Banking Law and Insolvency Restructuring — Spain

1. Introduction

Banking law and insolvency restructuring in Spain intersect whenever a financially distressed business has outstanding bank loans, secured financing, revolving credit facilities, guarantees, syndicated loans or other financial obligations.

Banks frequently occupy an important position in restructuring because they may be major creditors and may hold security over significant assets. At the same time, Spanish insolvency law attempts to preserve economically viable businesses where restructuring can produce a better outcome than formal liquidation.

The principal modern framework is contained in the Texto Refundido de la Ley Concursal (TRLC), approved by Royal Legislative Decree 1/2020 and substantially reformed by Law 16/2022 of 5 September.

Law 16/2022 implemented the European preventive restructuring framework established by Directive (EU) 2019/1023. One of the reform's major objectives was to encourage restructuring at an earlier stage of financial distress instead of requiring businesses to wait until insolvency had become irreversible.

The resulting framework is particularly important to banks because restructuring plans can modify financial debt and, if statutory requirements are satisfied, can sometimes bind dissenting creditors.

2. Concept of Insolvency Restructuring

A restructuring is an attempt to reorganize the debtor's financial, operational or ownership structure so that a viable business can continue operating.

Under Article 614 TRLC, a restructuring plan can involve changes to:

the composition or terms of liabilities;

the debtor's assets;

its equity structure;

transfers of assets;

transfers of productive units;

the entire business as a going concern;

necessary operational changes; or

combinations of these measures.

Therefore, restructuring under Spanish law is considerably broader than simply extending the maturity of a bank loan.

A plan could involve debt reduction, maturity extensions, debt-for-equity arrangements, asset disposals, refinancing and operational restructuring.

3. Law 16/2022 and the Modern Spanish System

Law 16/2022 fundamentally modernized Spanish restructuring law.

The system places substantial emphasis on preventive restructuring.

A business does not necessarily have to wait until it is unable to pay its debts. Restructuring mechanisms can become relevant when the debtor faces a probability of insolvency or insolvency is imminent.

This early-intervention philosophy is important.

If restructuring occurs while the underlying business remains economically viable, creditors—including banks—may have a better opportunity to preserve enterprise value than if they wait for a later liquidation.

4. Probability of Insolvency

One of the important concepts introduced into the modern framework is probabilidad de insolvencia, or probability of insolvency.

This allows restructuring before traditional insolvency fully materializes.

The approach recognizes that waiting until a company has completely exhausted its liquidity may substantially reduce the effectiveness of restructuring.

For banks, early restructuring can permit:

renegotiation of loan maturities;

adjustment of financial covenants;

temporary payment arrangements;

refinancing;

additional collateral arrangements where legally permissible;

new financing; and

comprehensive restructuring plans involving several creditor groups.

5. Communication of Negotiations

A debtor experiencing financial difficulty can communicate to the competent commercial court that negotiations with creditors have begun or are intended.

This mechanism can provide the debtor with a period in which restructuring negotiations can take place with greater protection against disruptive individual enforcement actions.

For banks, this creates a significant change in the creditor-debtor relationship.

Instead of each creditor immediately pursuing individual enforcement, creditors may participate in a collective restructuring process designed to preserve the debtor's going-concern value.

However, the protection is not unlimited. Spanish insolvency legislation establishes conditions, procedural safeguards and time restrictions.

6. Restructuring Plans

The restructuring plan is the central mechanism of the modern Spanish restructuring system.

A plan can restructure:

Financial liabilities: including bank debt and other financing.

Assets: including disposals or reorganizations.

Equity: including changes affecting shareholders.

Operations: including organizational or operational measures.

A restructuring plan can therefore provide a comprehensive solution rather than merely modifying individual financing contracts.

This is particularly useful where a company has financing from several banks, bondholders and other financial creditors.

7. Formation of Creditor Classes

Creditors affected by a restructuring plan are organized into classes.

Class formation is extremely important because voting takes place by class, and the ability to impose a restructuring on dissenting creditors depends partly upon whether classes have been properly constituted.

As a general principle, creditors forming a class should share a sufficient commonality of interest based upon the nature of their claims.

Factors such as insolvency ranking and security rights can therefore become important.

Banks with secured claims may occupy a different legal position from ordinary unsecured creditors.

