On March 17, 2020, to alleviate the economic and social crisis as a result of the health crisis caused by COVID-19, the Government published extraordinary measures. The objective of these measures was to protect and support the productive and social sphere to reduce the impact of the health crisis and reactivate the economy.

To this end, the various liquidity guarantee measures were established to support and motivate economic activity through the approval of a line of guarantees by the State through the Official Credit Institute (ICO), in order to renew existing loans or obtain new financing through credit institutions.

Last June, the possibility of extending the term of the guarantees granted to freelancers and companies charged to the ICO guarantee lines after June 30, once the term of the Temporary Framework for State aid approved by the European Commission has expired, although the effective application of this measure is subject to the prior authorization of the Community Executive.

The extension of the term of the guarantees should allow companies and the self-employed, prior approval by the financial institution, to extend the repayment term of their loans up to eight or ten years. In this way, the Government seeks to facilitate the maintenance of viable companies that have difficulties once the time frame has expired, by lengthening the term of their guaranteed loan, granting them a greater margin to meet their obligations.

The end of the lack of ICO credits, understood as the period in which companies did not have to pay the credit to the bank, expired last June. However, only some economic sectors (especially those affected by the war between Russia and Ukraine) have been able to extend the term of their ICO-backed loans for six months without the need to negotiate with their financial institution.

Indeed, one measure demanded was the extension of the grace period. This means that the beneficiaries of said loans are only obliged to pay the interest, not the principal. Thus, increases the liquidity of the affected companies, which are severely affected as a result of the rise in interest rates, high levels of inflation and the risk of stagflation.

However, such a request also has many detractors since they consider that it is still a way of artificially preserving companies that are already in economic difficulties.

In this context, it is worth taking into account the regulation of debt refinancing operations guaranteed by the ICO after the last modification of the Bankruptcy Law, especially regarding restructuring plans or agreements.

In this sense, indicate that Said credits derived from public guarantees will be considered financial credit. for all purposes provided for in the Bankruptcy Law, such as, among others, the formation of classes and the exemption of unsatisfied liabilities.

They will have the rank of ordinary credit, without prejudice to the existence of other guarantees granted to the guaranteed principal credit, in which it will hold at least the same rank in order of priority as the non-guaranteed principal.

The representation of the State in the insolvency procedures regarding the credits derived from the public guarantees will correspond to the financial entities. These must make the communications, exercise the right to vote or present the appropriate claims for the recognition and payment of the credits derived from the guarantees.

So that credit institutions can vote favorably in the name and on behalf of the State to the restructuring plans that grant deferrals, installments and removals of the amounts claimed or recognized, must obtain prior approval from the State Tax Administration Agency. The lack of prior authorization will determine the detriment of the guarantee, in the part that had not been executed or, in another caso, the conservation of the rights of recovery and collection by the corresponding Ministry, without the content of the Plan or agreement producing effects against it.

The prior authorization of the State Tax Administration Agency is understood to be issued exclusively with respect to the credits derived from the public guarantees provided for in this provision, and will not affect or bind the right to vote derived from the remaining public credits classified as ordinary whose management corresponds to the State Tax Administration Agency.

The State Tax Administration Agency should determine clear parameters, objective, but, above all, realistic, so that upon compliance with said prior authorization it is considered obtained by positive administrative silence in a short period of time.

It should be borne in mind that the companies that are restructured have probably obtained an ICO endorsement, so if, in practice, the authorization of the State Tax Administration Agency is not obtained in one way or another, it will be difficult that said types of credit are affected by the restructuring plans.

The prior authorization of the State Tax Administration Agency is understood to be issued exclusively with respect to the credits derived from the public guarantees provided for in this provision, and will not affect or bind the right to vote derived from the remaining public credits classified as ordinary whose management corresponds to the State Tax Administration Agency.

The declaration of insolvency will produce the subrogation of the General State Administration by the part of the guaranteed principal, regardless of whether or not the execution of the guarantee has begun, thus being the insolvency holder of the credit. Notwithstanding the foregoing, the corresponding financial entity will continue to represent the financial operation as a whole.

The new rule does not settle the controversy raised in relation to the recognition of the credit derived from an ICO guarantee from the Ministry of Economic Affairs and Digital Transformation.

The recognition of the credit derived from the ICO guarantee of the Ministry, must be made as a contingent credit without amount, with the corresponding vocation (ordinary or special privileged in caso that there are real guarantees). The credit will be fully recognized at the time the guarantee is executed and the Ministry pays the amount to the financial entity that enjoys the guarantee, and the amount of the credit may never exceed the amount actually paid to the financial entity.

Olga forner

Partner, Head of the Bankruptcy Law Department at Marimón Abogados.

Article originally published in the Blog Fide in the withfideinitial