The fall in the income of companies and the increase in their debt form an explosive cocktail about which the governor of the Bank of Spain, Pablo Hernández de Cos, warns, who launches two pieces of advice: move from liquidity measures – which in the end they raise the debt- to the injection of capital; and improve legal schemes to deal with insolvencies. De Cos explains that the current management of companies’ problems takes too long, destroys value and usually ends in liquidations.
Without the guarantees of the ICO and other measures, 36% of companies would have been unable to meet their debts, according to the European Central Bank. In recent days, the Government has extended the period for granting guarantees, the repayment of loans and the grace period. In addition, the companies are not obliged to present the voluntary bankruptcy and the judge does not have to admit the requests of the creditors until March 14, which represents an extension compared to the initial deadline, which ended on December 31.
The measures seek to preserve the productive fabric. Companies with resources and flexibility of obligations are given oxygen. And more time is given to the Administration to improve the legislation on insolvencies and insolvencies, and to the companies to rethink and resize themselves.
Time is short. Already in the third quarter the bankruptcies have increased (There is no obligation to present them, but they can be requested). Almost half of them affect the lowest segment of business volume (up to 250,000 euros), especially commerce and hospitality and firms with up to six employees.
Iberinform has detected that the pandemic is being devastating for companies that entered 2020 in their third year of life: “This is the moment when the initial capital runs out and the income statement has to start to balance.” His death rate has risen to 19% from 14% a year ago.
“The best place to resolve an insolvency is the court and the bankruptcy,” says Juan Carlos Robles, president of the Registry of Forensic Economists (REFOR). That says the theory, clarifies. In practice, contests have failed as a tool that favors business survival: “These processes should not end in company liquidations; the system fails ». Ángel Martín, global partner responsible for Financial Restructuring at KPMG and for Restructuring in Spain, adds that, when the competition is passed, returning to the normal situation is not easy: the firm suffers a stigma.
The issue, therefore, is to avoid bankruptcy and to use pre-insolvency procedures that, although they are already provided for in the Spanish legal framework, are included in a community directive in whose transposition the technicians of the Ministry of Justice work to make it ready. before July 2021.
Avoid the contest
These mechanisms can be restructuring agreements with creditors; arrangements with providers; or with landlords. Later, as Martín points out, they can be taken to court, so that the conditions are shielded. It should not be overlooked that the process can run into the difficulty of a debt in which the creditors are increasingly the markets and less the banks, when it is easier to negotiate with the latter, due to the daily dealings that are usually established, than with the former.
Robles highlights two other elements of the European directive that would help prevent an avalanche of competitions after the moratorium. First, the figure of the professional administrator to manage restructuring. It would determine if the company is viable – and would elaborate a feasibility plan -, or not. If it were the latter case, it would develop an express contest so that the assets do not lose value and the creditors recover as much as possible. Secondly, early warning systems of the problems of a company to act as soon as possible.
Another question is whether the extrajudicial agreements should include debts with the Treasury or Social Security and that the public sector can favor rapid restructuring agreements. The Government, in the reform of bankruptcy processes and in the transposition of the community regulation, studies to reduce the prevalence of the debt with the Administration, as advised by the Bank of Spain or the International Monetary Fund.