidation, establishing a moratorium on the legal obligation to file for insolvency proceedings for those companies in a situation of insolvency until 31 December 2020.

Extension of ICO loans

The new Royal Decree-Law 34/2020 provides that debtors benefiting from a loan with a public guarantee granted under Royal Decree-Law 8/2020, of 17 March, may request an extension of its maturity, for an additional maximum term of three years, which will be accompanied by an extension for the same term of the public guarantee. The total term of the loan may not exceed eight years.

Customers who meet the requirements set out in the Royal Decree-Law may also obtain an extension of the grace period on the principal payment of the guaranteed loan for a maximum of 12 months, thus establishing a maximum total grace period of 24 months. This measure is applicable both to loans with a guarantee released under Royal Decree-Law 8/2020, of 17 March, and to those granted on the basis of Royal Decree-Law 25/2020, of 3 July.

Finally, it establishes the obligation for financial institutions to maintain the limits on working capital lines until 30 June 2021 for all customers who meet the requirements established in the Royal Decree-Law and have a loan guaranteed under both Royal Decree-Law 8/2020 of 17 March and Royal Decree-Law 25/2020 of 3 July.

The requirements to be met by debtors wishing to avail themselves of any of these measures are as follows:

1. The debtor must request the application of the measures envisaged no later than 15 May 2021.
2. That the financing operation is not in default (unpaid for more than 90 days), nor is any of the other financing granted by the entity to the same customer.
3. That the debtor does not appear in arrears in the Bank of Spain’s Central Credit Register (CIRBE) on the date the extension is formalised.
4. That the financial institution has not notified the entity granting the guarantee of any non-payment of the guaranteed transaction with the debtor on the date the extension is formalised.
5. The debtor is not subject to bankruptcy proceedings.
6. The guaranteed financing must have been formalised before the date of publication of the Royal Decree-Law.
7. The debtor must comply, in order to request the extension of the guarantee, with the limits established in the European Union’s State Aid regulations.

If the debtor meets these requirements, financial institutions will be obliged to apply the measures described. The entities will have a maximum of 30 calendar days to resolve the debtor’s requests.

The fees and registry fees derived from the formalisation and registration of the above novations will benefit from a 50 percent discount.

Extension of the deadline for filing for insolvency proceedings until 14 March 2020

With this new Royal Decree-Law, it has also been agreed to extend until 14 March 2021 the suspension of the obligation to request the declaration of insolvency proceedings, as well as the obligation of the judge to admit for processing the applications for insolvency proceedings filed by creditors.

It has also been agreed to extend the temporal scope of the measures for not admitting for processing a declaration of non-compliance with a refinancing agreement, a composition agreement or an out-of-court payment agreement. This regime, which was in force for default applications filed until 31 October, continues to apply in the same terms, but the possibility of applying it to default applications filed between 31 October 2020 and 31 January 2021 is envisaged.

With this measure, the Government intends to prevent companies in insolvency as a result of COVID-19 from resorting to bankruptcy proceedings to cover possible liabilities of their directors, by exempting them from liability for not filing for bankruptcy or not filing for dissolution or liquidation before 31 December 2020.

Although this is good news that may contribute to the continuity of many companies, this measure should not be understood as a blank cheque for directors. They should bear in mind that the cases of personal liability are not limited to the possible liability arising from filing for insolvency proceedings beyond the period provided for in the Insolvency Act or the joint and several liability provided for in art. 367 of the Capital Companies Act.

Article 236 of the Capital Companies Act establishes that “the directors shall be liable to the company, to the shareholders and to the company’s creditors for any damage caused by acts or omissions contrary to the law or to the articles of association or for those carried out in breach of the duties inherent in the performance of the office, andArticle 442 of the TR of the Insolvency Act establishes that “The insolvency proceedings will be classified as culpable when in the generation or aggravation of the state of insolvency there has been fraud or gross negligence on the part of the debtor or, if any, of its legal representatives and, in the case of a legal entity, of its administrators or liquidators, de jure or de facto, general managers, and of those who, within the two years prior to the date of the declaration of insolvency, have had any of these conditions”, so that the administrators of companies that have been in insolvency for a long period of time must be very cautious with the new debts that may be contracted during this time.

At AddVANTE we have a team of professionals who are experts in advising on negotiation processes with financial institutions as well as in advising management bodies on the actions to be taken in insolvency situations to cover their personal liabilities.