REGIONAL COMMITTEES: EMEA
The Valuation Of Collateral in the Context of Restructuring Plans 1
By Rosa M. Gual Tomàs and Désirée Cazorla Feal Cuatrecasas
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1. Background: Integrating the legal and economic realities underlying secured credits
In the last decade, the debt restructuring environment has undergone a significant transformation, especially regarding the role of secured creditors and, therefore, the valuation of their collaterals in the context of pre-insolvency scenarios. This process has been characterized by the transition from the dissociation between the legal system surrounding secured credits and the
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coherent integration conducive to successful restructurings.
Prior to the reform of the Spanish Insolvency Act in 2014, there was a distinction between creditors whose credits were backed by collateral and those who lacked collateral, which granted the former an unbreakable immunity that prevented refinancing agreements from affecting them, thus avoiding being bound by write-offs, extensions, or other restructuring
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This article is published on the website of the international law firm Cuatrecasas and is part of a collective work prepared by the partners and associates of the Restructuring, Insolvency and Special Situations Group:( https:// www. cuatrecasas. com / es / global / reestructuraciones-e-insolvencias / art / reestructuraciones-analisis-cuestiones-relevantes #) measures( unless they voluntarily decided to submit to them). All this without considering the possible ratio between the amount of the secured credit and the value of the asset on which the collateral was placed, i. e., without considering the true economic value of the granted collateral.
This approach, however, ignored the diversity of situations in which creditors holding secured credits on the debtor ' s assets could find themselves. In certain cases, the collateral was more symbolic than effective, either due to its subordinate position compared to other collateral on the same asset( at that time, it was common to establish second, third and even fourth mortgage ranks on the same asset) or because the value of the guaranteed asset or right was insufficient to cover the debt.
Awareness of this situation prompted a paradigm shift: the need to move from a subjective classification of creditors, based on the existence or not of collateral, to a much more objective economic evaluation that differentiated between the amount of the credit secured by the value of the collateral and the unsecured amount.
The turning point occurred in 2014 with the enactment of Royal Decree-Laws 4 / 2014, of March 7, adopting urgent measures on corporate debt refinancing and restructuring, and 11 / 2014, of September 5, on urgent measures in insolvency matters, by virtue of which various key aspects of Act 22 / 2003, of July 9, the Insolvency Act, were modified.
Lawmakers, aware that the divergence between the legal and economic realities underlying secured credits had been one of the greatest obstacles to the viability of insolvency
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