domingo, 31 de octubre de 2010

Spain: Make or break time for Insolvency Law? Towards a Business Restructuring Law

Artículo de Antonio Fernández Rodríguez.[Ver]


Insolvency Law can hardly reconcile business preservation and creditors satisfaction, so it usually sacrifices one or the other principle being therefore qualified as more or less debtor friendly. The question is whether preservation of business should take place in a prior stage, that of the pre- insolvency, leaving liquidation for the terminal insolvency situations. That would require broadening the scope of the Law, in order to include pre- insolvency solutions, the failing of which would lead to liquidation; we would be talking about a Restructuring Law instead of an Insolvency Law.

This being the case, more recently new ideas regarding the purposes that Insolvency Laws should serve star ted to emerge as a result of the ever- increasing complexity of commercial and economic dealings in the 20th century and the highly sophisticated nature of economics as a discipline for the study of systems and structures of economies, in general, and businesses, in particular.

In this purgative function, insolvency proceedings play a secondary role, since the preferred remedy is for the trader to acknowledge its failure in time and to voluntarily realign its business approach before the trader's ability to satisfy its creditors in full is jeopardized. However, when the trader does not do so, formal insolvency proceedings are a coercive means to this end and are accompanied by scrutiny of the debtor's conduct in order to hold it to account for any liabilities it may have incurred by letting things come to a head.

Next along the scale, but by now subject to free market rules, are a series of operations which require a high degree of concentration in order to be efficient, thereby gaining a size and a systemic significance which requires, on the one hand, a certain degree of regulation by the public authorities and, on the other, a special regime to monitor their solvency, accompanied by "quasi-insolvency" proceedings (procedimientos "paraconcursales") with preservation being their aim and with a high degree of intervention by the authorities. These activities include regulated sectors, such as the banking and insurance industries, and there is debate as to whether large concerns should also be "above" business risk, avoiding conventional formal insolvency proceedings and falling within the scope of these preservation-oriented administrative processes (this avoidance of formal insolvency proceedings has caused many in recent times to again heed the axiom "too big to fail").

Where does the problem lie? The problem is twofold and stems, first, from the fact that an attempt is made to reconcile these two aims in the context of formal insolvency proceedings through an arrangement between the debtor and its creditors; this is recognised in the Preamble to the Law, which states that "even though the purpose of the insolvency proceeding is not to turn around enterprises, an arrangement for continuity may be the instrument for saving those considered fully or partially viable, to the benefit not only of the creditors but also of the insolvent enterprise itself, its employees and other interests." In doing so, the principle of preservation of companies is linked to the authority already held by creditors to decide whether to replace collective execution against the debtor's assets with an arrangement with the debtor that enables the business to continue and its future profits to be used to achieve a better level of debt satisfaction. Other aspects are added to reinforce this principle, including allowing the debtor to remain at the helm of its business until a vote is taken on the arrangement, keeping its contracts in force and unaffected by the formal insolvency proceeding and, as a last resort, where liquidation is unavoidable, encouraging the disposal of the business units as a whole concern, that is, attempting to avoid, as far as possible, the piecemeal break-up or isolated sell-off of its constituent parts.

A qualitative conceptual leap is required in order to realise that what companies need today and are demanding is, so to speak, a Business Restructuring Law: (i) guided by the principle of preserving companies, which can now be given precedence, since only pre-insolvency situations are involved in which there is not yet a threat of such proportions to creditors that it obliges the law to treat the satisfaction of their claims as a priority; (ii) which envisages an earlier event triggering the application of the law, such as the non-circumstantial loss of profitability or a gap in financing, placing effective restructuring tools at the disposal of traders, both on an operating and financial level, thereby allowing businesses to return to the parameters required to operate in the free market; and (iii) integrating, in short, court-driven insolvency proceedings as a residual, fall-back solution for companies whose viability cannot be salvaged through such business restructuring tools, thereby regaining its traditional and distinctive purpose of liquidation.

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