Second wave of rules to boost corporate creditworthiness

New Royal Decree-Law on urgent measures to support the liquidity and solvency of companies and self-employed workers in the financial and insolvency areas.

The Government has adopted a set of rules with which it intends to reinforce the capital of small and medium-sized companies that were profitable and viable before the coronavirus, and which are expected to become so again when the pandemic is overcome, but which are at risk of disappearing due to the serious problems they are facing in order to pay their debts.

By means of the approval of Royal Decree Law 34/2020, of November 17, on urgent measures to support business solvency and the energy sector, and on tax matters, published today in the Official State Gazette, the Executive authorizes extensions for ICO guarantees, moratoriums for bankruptcy declarations, and more time to hold telematic meetings without statutory record; it encourages participation in alternative financing markets and protects, even more, the national strategic sectors.

ICO Guarantees

The beneficiaries of loans guaranteed by the ICO will have three more years to repay them.

Royal Decree-Law 34/2020 includes the extension of ICO loans and the possibility of extending the maturity and grace period for debtors. This is a measure that, as we commented a few days ago in the article entitled “Extension of the grace period for ICO guarantees” was being negotiated by the Third Vice-Presidency with the European Commission and has been approved by Brussels.

The maximum maturity period will be extended to three years, with a ceiling of eight, and an additional year of grace period will be added to the payments, up to a total of two years.

The amount guaranteed by the Government with ICO credits has reached 81,787 million Euros and in total has mobilized some 107,600 million Euros with the signing of 876,000 operations, 98% of these with SMEs and the self-employed.

So far this year, the Ministry has approved two programs to provide more liquidity to SMEs and the self-employed:

• One for 100,000 million euros, fully placed and granted for a term of five years, with a grace period of one year; and
• 40,000 million, still open to contracting with a smaller drawdown by companies and the self-employed. For this plan, the application period has been extended until June 30.

Financial institutions must guarantee that there will be no unjustified increases in interest rates, nor will they require the contracting of linked products.

Likewise, a reduction of up to 50% of the notary and registry fees corresponding to the operations related to the extension of the terms is foreseen.

Tendering procedures

In order to avoid an avalanche of insolvency proceedings as from January 1, companies will not be obliged to file for voluntary insolvency proceedings until March 14, and creditors will not be able to file before that date.

In addition, the courts will have to suspend until January 31 incidents of non-compliance with debt resolution agreements linked to previous insolvency proceedings, if such non-compliance with payment obligations is related to difficulties arising from the pandemic.

In the event that applications for non-compliance had begun to be processed between October 31 (the previous time limit) and November 19, the judge must suspend their processing.

The Bank of Spain already warned last week that, in the absence of extensions, from January onwards there would be a “significant increase” in the number of applications for insolvency proceedings at the request of creditors. Likewise, the supervisory body has been asking for some time that, in addition to the “temporary extension” of this moratorium, a “rigorous and rapid analysis of the bankruptcy proceedings should be initiated to allow a real restructuring of the debt, speeding up the disappearance of non-viable companies”.

Foreign investments

As has been the case since March with foreign investments from non-EU countries, from now until June 30, investments from the European Union will also require prior authorization from the Government. These are investments that are either destined to listed companies or are greater than 500 million and are directed to strategic non-listed companies. In the case of investments of non-EU origin, the prior control is maintained ‘sine die’.

In this way, the Government will suspend operations when the investor, whether from outside the EU or also from the EU, becomes a shareholder of 10% or more of the share capital of a Spanish company operating in a strategic sector, or when, as a result of the corporate operation, act or legal business, control of the company is taken.

Alternative Financing

The capitalization threshold set out in the Securities Market Law is raised from 500 to 1,000 million euros, above which a company is obliged to request that its shares be traded on a regulatory market instead of exclusively on an SME market in expansion. This encourages the development of alternative financing markets.

General Meetings

The term of validity is extended during the fiscal year 2021 so that general meetings or shareholders’ meetings can be held by electronic means, when this is not provided for in the company’s bylaws.

The requirement for the secretary to recognize the identity of the partners or associates, and to so state in the minutes, is maintained and, in the case of listed companies, the holding of the general meeting anywhere in the national territory continues to be allowed. Likewise, and for the same reasons, the possibility of holding the meetings of the board of trustees of foundations by telematic means is extended for the year 2021.

Rescue plan for the hotel and tourism industry

The Government is also concerned about how the second wave of Covid is affecting with special virulence the hotel and tourism sectors, as they are the most affected by the mobility restrictions.

According to authorized sources, there are several options on the negotiating table at the moment, which will probably be discussed at next week’s Council of Ministers. From the exemption, deferment or rebate of contributions, to a tax moratorium, a new renegotiation of rents and even a German-style direct aid plan.