Improper classification can become a ground for challenging a restructuring plan.

8. Voting and Creditor Majorities

A restructuring plan does not always require unanimous creditor consent.

This represents one of the most significant features of modern restructuring law.

Where the statutory requirements and prescribed majorities are satisfied, creditors who voted against a restructuring can potentially become bound by it.

The objective is to prevent a relatively small number of creditors from destroying an otherwise viable restructuring that has sufficient creditor support.

At the same time, dissenting creditors receive statutory protections designed to prevent arbitrary confiscation of their economic rights.

9. Judicial Homologation

Judicial approval is known as homologación judicial.

Judicial homologation becomes particularly important when parties want the restructuring plan to produce effects beyond those creditors who voluntarily accepted it.

Under the TRLC, homologation is required in situations including where the plan seeks to extend its effects to dissenting creditors or creditor classes.

The competent court is generally the Commercial Court that would have jurisdiction over the debtor's insolvency proceedings.

Once homologated, the restructuring plan can become immediately effective against affected creditors within the statutory framework.

10. Intra-Class Cramdown

An intra-class cramdown occurs when the required majority within a particular creditor class approves the restructuring and dissenting members of that class become bound.

Consider a simplified example.

A company has several banks belonging to the same properly constituted creditor class. Most of the class supports a restructuring while one bank rejects it.

If all statutory requirements are satisfied, the dissenting bank may nevertheless become bound by the approved plan.

This prevents individual holdout creditors from automatically defeating collective restructuring.

11. Cross-Class Cramdown

The 2022 reform also permits, under specified conditions, cross-class cramdown.

This is more powerful than ordinary intra-class cramdown.

It means that an entire dissenting class can potentially become bound even though that class voted against the restructuring.

For a non-consensual plan, Article 639 TRLC establishes alternative conditions concerning the supporting classes.

Among other possibilities, support from the required majority of classes can permit homologation where the statutory conditions are fulfilled.

This mechanism is especially important in large corporate restructurings involving multiple layers of secured, senior, junior and shareholder interests.

12. Priority Protection

Cramdown powers are balanced by protections concerning creditor priority.

A restructuring should not simply transfer economic value from a senior dissenting class to junior stakeholders without satisfying statutory requirements.

Spanish restructuring legislation therefore establishes priority-related protections.

These provisions are especially significant for secured banks because their economic position may depend heavily upon:

collateral value;

enterprise value;

insolvency ranking; and

the treatment provided to junior creditors and shareholders.

Valuation consequently becomes one of the most important issues in contested restructuring proceedings.

13. Best-Interest-of-Creditors Protection

Dissenting creditors receive another important safeguard through the best-interest test.

Broadly stated, an affected dissenting creditor should not be left in an impermissibly worse economic position than the relevant statutory alternative.

This requires consideration of what the creditor would receive under the applicable insolvency counterfactual.

The mechanism protects creditors from restructuring plans that improperly sacrifice their recovery simply because other creditors support the arrangement.

14. Secured Bank Creditors

Banks frequently possess mortgages, pledges or other security rights.

Secured creditors therefore require special consideration during restructuring.

The existence of security does not necessarily place the bank entirely outside the restructuring system.

Instead, the legislation determines how secured claims are classified, voted and affected.

The economic value of collateral can become critical.

If collateral is worth substantially less than the secured debt, disputes may arise concerning the appropriate economic treatment of the claim.

15. Suspension of Enforcement

Restructuring would frequently be impossible if individual creditors could immediately seize essential assets while negotiations were taking place.

Spanish law therefore permits restrictions on certain enforcement proceedings during restructuring negotiations under prescribed conditions.

The objective is not permanently to deprive banks of enforcement rights.

Rather, the temporary protection provides breathing space in which creditors and the debtor can determine whether a viable collective restructuring can be achieved.

This reflects the basic restructuring principle that temporary collective restraint can sometimes produce greater overall value than immediate individual enforcement.

16. Executory Contracts

A distressed business may depend upon important continuing contracts.

If counterparties could automatically terminate every economically essential contract solely because restructuring negotiations began, preserving the business could become impossible.

Spanish restructuring legislation consequently contains protections addressing certain contractual consequences of restructuring.

