Debt write-downs for self-employed workers and SMEs with ICO loans.

The Official State Gazette (BOE) has published the conditions under which a company or a self-employed worker may request a write-down (quita) of its debt from its financial institution, provided that the institution has adhered to the Code of Good Practice (Código de Buenas Prácticas). Accordingly, a write-down of debt under ICO loans may be requested if the conditions laid down are met.

It is the company that must approach its financial institution to submit the request. Three measures have been approved to facilitate the renegotiation of the debt of these companies in difficulty: the possibility of extending the repayment term of guaranteed loans to up to twelve years, maintaining the guarantee when the loans are converted into participating loans (préstamos participativos), and agreeing to a reduction of the outstanding debt. The latter would be the measure of last resort, for the companies facing the greatest difficulties.

As regards the write-down of ICO loans granted, the reduction may be:

– 50% of the outstanding guaranteed principal of each transaction, if the decline in the turnover of the company or self-employed worker in 2020 was less than 70%

– Up to 75% of the guaranteed amount if the decline in turnover in 2020 exceeded 70%.

In all cases, to qualify for these transfers, the company or self-employed worker must have recorded a 30% decline in turnover in 2020, and its profit and loss account must have shown an after-tax loss in 2020.

Extension of the maturity of publicly guaranteed ICO loans

This measure is accompanied by others that may help make the repayment of debts incurred during the crisis more flexible, starting with the extension of the grace period to two years and the extension of the repayment period of these loans to 10 years. This measure greatly increases companies’ chances of pulling through, provided that the economic recovery is stable and strong in the coming years.

Conversion of debt into participating loans

Finally, there is the possibility of converting the guaranteed loans into participating loans, subject to agreement between the financial institution and the company, while maintaining the coverage of the public guarantee. This measure had been requested by business associations to help strengthen the equity of the beneficiary companies, as these loans are treated as equivalent to capital for commercial-law purposes.

To benefit from this measure, the company must have had a 30% decline in its turnover in 2020, and its profit and loss account for 2020 must also show an after-tax loss. In addition to these requirements, the company must not be in default on any financing entered into with the financial institution, nor be in insolvency proceedings (concurso de acreedores).

Requirements for initiating the write-down process

According to the BOE, the first step is a self-declaration (declaración responsable) setting out the financial transactions that the debtor maintains with the other financial institutions.

“when a debtor requests from a financial institution that has adhered to this Code of Good Practice the application of one of the measures provided for therein, other than the mandatory extension of maturity periods for debtors who request it and meet the eligibility requirements of Annex II to this Agreement, the institution must ask the debtor to provide a self-declaration”

The maturity extensions of publicly guaranteed financial transactions referred to in the preceding points will be mandatory for the financial institution when the following requirements are met, in addition to the requirements set out in the fourth additional provision, “Eligibility conditions for companies and self-employed workers,” of Royal Decree-Law 5/2021:

– The debtor must have submitted a request.

– The guaranteed financing transaction must not be in default (unpaid for more than ninety days), nor may any of the other financing granted by the institution to the same client be in default.

– The debtor must not appear as being in default when the files of the Bank of Spain’s Central Credit Register (Central de Información de Riesgos del Banco de España, CIRBE) are consulted on the date of the request for the extension.

– The financial institution must not have notified the entity granting the guarantee of any non-payment by the debtor under the guaranteed transaction as of the date of the request for the extension.

– The debtor must not be subject to insolvency proceedings.

– The guaranteed financing must have been formalized before the date on which this Agreement of the Council of Ministers was adopted.

– The debtor’s request to the institution must be made no later than October 15, 2021.

– In order to request the extension of the guarantee, the debtor must comply with the limits established in the European Union State aid rules.

– The debtor must not have been convicted by final judgment of offenses against the Public Treasury and against the Social Security system, or of offenses of frustration of enforcement, punishable insolvency, or fraudulent concealment of assets in which one of the injured parties was the Public Treasury.

– Turnover, understood as the annual volume of transactions declared or verified by the tax authorities in the annual tax return for Value Added Tax (VAT) or an equivalent tax, for both companies and self-employed workers in accordance with the applicable regime, must have fallen by at least 30% in 2020 compared with 2019