Spanish bankruptcy laws reformed to help struggling businesses

THE Spanish government has approved new rules to help struggling companies cut debt and avoid bankruptcy.

Aimed at preventing liquidity problems, the rules make it harder for small creditors to veto deals and creates a mechanism for creditors to write off a proportion of debt.

Up until now there were few rules to help companies cut their debt ahead of the formal bankruptcy process, which resulted in the majority of struggling firms going into liquidation.

Under the reform, firms will be able to restructure their debt before they are on the verge of collapse.

If 75% of creditors agree to take losses, the company will be allowed to cut its debts, and even those creditors that didn’t agree to the haircut will be forced into the deal.

Debt can also be converted into equity under the deal, provided 75% of lenders agree.

Banks, which would face losses under these type of arrangements, will be allowed to classify some refinanced loans as performing ones, once debts have been restructured, lowering the charges they put up against soured deals.