Insolvency Disputes: Spain as a Bellwether for European Restructuring Litigation
Over the past three years, Spain has operated as a real-time test market for the EU’s shift towards court-backed, pre-insolvency restructuring. Economic uncertainty, higher interest rates, and sectoral distress have translated into heightened litigation, with disputes increasingly focused on who controls the process, and how value is measured and allocated. Spain’s 2022 reform — which implemented Directive (EU) 2019/1023 (the Directive) — has reshaped creditor challenges, restructuring disputes, and, more broadly, the negotiation dynamics in distress.
Two features are particularly significant for litigation risk and strategy. First, creditor majorities can now drive capital solutions (including debt-to-equity conversions) that may dilute or displace shareholders. Second, the new “restructuring plan” architecture can bind dissenting minorities through class voting and court confirmation, while still allowing tailored outcomes (including, in some cases, limited shareholder retention). For distressed investors and creditors, this creates both risk and opportunity — and offers lessons likely to travel across Europe.
Spain’s Insolvency Reform and Its Litigation Implications
Spain’s reform introduced a flexible regime for restructuring plans: The initiative can sit with shareholders, most classes of creditors, or any class of creditors that is “in the money”. Plans can be confirmed by the court (homologación), and the reform sets out specific grounds on which affected creditors and shareholders may oppose being crammed down.
That flexibility, however, is limited by familiar protections. In broad terms: (i) a plan must be capable of ensuring the company’s viability in the short to medium term; (ii) similarly situated creditors should be treated on a pari passu basis; and (iii) absolute priority and best interest of creditor rules apply. The practical effect has been to relocate disputes from late-stage insolvency to an earlier, faster, and more technical battleground.
A further driver of litigation is that the reform allows affected creditors and shareholders to oppose homologation on procedural and substantive grounds. In practice, disputes have focused on information adequacy, class formation and voting majorities, the identification of affected parties, and whether the plan’s measures (including governance changes) are proportionate to the objective of restoring viability. The compressed timelines typical of pre-insolvency restructurings amplify these tensions: Parties must build an evidentiary record quickly, often relying on competing experts, while operating under the commercial pressure of maturities and liquidity needs.
In these first three years of case law, the most sophisticated challenges have been related to: (i) whether the debtor is in fact insolvent or likely to become insolvent, (ii) enterprise valuation (which determines who is in the money and therefore who retains value), and (iii) counterfactual recoveries, such as whether dissenting stakeholders would do better under an alternative scenario, including individual asset sales or liquidation. Those issues are expert-heavy and highly fact-sensitive, which is why restructuring litigation now looks and feels closer to complex commercial arbitration than traditional insolvency disputes.
Restructuring Disputes and Creditor-Debtor Dynamics: The Lessons of Celsa
Celsa has become a paradigm of creditor-led restructuring under Spain’s new framework. A majority creditor group — holding approximately €2 billion of debt — promoted a restructuring plan designed to convert its claims into equity and take 100% ownership, displacing the shareholders through a capital increase implemented by way of debt-to-equity conversion.
The litigation made clear why valuation is now the central battlefield. Whether shareholders were in the money (and therefore entitled to retain value) depended on enterprise value, business plan assumptions, and capital structure analysis — placing expert evidence at the heart of the outcome. The court also had to analyse a practical question that will recur in future disputes: how the necessary corporate steps to effect the conversion and resulting ownership change can be implemented when shareholders do not cooperate.
Celsa also illustrates the multi-disciplinary complexity that modern restructuring litigation can entail. Beyond classic insolvency questions, the transaction raised (and required coordination across) questions about corporate law mechanics, accounting and financial structuring, and potential regulatory dimensions such as foreign investment, antitrust, and related approvals. For investors and creditors, the key lesson is that the new regime can convert leverage into control, but only if the valuation and process risks are managed with litigation in mind.
Dragging Minority Creditors and Preserving Shareholder Participation: The Naviera Armas Case
Naviera Armas highlights a different disputes pattern: a restructuring supported by secured creditors and shareholders, with minority (but very relevant) creditors crammed down. Shareholders reached an agreement with secured lenders under which the lenders received approximately 94% of the equity. Certain unsecured creditors (including the unsecured banking pool and a vendor loan creditor) were treated as out of the money and suffered a 100% haircut. Shareholders retained around 6% of the post-restructuring capital.
The litigation therefore turned on a question that will frequently arise in European restructurings: whether allowing shareholders to retain value breaches the absolute priority rule where a creditor class is written down to zero. The final decision confirmed there was no violation on the basis that the equity retained by shareholders was not a continuation of their “old” shares but rather derived from shares allocated to the secured creditors as part of the conversion mechanics. That is, Spanish law can accommodate “gifting”. A senior class may choose to give up a slice of its entitlement to facilitate a deal, even if more junior stakeholders would otherwise be out of the money.
For litigation strategy, the message is that disputes will not be limited to debtor-vs.-creditor dynamics. They will often be creditor-vs.-creditor, fought over class composition, valuation boundaries, and the mechanics by which value is distributed in a court-confirmed plan.
Spain as a Bellwether for Distressed Litigation
Spain’s early wave of restructuring-plan litigation matters beyond the country because it reflects the Directive’s policy choices in a live disputes environment. The message for European practitioners is that restructuring frameworks do not eliminate conflict; they channel it into technical, expert-driven challenges where outcomes can pivot on insolvency triggers, valuation methodology, class architecture, and counterfactual recoveries.
As other jurisdictions bed down similar tools, parties should expect more disputes on whether: (i) stakeholders are truly in the money, (ii) dissenting creditors are no worse off than in liquidation or an alternative scenario, and (iii) plan mechanics respect absolute priority. Spain is therefore a bellwether in the practical sense. It offers an illustration of how modern European restructuring regimes can create leverage, accelerate timetables, and raise the sophistication of insolvency disputes.