A restructuring plan is forced on you: how to challenge it

The case, in five lines

What is brought

Challenge to the order confirming the restructuring plan before the Audiencia Provincial (articles 653 to 656 TRLC), heard through the incidente concursal (the interlocutory insolvency procedure). If confirmation was sought with a prior contradictory hearing, the action is the objection to confirmation under article 663.

Before which court

The Audiencia Provincial (the provincial appellate court), with which the challenge is filed directly (article 658.2 TRLC); the sección de lo mercantil of the Tribunal de Instancia (the commercial division of the first-instance court) that issued the order merely sends up the case file within five days. Where there is a prior contradictory hearing, the objection is lodged with that commercial division. No prior attempt at an alternative dispute resolution method is required: this is insolvency matter, not a declaratory action under the LEC (the Spanish Civil Procedure Act).

Deadline

Fifteen court working days from the day after publication of the order in the public insolvency register (articles 648 and 654 TRLC). It is a preclusive procedural period: a late challenge is rejected without any ruling on the merits. With a prior contradictory hearing, fifteen days from publication of the order admitting the application (article 663). A secured creditor in a dissenting class also has one month from publication of the order to seek realisation of the collateral (article 651).

Who can bring it

Claimants: holders of affected claims who did not vote for the plan (articles 654 and 655 TRLC), with the additional grounds in article 655.2 reserved for those in a class that did not approve it, and shareholders where they did not approve the plan (article 656), limited to those who voted against where a shareholders' resolution was required. Respondents: the debtor and the creditors who signed up to the plan, who may oppose within fifteen days (article 658.3).

Financial risk

The challenge does not stay the plan, which is implemented and registered while the case runs. The judgment cannot be appealed: if you lose, the plan binds you for good and you may be ordered to pay costs under the general loser pays rule. If you win on the general rule, the plan simply ceases to apply to you, with compensation payable by the debtor if what has been implemented cannot be reversed.

Fifteen days from the public insolvency register, and straight to the appellate court

The clock does not start when a notice reaches you, because one may never reach you. Article 648 of the TRLC (the consolidated Spanish Insolvency Act) requires the confirmation order to be published immediately in the Registro público concursal (the public insolvency register), and article 654 opens the challenge within the fifteen days following that publication. It is a procedural, preclusive period counted in court working days: once the last day passes, the action is lost and there is no alternative route to recover it.

Article 653 says before whom: the Audiencia Provincial (the provincial appellate court), not the judge who confirmed the plan. Article 658.2 spells it out: the challenge is filed directly with the Audiencia; if it is in time, the letrado de la Administración de Justicia (the court clerk) admits it by decree and asks the sección de lo mercantil of the Tribunal de Instancia (the commercial division of the first-instance court) that issued the order to send up the case file within five days. If it is late, the court rejects it by order, and the only remedy against that order is a recurso de queja (a complaint against refusal to admit).

There is one exception that changes the whole timetable. If whoever sought confirmation asked for a prior contradictory hearing, as article 662 allows, the fight is brought forward: under article 663, the order admitting the application is published in the public insolvency register and from then there are fifteen days to object before the commercial division, with the same standing and the same grounds as a challenge. The judgment ruling on that objection is issued within one month and cannot be appealed. Anyone who waits for the confirmation order before reacting is too late.

What you can argue depends on how you voted and how your class voted

Only those who did not vote in favour can challenge. Articles 654 and 655 TRLC give standing to holders of affected claims who did not vote for the plan; anyone who signed up to it, even under pressure from the bank or without reading the whole plan, has lost the action. And only what the statute lists can be argued: the grounds are a closed list, and a challenge complaining that the plan is unfair without fitting the grievance into a specific numbered ground is lost before it starts.

Article 654 gives every dissenting creditor eight grounds: defects in communication, content or form; badly formed classes or irregular approval; that the debtor is not in likely, imminent or current insolvency; that the plan offers no reasonable prospect of avoiding insolvency proceedings and securing viability; unequal treatment within your class; a reduction of your claim manifestly greater than necessary; failure of the best interests of creditors test; and that the debtor is not up to date with the tax agency and social security. If not every class approved the plan, article 655.2 adds five more grounds, but only for creditors in a class that did not approve it.

Shareholders have their own list in article 656, shorter and with a nuance few take advantage of: against them, a mere likelihood of insolvency is not enough. Their third ground requires that the company was in current or imminent insolvency, consistently with article 640.2, which only allows confirmation without shareholder approval in those two states. And rule 5 of article 631.2 closes the other door: the shareholders' resolution approving the plan can only be challenged through the route and within the period for challenging or objecting to confirmation.

