follow the two principles that govern them:( i) their purpose: business viability and( ii) the majority principle on which they are based.
Thus, only the concurrence of specific circumstances could mitigate the practical relevance of the valuation of collateral for the formation of classes. This situation could arise, as has already happened, in those cases where the unanimous approval of the plan by all debt holders is obtained, so the segregation of credits into secured( as they are covered by the value of the collateral) and unsecured and, consequently, the configuration of the classes, would not alter the approval percentages. In other words, when the numerator( total affected credit voting in favor) and the denominator( total credit affected by the plan) would continue to reflect the same 100 %.
This case was addressed by the Commercial Court no. 7 of Madrid in its order of January 23, 2024, sanctioned the restructuring plan of DENEF INVESTMENTS, S. L.( a subsidiary of an international group of companies in the renewable energy sector). In this case, all creditors holding 100 % of the affected debt had, prorated to their stake in the financing, collateral on certain shares owned by the debtor and plan proposer. Therefore, solely to comply with the mandatory class formation criterion provided in article 624 of the Insolvency Act, the credits were nominally segregated into two classes: one formed by secured credits, i. e., the part of the debt actually covered by the value of the collateral; and another composed of the affected credits not covered by that value. However, the amount corresponding to each class was not quantified, as it was not considered necessary to carry out a valuation of the collateral, to the extent that such valuation could in no case transcend the requirement of correct class formation, nor modify the plan approval percentage for each of them; it would always be 100 %.
The above order, which accepted the arguments of the debtor company, concluded the following:“ It is necessary for the plan to have a valuation of the affected collateral to determine the percentage of secured credit and, therefore, its voting percentage. However, this has no practical significance when it is known in advance that 100 % of the credit of the class formed by secured credits will vote in favor of the plan. That is why the proposal of ' self-valuation ' of the collateral and segregation of the credits into the part secured by the collateral and the unsecured part does not transcend the requirement of correct class formation.”
The strategy adopted in this case, which consisted of a self-assessment, or rather, a lack of explicit valuation of the collateral in the plan itself( therefore, outside the valuation criteria provided in the regulation), allowed for avoiding an unnecessary increase in the time and economic costs of a restructuring that simultaneously affected different jurisdictions( crossborder restructurings). However, the exceptional nature of this precedent precisely demonstrates how crucial it is to thoroughly study each specific case to adequately evaluate the pros and cons of each possible strategy to design and select the most appropriate one.
The importance of properly defining the strategy from the beginning of the restructuring is highlighted when considering that, despite its impact on the success of the process, the valuation of collateral in the context of restructuring plans is a matter that, to date, is characterized by the scarcity of judicial precedents addressing it. This circumstance, while leaving a wide margin of interpretation of the regulation that can be beneficial for debtor and creditors alike, increases uncertainty. A well-conceived action plan from the start and knowing who will play a leading role in the approval of the plan, can determine the success or failure of the restructuring.
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