Banks must therefore examine both financing documentation and mandatory insolvency rules rather than assuming that every contractual termination provision will necessarily operate exactly as written during restructuring.

17. New Financing

Fresh liquidity is often essential to a successful restructuring.

A business may have valuable assets and a viable operating model while nevertheless lacking enough short-term cash to continue trading.

The Spanish system therefore provides protection in appropriate circumstances for new financing and interim financing connected with restructuring.

Such protection is important for banks considering whether to provide rescue financing.

Without adequate protection, lenders might refuse additional funding because they fear that the transaction could later be challenged if the restructuring fails.

18. Restructuring Expert

Spanish law also provides for an expert in restructuring in specified situations.

The expert is not necessarily equivalent to an insolvency administrator who replaces management.

Instead, the restructuring framework generally follows a debtor-in-possession philosophy.

Management can therefore continue operating the company while restructuring occurs, subject to the applicable legal framework.

An expert can assist with issues such as negotiations, creditor interests and restructuring implementation.

19. Banks as Restructuring Creditors

Banks can occupy several roles simultaneously.

A bank may be:

a secured lender;

an unsecured lender;

a revolving-credit provider;

a syndicated-loan participant;

a guarantor or beneficiary of guarantees;

a provider of new financing; or

a creditor affected by a restructuring plan.

Consequently, banks must evaluate restructuring not merely as a debt-collection question but also as a valuation and commercial decision.

A bank may sometimes recover more through a viable restructuring than through immediate liquidation.

20. Banking Regulation and Prudential Considerations

Banks participating in restructurings remain subject to prudential banking regulation.

A restructuring does not automatically mean that a bank can continue treating the exposure as though the debtor were performing normally.

Credit-risk classification, provisioning, accounting treatment, capital requirements and supervisory expectations can continue to apply.

Spanish banks therefore have to coordinate two separate legal perspectives:

Insolvency law, which determines restructuring rights between debtor and creditors; and

banking regulation, which governs how the bank manages and recognizes the credit risk arising from the distressed exposure.

Important Case Laws

21. Judgment of the Court of Justice in Banco Español de Crédito SA v Joaquín Calderón Camino — Case C-618/10

This European case originated in Spain and dealt with judicial control of unfair contractual terms in banking arrangements.

Although it was not a restructuring-plan case under the current TRLC, it is important to the wider relationship between banking enforcement and mandatory legal protections.

Significance

The judgment demonstrates that contractual banking rights operate within mandatory European and Spanish legal protections.

In restructuring and insolvency matters, this broader principle remains important: contractual enforcement provisions cannot be considered independently from mandatory insolvency and procedural law.

22. Aziz v Caixa d'Estalvis de Catalunya — Case C-415/11

This major European judgment arose from Spanish mortgage enforcement proceedings.

The Court of Justice examined the interaction between Spanish enforcement procedures and EU consumer-protection law.

Significance

The case demonstrates that secured banking enforcement is subject to legal controls beyond the literal wording of mortgage documentation.

Although consumer mortgage enforcement is distinct from corporate restructuring, Aziz became highly influential in the evolution of Spanish judicial treatment of bank enforcement mechanisms.

It illustrates the broader principle that enforcement efficiency must coexist with effective judicial protection.

23. Sánchez Morcillo and Abril García v Banco Bilbao Vizcaya Argentaria — Case C-169/14

This case also arose from Spanish mortgage enforcement proceedings.

The Court of Justice considered procedural protections and the effectiveness of EU rights within Spanish enforcement proceedings.

Significance

The decision is relevant to banking insolvency analysis because it emphasizes procedural fairness where banks exercise powerful enforcement rights.

Restructuring proceedings similarly require a balance between efficient resolution and the procedural rights of affected creditors and debtors.

24. Banco Primus SA v Jesús Gutiérrez García — Case C-421/14

This case concerned Spanish mortgage enforcement and unfair contractual terms.

The Court of Justice addressed important issues concerning judicial review of banking contractual provisions.

Significance

The case reinforces the principle that banking enforcement does not operate in isolation from mandatory legal review.

For insolvency restructuring, the broader lesson is that creditor rights arise from both contract and mandatory law.

25. Abanca Corporación Bancaria SA v García Salamanca and Bankia SA v Lau Mendoza — Joined Cases C-70/17 and C-179/17

These proceedings concerned acceleration clauses in Spanish mortgage loan agreements.