Badly formed classes are the ground that brings the whole plan down

Article 623 TRLC requires each class to group claims sharing a common interest determined on objective criteria. Insolvency ranking presumes that common interest, but claims of the same rank may be split where there are sufficient reasons: the financial or non-financial nature of the claim, conflicts of interest between creditors, or the way the plan affects each of them. Majorities are engineered when the classes are formed, and that is why that is where the attack goes.

The rule that brings down the most plans sits at the end of paragraph 3: where the creditors are small or medium-sized enterprises and the plan imposes on them a sacrifice above fifty per cent of their claim, they must form a separate class. Putting a supplier facing a seventy per cent haircut in the same class as a fund that bought debt at a discount, so that the fund's vote drags yours along, is exactly what the provision prevents.

This ground carries more weight than the others because of its effect. Article 661.2 provides that, where the challenge succeeds for lack of the required majorities or for defective class formation, the judgment declares the plan ineffective, not merely inapplicable to you. With properly formed classes the vote count changes, and with it whether the plan met the majorities that article 639 requires to be imposed on the classes that did not approve it.

The best interests test is won with an expert valuation and a two year discount

Article 654.7 TRLC allows a challenge where your claim is worse off under the plan than in an insolvency liquidation of the debtor's assets, whether piecemeal or as a going business unit. The comparison is not between the face value you are promised and zero: it is between the value of what you will receive under the plan and the value of what you could reasonably have recovered in that liquidation.

The statute sets an assumption that decides many cases: to calculate liquidation value, the liquidation dividend is deemed paid two years after the plan is formalised. If the plan pays you thirty per cent over five years, that stream has to be brought to present value, just like the liquidation dividend at two years. A plan that looks generous at face value can lose the comparison once the payments are discounted, and vice versa.

That is why the battle is fought through expert evidence and starts before the order. Directive (EU) 2019/1023, from which this regime derives, provides in its article 14 that the court decides on the valuation of the business only when a dissenting party challenges the plan on this ground or on the cross-class cram-down. In other words, value is debated because you debate it, and it is settled with evidence: anyone who reaches the Audiencia without their own liquidation report is arguing against the debtor's with empty hands.

When the shareholders keep the company and you lose half

If your class did not approve the plan, article 655.2 TRLC opens the cram-down grounds to you. The most powerful is the fourth: your class cannot receive less than the amount of its claims if a lower ranking class or the shareholders are to receive any payment or keep any right, share or interest in the debtor. That is the absolute priority rule: until you are paid in full, those behind you keep nothing. Added to it are the grounds that another class receives more than the amount of its claims and that your class is treated less favourably than another of the same rank.

The rule has a safety valve the debtor always invokes. Article 655.3 allows confirmation to be upheld despite a breach where it is essential to secure the viability of the business and the affected claims are not unjustifiably prejudiced. Essential does not mean convenient: the debtor has to explain why the shareholders must keep their stake, for instance because they bring new money or because without them a licence is lost, and the challenge has to show that this is not the case.

Even if your class approved the plan, article 654.6 remains: the reduction of your claim cannot be manifestly greater than what is needed to secure viability. A presumption operates here that is worth knowing: if the challenger acquired the claim by assignment at a discount greater than the reduction it suffers, there is presumed to be no excess. A fund that bought at twenty per cent will struggle to win on this ground; a supplier that delivered the goods and was never paid may well succeed.

A challenge does not stop the plan: what you actually win before the court

Article 649 TRLC extends the plan's effects to all affected claims as soon as it is confirmed, even if the order is not final, and article 660 denies the challenge any suspensive effect. While the case runs, the debtor implements: it reduces and increases capital, converts debt into shares, modifies security, and article 650 allows those acts to be entered in the public registers. You are litigating against a plan that is already being carried out.

That is why the grounds are chosen with the end in mind. Article 661.1 states that, as a rule, a successful judgment only declares that the plan does not extend to the challenger, and keeps it in place for everyone else; if the effects cannot be reversed, the challenger is entitled to damages from the debtor. Only where the challenge succeeds for lack of majorities or badly formed classes is the whole plan declared ineffective, and in no case are third parties acting in good faith prejudiced.

