Advice provided by AddVANTE throughout the entire procedure of AEP 493/2020, with the achievement at the Creditors’ Meeting of 25 February of the quorum required for approval of the Proposal, which contained reductions of up to 25% of the debt and deferrals of up to 5 years for the debtor.
The team of the commercial department of AddVANTE has successfully advised one of our clients, as debtor, throughout the proceedings of the out-of-court payment agreement initiated with the aim of overcoming its insolvency situation, caused by the impact of the COVID-19 crisis. This out-of-court mechanism, provided for in Title III of Book Two of the new consolidated text of the Insolvency Act, ended with the creditors’ approval of the agreement proposal submitted by the client, with a final quorum of just over 60%.
In order to access the procedure, the Insolvency Act requires that it be an individual or legal entity in a situation of current or imminent insolvency that has not been declared bankrupt, whose assets (legal entities) or liabilities do not exceed 5 million euros and whose number of creditors is a maximum of 50.
The procedure, which lasted approximately two months from the opening of the proceedings until the Creditors’ Meeting was held, was processed before the Official Chamber of Commerce, Industry and Services of Sabadell, and was successfully completed with the elevation of the agreement to public deed.
In this particular case, our client was a technology-based company with a 100% online business dedicated to the design and printing of T-shirts and other garments, whose activity was geographically focused between Spain and the United Kingdom, and therefore had the specificity of having a large number of foreign creditors, a fact that has meant an added difficulty when carrying out communications and negotiations with them.
The accumulated debt susceptible to the agreement, not including the amount of secured and public law claims, amounted to a total of approximately €800,000, distributed among more than forty creditors, of which nearly half were international.
The proposal, which was approved at the Creditors’ Meeting held telematically on 25 February 2020 with a quorum of just over 60%, included a payment plan providing for a 25% debt write-off, to be applied proportionally to each creditor; as well as a deferral of the debt, which was divided into eight payments to be paid over a period of 5 years, the first being 18 months after the formalisation of the public deed of the out-of-court agreement, and the last after 5 years, applying different repayment percentages for each payment, making higher repayment amounts coincide with the times of the year with higher income for the client, due to the seasonal nature of the sector. The proposal was accompanied by a Viability Plan designed jointly with the client, in which a forecast of income for the years affected by the deferral of the debt was indicated.
Consequently, the debt reduction and deferral approved at the Creditors’ Meeting is applicable indistinctly to all the company’s creditors, including those who either voted against it, did not inform the mediator of their position or did not attend the Meeting after having been duly summoned.
The consequences for our client have been to see how the current situation of insolvency in which it found itself, due to the negative consequences that the COVID-19 pandemic has had on its sector, has been overcome by the removal of approximately €200,000 of debt and having to face the debts that were already due and payable within a period of 5 years.
It should be remembered that if the necessary 60% quorum had not been achieved at the Creditors’ Meeting, the insolvency mediator would have been obliged to file for the debtor’s consecutive insolvency proceedings, which would also be the case if the debtor did not comply with the Payment Plan that was approved with the proposal.
AddVANTE promotes the suitability of this type of procedure, provided for in insolvency legislation and to date rarely taken into account, for small companies that may be plunged into insolvency situations as a result of temporary liquidity crises, as could be the case for many entrepreneurs due to the restrictions imposed to combat COVID-19, providing a swift and effective alternative to judicial insolvency proceedings, with the aim of continuing business activity.
For further information on the subject, we suggest reading the following articles published on the subject by AddVANTE: