A second round of material reforms should encourage the viability of distressed companies in Spain.

Royal Decree Law 11/2014 (the New Reform) is another clear effort to decrease the number of insolvent companies which end up in value-destructive liquidation in Spain. In order to achieve this, the New Reform has extended the main principles of pre-insolvency refinancing agreements — which were introduced by the March 2014 reform of the Spanish Insolvency Law (the March Reform1) — to composition agreements and has set forth certain rules regarding the sale of production units and company liquidation.

In this Client Alert, we discuss the following key implications:

• Composition agreement provisions: Among other amendments, the scope of the composition agreement provisions has been broadened and cram-down possibilities have been built in.

• Production unit sales and liquidation: The New Reform has included specific rules.

• Other related provisions: Among other amendments, the New Reform includes new insolvency ‘guilty’ classification rules and a second opportunity for composition agreements.