And there is no second instance. Under article 659, the judgment is issued within thirty days of the end of the proceedings, takes effect without any possibility of suspension on the day after its publication in the public insolvency register, and is not open to any appeal. There is no cassation, so the approach is set by each Audiencia Provincial. Whatever is not in the challenge and in the expert report will not exist for the court.

How we run the case, step by step

1. 1

   Keep the plan, do not sign up and commission the valuation now

   From the moment you receive the plan for voting, keep the email, the full document, the proposed classes and the voting result. Voting in favour or signing up removes your standing. The firm instructs an expert economist on the valuation at that point, because fifteen days are not enough to build it from scratch.

2. 2

   Daily monitoring of the public insolvency register

   We track publication of the order admitting the application for confirmation. If a prior contradictory hearing was requested, the fifteen days to object run from it. If not, the confirmation order must be issued within fifteen days of that publication under article 647.2 TRLC, and the period to challenge runs from publication of the order.

3. 3

   Choosing the grounds with their effect in view

   Each grievance is fitted into a numbered ground in articles 654, 655 or 656 and we decide the objective: that the plan does not apply to you, or that it falls altogether. If you hold security and your class voted against, the one month window in article 651 to seek realisation of the collateral is assessed at the same time.

4. 4

   Filing the challenge with the Audiencia Provincial

   It is filed in time and directly with the Audiencia, with a copy of the confirmation order as article 658.1 requires, the expert valuation, the documentary evidence and the request for the evidence to be taken. All challenges are heard together through the interlocutory insolvency procedure.

5. 5

   Opposition by the debtor and the creditors who signed up

   The debtor and the creditors who signed up to the plan have fifteen days to oppose. We answer their expert evidence with ours, ask for the experts to confirm their reports and, where needed, to be examined face to face, and coordinate strategy with the other challengers, whose interests do not always match yours.

6. 6

   Judgment and enforcing what was won

   The Audiencia rules within thirty days of the end of the proceedings; the judgment cannot be appealed and takes effect the day after its publication. If it declares non-extension, the claim is enforced on its original terms or the compensation under article 661.1 is pursued; if it declares the plan ineffective, the claim is positioned for a likely insolvency filing.

The law that applies

• Art. 654 TRLC. Gives holders of affected claims who did not vote in favour standing to challenge the order within fifteen days of its publication in the public insolvency register, and lists eight closed grounds, including class formation, lack of viability, unequal treatment, a manifestly excessive reduction and the best interests test, with the liquidation dividend deemed paid after two years. BOE-A-2020-4859
• Art. 655 TRLC. For plans not approved by every class, opens the article 654 grounds to any creditor who did not vote in favour and adds five more for those in a dissenting class, including the absolute priority rule, which may be set aside where essential for viability and there is no unjustified prejudice. BOE-A-2020-4859
• Art. 656 TRLC. Allows shareholders, where they have not approved the plan, to challenge the order on five grounds, including that the company was not in current or imminent insolvency, and where approval required a shareholders' resolution limits standing to those who voted against. BOE-A-2020-4859
• Art. 623 TRLC. Requires each class to group claims with a common interest on objective criteria, presumes that interest among claims of the same insolvency rank, allows them to be split for sufficient reasons, and requires a separate class for small and medium-sized enterprises whose sacrifice exceeds fifty per cent of their claim. BOE-A-2020-4859
• Art. 658 TRLC. Requires all challenges to be heard together through the interlocutory insolvency procedure, with a copy of the order attached, and to be lodged with the Audiencia Provincial; a late challenge is rejected by an order open to a complaint, and the debtor and the creditors who signed up have fifteen days to oppose. BOE-A-2020-4859
• Art. 659 TRLC. The judgment is issued within thirty days of the end of the proceedings, receives the same publicity as the order, takes effect without suspension or postponement on the day after its publication in the public insolvency register, and is not open to any appeal. BOE-A-2020-4859
• Art. 661 TRLC. A successful judgment declares that the plan's effects do not extend to the challenger only, with compensation from the debtor if the effects cannot be reversed; if it succeeds for lack of majorities or defective class formation, it declares the plan ineffective. It does not prejudice third parties acting in good faith. BOE-A-2020-4859
• Art. 5 LO 1/2025. Makes a prior attempt at an appropriate dispute resolution method a condition for admitting civil claims, required in the declaratory proceedings of book II and the special proceedings of book IV of the LEC, subject to the exceptions it lists. BOE-A-2025-76

Each article checked against the consolidated text published in the BOE (the Spanish official gazette).

Frequently asked questions