The cases examined the consequences of potentially unfair contractual provisions and their relationship with national law.

Significance

Acceleration provisions can determine when a bank declares financing immediately due.

The cases are therefore relevant to understanding the broader legal environment surrounding distressed bank debt in Spain.

They demonstrate that contractual acceleration and enforcement rights may be constrained by mandatory legal principles.

26. Banco Santander SA v Antonio Sánchez López — Case C-598/15

This case concerned banking enforcement and property-related consequences following enforcement proceedings in Spain.

Significance

It provides another illustration of the interaction between creditor enforcement rights, national procedural law and European legal protections.

For restructuring analysis, it reinforces the distinction between possessing contractual security and having an unrestricted ability to exercise that security regardless of mandatory procedural rules.

27. Banco Santander SA v J.A.C. and M.C.P.R. — Case C-410/20

This European proceeding arose in the broader Spanish banking context and concerned the consequences associated with the resolution of Banco Popular.

Banco Popular had undergone bank-resolution action rather than an ordinary corporate restructuring under the general insolvency regime.

Significance

The case is useful because it highlights an essential distinction:

ordinary corporate insolvency and restructuring are not the same as bank resolution.

Banks themselves are subject to specialized resolution mechanisms because an uncontrolled bank insolvency can threaten depositors and financial stability.

Therefore, when the financially distressed entity is itself a credit institution, the ordinary TRLC restructuring analysis may have to give way to the specialized bank-resolution framework.

28. Banco Popular Resolution Litigation

The 2017 resolution of Banco Popular generated extensive litigation before European courts.

These proceedings examined issues including:

valuation;

resolution decisions;

shareholder and creditor losses;

procedural rights; and

the powers of European resolution authorities.

Significance

Banco Popular demonstrates why bank insolvency differs fundamentally from ordinary company insolvency.

A manufacturing company can potentially enter ordinary insolvency proceedings without immediately threatening the financial system.

A major bank presents additional concerns involving depositors, payment systems, contagion and financial stability.

Consequently, specialized resolution legislation operates alongside general Spanish insolvency law.

29. Ordinary Insolvency Versus Bank Resolution

This distinction is fundamental.

When a bank is the creditor of a distressed ordinary company, the TRLC restructuring framework will generally be central.

When the bank itself is failing, specialized banking-resolution legislation becomes much more important.

Spain operates within the European framework established by instruments including the Bank Recovery and Resolution Directive and the Single Resolution Mechanism.

Resolution authorities may use specialized tools designed to maintain critical banking functions and financial stability.

Thus:

Company in distress + bank as lender → primarily insolvency/restructuring law.

Bank itself in distress → specialized bank recovery and resolution regime.

30. Debt-to-Equity Conversion

A restructuring plan may involve converting financial debt into equity.

Suppose a company owes €100 million to several banks but its sustainable debt capacity is only €60 million.

A restructuring could potentially involve:

extending part of the debt;

reducing part of the debt;

converting another part into shares;

injecting new financing; and

changing ownership arrangements.

Debt-to-equity restructuring can reduce leverage while allowing creditors to participate in future enterprise value.

However, valuation becomes extremely important because existing shareholders and different creditor classes may disagree about who should receive the reorganized company's equity.

31. Role of Valuation

Valuation is one of the most difficult areas of restructuring law.

Consider a company with:

€200 million of total debt;

liquidation value of €80 million; and

estimated going-concern value of €150 million.

The distribution of restructuring value can depend heavily on which valuation is accepted.

Secured banks, unsecured lenders, junior creditors and shareholders may therefore have competing interests.

Valuation becomes particularly important in cross-class cramdown because courts may need to determine whether dissenting creditors receive the protection required by law.

32. Challenging a Restructuring Plan

Judicial homologation does not eliminate creditor protections.

Affected creditors can challenge a homologated restructuring on statutory grounds.

Relevant issues can include:

incorrect formation of creditor classes;

failure to satisfy required voting majorities;

unequal treatment within a class;

failure to satisfy creditor-protection requirements;

improper priority treatment;

lack of reasonable prospects of avoiding insolvency or ensuring viability; and

procedural defects.

