European Perspective in Brief

European Perspective in Brief

Europe has struggled mightily during the last several years to triage a long series of critical blows to the economies of the 28 countries that comprise the European Union, as well as the collective viability of eurozone economies. Here we provide a snapshot of some recent developments regarding insolvency, restructuring, and related issues in the EU.

Portugal—Banco Espírito Santo SA ("BES"), Portugal’s second-largest lender, will split up under a rescue plan backstopped by €4.9 billion ($6.6 billion) in state money after the bank sustained devastating losses on its exposure to the troubled Espírito Santo financial group (“Espírito Santo”). Under the “resolution measure,” the healthy assets and businesses of BES will be spun off into a new bank (“Novo Banco,” provisionally), while problem assets will remain with the vestigial entity and losses will be borne by shareholders and subordinated creditors. Novo Banco will be recapitalized by Portugal’s central bank and rebranded.

The collapse comes just weeks after the central bank expressed confidence that BES had adequate capital reserves to weather its exposure to Espírito Santo, which filed for protection from its creditors last month after a central bank audit turned up accounting irregularities.

The European Commission quickly determined that the resolution plan complies with bloc rules governing State aid, which do not require contributions from depositors or senior debt holders in bank failure cases. According to the EC, “a disorderly resolution of BES could create a serious disturbance in the Portuguese economy and . . . the creation of the bridge bank is suitable to remedy that disturbance.” The eurozone is in the process of finalizing a “single resolution mechanism” pursuant to which the European Central Bank would take charge of dismantling and winding down failed financial institutions, but the procedures will not be implemented until 2016.

Spain—On September 5, 2014, Spain enacted urgent measures (“RDl 11/2014”) to facilitate restructurings and avoid the insolvency of companies that, under the previous legislative regime, might have been forced to file an insolvency proceeding. RDl 11/2014 modifies several provisions of the Spanish Insolvency Act. The objective of the reform is to improve the legal framework that governs voluntary arrangements between creditors and the sale of distressed businesses outside insolvency by removing obstacles which have previously impeded the successful reorganization of insolvent companies. In addition, RDl 11/2014 establishes rules to deal with the ongoing insolvency proceedings of certain concession holders for Spain’s toll highways, with the aim of preventing such concession holders from being placed into liquidation. A detailed discussion of RDl 11/2014 is available at

Other recent European developments can be tracked in Jones Day’s EuroResource, available at