When a company is going through serious financial difficulties but is still viable, it may propose a restructuring plan to its creditors to avoid entering insolvency proceedings. The normal course in such cases is to notify the commercial court that it intends to begin negotiations with its creditors (Article 585 of the consolidated text of the Insolvency Act). This provides a degree of protection against enforcement by creditors and the assurance that, for three months, no creditor may request compulsory insolvency proceedings against the company.

In this context, the restructuring expert may intervene: an independent professional who assists the debtor and its creditors in negotiations, facilitates the preparation and approval of the plan and issues certain reports or certifications relevant to its judicial homologation.

One of the decisions the debtor company must take is whether or not to appoint a restructuring expert. Although, in theory, their involvement is not necessary in each and every restructuring plan (this depends on the content of the plan, a question that cannot be addressed here), in practice the vast majority of plans that are ultimately submitted to the court for homologation include such an expert. And it certainly provides reassurance to the courts.

How is the restructuring expert appointed?

The initiative normally lies with the debtor company itself, which will select the person it wishes to act as expert (provided, of course, that they meet the legal requirements) and will negotiate directly with them the terms of the professional engagement (fees, conditions and timing of accrual or payment). This choice will be communicated to the court, which will formally make the appointment, although the court does not have freedom to choose another person as expert unless the person proposed lacks the required qualifications.

Those qualifications are, in essence, experience in restructurings or meeting the requirements to be appointed insolvency administrator.

However, although the expert may have been appointed on the proponent's suggestion, they must act impartially and independently, both from the debtor and from the creditors.

In certain cases, the expert is appointed at the request of the creditors themselves, who may also request replacement of the expert already appointed, propose a restructuring plan and even, by this route, take control of the company (as has happened in some very well-known cases: CELSA, Grupo Rator). However, in this article we shall limit ourselves to the most common scenario, in which the expert is appointed at the request of the debtor company itself.

Appointment of the expert may be requested together with the document notifying the court that negotiations with creditors have begun, or it may be requested subsequently, but always before requesting homologation of the plan.

What functions does the restructuring expert perform?

It should be made clear that the expert does not design the plan, but assists the debtor and its creditors in negotiations in order to prepare and secure approval of a plan (which, incidentally, does not require the favourable vote of a majority of the liabilities represented by the affected creditors).

They are therefore a figure whose general mission is to act as a link between the party proposing the plan and the creditors who will suffer its effects and to assist in the negotiation. However, although they are not the author of the plan, the expert must analyse the plan's economic projections and validate it, in the sense of being able to state that the plan offers a reasonable prospect of ensuring the viability of the company and thereby avoiding insolvency.

Alongside this general function, the Act imposes specific duties on the expert.

Report on extension of the notification of negotiations

First, the expert must issue a report if the debtor requests an extension of the effects of the notification of negotiations, provided the expert has already been appointed at that time.

Certificate on sufficiency of majorities

They must verify that the majorities necessary to consider the restructuring plan approved are present. This certificate must accompany the plan when it is executed before a notary.

The Act contemplates that, at that moment, the expert may not yet have been appointed. In that case, this certificate is replaced by one issued by an auditor.

Report on the value of the company as a going concern

Third, the expert must issue a report on the value of the company as a going concern, which is mandatory when the plan is to be homologated after having been approved by at least one class of credits that can reasonably be presumed would have received some payment after valuing the company on a going-concern basis (that is, what is commonly known as a class "in the money").

Other common reports

Additionally, although not expressly required, it is common also to submit a report on the value of the guarantees.

This usually occurs when the plan has been approved by a simple majority of classes, provided at least one of them is a class of credits that, in a hypothetical insolvency of that debtor, would be classified as privileged, for example because they are secured by mortgage or pledge.

A report on the value of the company in liquidation may also be submitted, for the purpose of showing that the treatment the restructuring plan gives creditors is better than what a liquidatory insolvency would offer them.

In short, restructuring plans present a very different reality from traditional insolvency proceedings and, while they undoubtedly offer advantages, they also raise notable questions that advise relying on highly specialised advice.

At the same time, it seems evident that the appropriate choice of the professional who is to act as expert in the restructuring is a relevant decision, since they are an essential part of the "restructuring machinery", as they are ultimately the person who can help minimise the risk that the plan, once judicially homologated, will be challenged by creditors.

Fernando Martínez Sanz

Lawyer.

Restructuring expert