Under the TRLC framework, challenges to homologation can be heard by the competent Provincial Court in circumstances established by the legislation.

33. Shareholders and Restructuring

Shareholders can also become important participants.

Historically, shareholders could sometimes block necessary restructuring measures even after the economic value of their investment had effectively disappeared.

Modern restructuring law attempts to address this holdout problem.

Under specified circumstances, restructuring measures can potentially proceed despite shareholder opposition.

This reflects an important insolvency principle: where the enterprise value is insufficient to satisfy senior creditors, shareholders cannot necessarily use corporate voting rights to capture value belonging economically to creditors.

34. Example of a Spanish Bank-Led Restructuring

Assume a Spanish company has:

€50 million secured bank debt;

€25 million unsecured bank debt;

€15 million supplier debt;

€10 million bond debt; and

severe short-term liquidity difficulties.

The underlying business remains commercially viable.

The restructuring could involve:

negotiations with financial creditors;

temporary protection from certain enforcement actions;

formation of appropriate creditor classes;

maturity extensions for secured loans;

partial conversion of unsecured financial debt;

injection of new liquidity;

operational restructuring;

creditor voting;

judicial homologation; and

extension of the plan to dissenting creditors where statutory requirements are satisfied.

This approach can preserve the operating business rather than immediately selling assets through liquidation.

35. Advantages of Restructuring for Banks

Restructuring can offer banks several potential advantages.

First, the going-concern value of a business may exceed its liquidation value.

Second, restructuring can preserve the debtor's future cash flow.

Third, coordinated negotiations can reduce destructive creditor competition.

Fourth, judicial homologation can reduce holdout problems.

Fifth, protected new financing can facilitate rescue lending.

However, banks must still evaluate credit risk carefully. Restructuring an economically non-viable company merely postpones losses rather than solving the underlying problem.

36. Risks for Banks

Banks participating in restructuring also face substantial risks.

These include:

incorrect enterprise valuation;

inadequate collateral value;

challenges by dissenting creditors;

deterioration of the debtor during negotiations;

failure of the restructuring plan;

regulatory capital consequences;

provisioning requirements;

litigation;

intercreditor disputes; and

uncertainty concerning future cash flows.

Banks therefore normally require detailed financial and legal analysis before supporting a restructuring plan.

37. Importance of Law 16/2022

Law 16/2022 represents a major shift from a system heavily focused on formal insolvency proceedings toward one that emphasizes preventive restructuring.

Its important features include:

earlier intervention;

broad restructuring plans;

creditor-class voting;

intra-class cramdown;

cross-class cramdown;

judicial homologation;

restructuring experts;

protection of interim and new financing; and

mechanisms intended to preserve viable businesses.

The reform therefore brings Spanish restructuring law closer to modern European restructuring models.

38. Conclusion

Spanish banking law and insolvency restructuring operate through a combination of contract law, banking regulation, the TRLC, Law 16/2022 and European Union law.

The central objective of modern restructuring is not simply to protect a distressed debtor. It is to determine whether an economically viable business can be reorganized while protecting legitimate creditor rights.

Banks play a particularly important role because they frequently provide secured loans, working-capital facilities, syndicated financing and rescue financing.

The modern Spanish system permits restructuring at an earlier stage of financial distress, organization of creditors into classes, judicial homologation and, where strict statutory requirements are met, the extension of restructuring terms to dissenting creditors or classes.

At the same time, creditor protections involving classification, priority, valuation, procedural fairness and the economic treatment of dissenting creditors remain important.

Cases such as Banco Español de Crédito v Calderón Camino, Aziz v Caixa d'Estalvis de Catalunya, Sánchez Morcillo v BBVA, Banco Primus v Gutiérrez García, Abanca/Bankia, Banco Santander v Sánchez López, and Banco Santander (C-410/20) demonstrate important principles surrounding Spanish banking enforcement and creditor protection.

They should not, however, all be described as restructuring-plan precedents under Law 16/2022. Several concern mortgage enforcement and EU consumer law and are best understood as related banking-law authorities.

Finally, where the distressed entity is itself a bank, ordinary corporate restructuring must be distinguished from the specialized European and Spanish bank recovery and resolution regime. That distinction is essential to understanding insolvency restructuring within Spanish banking law.