The Banco de España has warned that 15,000 large companies, and a further 50,000 small companies, look likely to run out of cash by the middle of the year, forcing them to declare bankruptcy, after looking at the amounts of cash on loan from the banks for this year.
The simple problem is that Spanish banks aren’t prepared to keep loaning out the money that the Spanish economy needs to keep ticking over. No extension to the credit lines mean you can’t pay the salaries on time, even if you have future sales booked, and shortly after have to hang up the se vende sign.
Another option available to companies in more advanced economies is being able to negotiate the repayment of invoices without having to have their hands held by a Judge, and having these agreements recognised by creditors and banks. That’s something that the changes are trying to move towards.
So the Government has rushed through an emergency bill approving a series of small modifications to the proceedings of Bankruptcy and Debt Chasing.
The modifications mean that companies can now arrange payment of invoices and outstanding debts between themselves in a far simpler and quicker manner than before, which hopefully will convince the banks to loan against these outstanding invoices.
A company entering restructuring can stave off bankruptcy by negotiating with creditors: if creditors of 60% of the debt agree, the company can refinance 100% of its outstanding debt over 5 years; If creditors of 75% of the debt agree, the debt can be restructured over 10 years, without having a long drawn out judicial agreement.
Creditors can also exchange their debt for shares in the company, or a seat on the board.
The changes appear to be heavily influenced towards the construction sector – in 2013 alone, over 10,000 construction companies went under.
However, the Tax Office and the Social Security Office continue with their hardline policy, and won’t allow you even a day’s credit without sending in the heavies.