The reintegration and its effects in debt refinancing agreements

The action of reintegration. Rescindable acts.

The Insolvency Law, now transformed into the Consolidated Text, establishes the rescission of those acts detrimental to the insolvency Estate. Actions that took place within the  two years prior to the declaration of the insolvency proceeding. Fraudulent intent is not required. Only and exclusively that  the patrimonial damage is valued.

And what is damage to the Estate? The insolvency law establishes presumptions about what is to be considered detrimental to the Estate. It distinguishes between absolute and relative presumptions.

Absolute presumptions, that is to say, that do not admit contrary proof, are all acts of disposition free of charge. As well as any payment that extinguishes obligations of the insolvent party with maturity after the declaration of insolvency. The latter, with one exception, those with a real guarantee.

The relative presumptions, that is to say, that admit evidence to the contrary, are established by the regulations and are the following ones:

• Acts of disposition for valuable consideration made in favor of people related to the insolvent party.
• Acts of constitution of Real guarantees on pre-existing obligations.
• Payments of extinction of obligations with Real guarantee whose maturity is subsequent to the declaration of the bankruptcy.

Notwithstanding the foregoing, it must be taken into account that there are certain acts that bankruptcy law protects. The so-called acts that cannot be rescinded:

• Ordinary acts of the insolvent party’s activity.
• Constitution of guarantees in favor of public credits.
• Constitution of guarantees in favor of FOGASA.
• Liquidation of securities and derivative instruments, by any act included in special laws regulating the payment and compensation system.

Can refinancing agreements be rescindable?

First of all, we bring a brief outline of the insolvency regulation of refinancing agreements.

The debtor, not in bankruptcy, may reach a refinancing agreement with its creditors at any time. These refinancing agreements may be covered by the formerly called “5bis communication”. That is to say, the debtor who is in insolvency proceedings can make this known to the Court. This communication allows him to negotiate and, if necessary, reach a refinancing agreement with his creditors. And thus, to get out of the insolvency situation.

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What are the requirements of these refinancing agreements?

• Agreements that respond to a viability plan to continue the debtor’s activity.
• Agreements that imply an extension of the available credit, or the modification/extension of the debtor’s obligations. For example, extending the maturity date.
• Agreements that are signed by the debtor and creditors representing at least 3/5 of the liabilities. An auditor’s certification is required to confirm that such majority is reached.
• Finally, it is necessary that the agreements are documented and formalized in a public instrument.

Refinancing agreements can be judicially approved. We will not describe the requirements for the homologation of refinancing agreements, as this has been the subject of another recent article.

Now, can a refinancing agreement be rescinded? Is a refinancing agreement, prior to the declaration of insolvency, considered a returnable act?

According to the Insolvency Law, in order for a refinancing agreement not to be rescindable it must have been homologated. However, if it has not been homologated, it must comply with the requirements set forth above. Otherwise, the agreement may be rescinded.

One of the main differences of approved refinancing agreements is that they require approval by at least 51% of the financial liabilities.

Who can exercise the reintegration action?

The trustee in bankruptcy is entitled to exercise the reinstatement action. However, the creditors may request the insolvency administrator to exercise such action, if they consider it appropriate. In this case, once the action has been requested by the creditors, the Insolvency Administrator has 2 months to exercise it. If he fails to do so, the creditors may file the same action against the insolvent party. Also, against those persons (individuals or legal entities) part of the Act to be rescinded.

Conclusions

The action of reinstatement affects any act of disposition in which the debtor has participated.

However, there is a time limit and a material limit.

It will only affect acts entered into two years before the declaration of the insolvency proceeding, which are detrimental to the insolvency assets.

Therefore, it is necessary to pay attention to the refinancing agreements entered into under the insolvency law.

Such agreements may be rescinded if:

• They have not been homologated (which requires, among others, approval by, at least, 51% of the financial liabilities), or
• They do not meet certain requirements.

If this article has been of interest, we also suggest you to read the following article published on our website: Directive on Preventive Restructuring.