Naviera Armas: Spanish Court Clarifies Valuation Fights and Priority Rules
July 2025
One of the most anticipated cases regarding restructuring plans in Spain has been recently resolved. The order of the Provincial Court of Las Palmas de Gran Canaria (fourth section) (the Court) dismissed all grounds appealing the approval of the restructuring plan of Grupo Naviera Armas (Naviera). The order reiterates some criteria from other cases on valuation, but it also addresses a new issue: the doctrine of Gifting. All grounds of appeal, brought by some of the most prominent Spanish banks, were dismissed.
Following the Celsa case, this decision highlights again the importance of valuation and independent expert reports. In fact, a manifest calculation error in the valuation expert report filed by the financial entities appealing the plan – as admitted by the authoring expert in the hearing – prevented a comprehensive comparison of the appellants’ report against the expert report filed by Naviera. This determined, to a great extent, the outcome of the proceedings.
One of the most anticipated cases regarding restructuring plans in Spain has been recently resolved. The order of the Provincial Court of Las Palmas de Gran Canaria (fourth section) (the Court) dismissed all grounds appealing the approval of the restructuring plan of Grupo Naviera Armas (Naviera). The order reiterates some criteria from other cases on valuation, but it also addresses a new issue: the doctrine of Gifting. All grounds of appeal, brought by some of the most prominent Spanish banks, were dismissed.
Following the Celsa case, this decision highlights again the importance of valuation and independent expert reports. In fact, a manifest calculation error in the valuation expert report filed by the financial entities appealing the plan – as admitted by the authoring expert in the hearing – prevented a comprehensive comparison of the appellants’ report against the expert report filed by Naviera. This determined, to a great extent, the outcome of the proceedings.
Background: Naviera, the Spanish Maritime Transport of Passengers, Goods, and Cargo
Background: Naviera, the Spanish Maritime Transport of Passengers, Goods, and Cargo
Naviera is a Spanish group engaged in the maritime transport business of passengers, goods, and cargo. Headquartered in the Canary Islands, Naviera underwent its first restructuring in 2022 as a consequence of COVID-19 and subsequent overleverage. The company has now finished a second proceeding that was initiated in December 2023 and faced opposition by major creditors.
On December 21, 2023, the Court approved the restructuring plan of Naviera. This included, in reliance on the Spanish extraterritorial restructuring clause, the company’s subsidiaries with their center of main interest (COMI) outside Spain. Appeals were filed against the plan by dissenting creditors, including the Instituto de Crédito Oficial (a Spanish governmental agency) and the Ministry of Foreign Affairs and Digital Transformation. The grounds for appeal included:
- Lack of viability of the company post-restructuring
- Failure to meet the insolvency test granting access to the restructuring regime
- Intra-class discriminatory treatment
- Discriminatory treatment of claims with the same insolvency ranking
- Disproportionate sacrifice
- Violation of the best interest rule of creditors
- Violation of the reverse rule
- Violation of the absolute priority rule through Gifting
Naviera is a Spanish group engaged in the maritime transport business of passengers, goods, and cargo. Headquartered in the Canary Islands, Naviera underwent its first restructuring in 2022 as a consequence of COVID-19 and subsequent overleverage. The company has now finished a second proceeding that was initiated in December 2023 and faced opposition by major creditors.
On December 21, 2023, the Court approved the restructuring plan of Naviera. This included, in reliance on the Spanish extraterritorial restructuring clause, the company’s subsidiaries with their center of main interest (COMI) outside Spain. Appeals were filed against the plan by dissenting creditors, including the Instituto de Crédito Oficial (a Spanish governmental agency) and the Ministry of Foreign Affairs and Digital Transformation. The grounds for appeal included:
- Lack of viability of the company post-restructuring
- Failure to meet the insolvency test granting access to the restructuring regime
- Intra-class discriminatory treatment
- Discriminatory treatment of claims with the same insolvency ranking
- Disproportionate sacrifice
- Violation of the best interest rule of creditors
- Violation of the reverse rule
- Violation of the absolute priority rule through Gifting
Valuation and Experts’ Fights
Valuation and Experts’ Fights
Why Valuation Has Become Key in Spanish Restructurings
The reform of the Spanish Insolvency Act (SIA), according to the EU Directive on Pre-Insolvency tools, has shifted the focus in Spanish insolvency processes. The amended SIA now bases stakeholders’ rights on whether a creditor or shareholder is in-the-money or out-of-the-money. There is an alignment between the economic position of the creditor/shareholder in the capital structure and the “formal” rights under the process. Indeed, in cases like Celsa and Naviera Armas, valuation is crucial in restructuring outcomes, making court battles over expert reports common. “Valuation fights” have finally arrived in Spain and are here to stay.
Annual Volume of Bankruptcy Proceedings in Spain (2020–2024)
Hover to find out more
In the Naviera Armas case, the Court emphasized the importance of valuation reports from experts, stating these reports should avoid arbitrary decisions and baseless conclusions. The Court recognized that economic science relies on hypotheses and projections, so verification must be based on solid, reliable data, using appropriate methods, and maintaining economic logic.
The grounds for appeal in the Naviera Armas case mostly stemmed from:
- valuation discrepancies, including failure to meet the insolvency test under Spanish law;
- lack of business viability; and
- value distribution issues among stakeholders, such as discriminatory treatments, disproportionate sacrifices, breach of the reverse rule, and best interest tests.
Why Valuation Has Become Key in Spanish Restructurings
The reform of the Spanish Insolvency Act (SIA), according to the EU Directive on Pre-Insolvency tools, has shifted the focus in Spanish insolvency processes. The amended SIA now bases stakeholders’ rights on whether a creditor or shareholder is in-the-money or out-of-the-money. There is an alignment between the economic position of the creditor/shareholder in the capital structure and the “formal” rights under the process. Indeed, in cases like Celsa and Naviera Armas, valuation is crucial in restructuring outcomes, making court battles over expert reports common. “Valuation fights” have finally arrived in Spain and are here to stay.
Annual Volume of Bankruptcy Proceedings in Spain (2020–2024)
Click to find out more
In the Naviera Armas case, the Court emphasized the importance of valuation reports from experts, stating these reports should avoid arbitrary decisions and baseless conclusions. The Court recognized that economic science relies on hypotheses and projections, so verification must be based on solid, reliable data, using appropriate methods, and maintaining economic logic.
The grounds for appeal in the Naviera Armas case mostly stemmed from:
- valuation discrepancies, including failure to meet the insolvency test under Spanish law;
- lack of business viability; and
- value distribution issues among stakeholders, such as discriminatory treatments, disproportionate sacrifices, breach of the reverse rule, and best interest tests.
Imminent Insolvency
Naviera was eligible to enter the restructuring proceeding on the grounds that it was in a state of “imminent insolvency” (i.e., that it would become insolvent in three months or less)1. The appellants claimed that such imminent insolvency was caused solely by the term of the interim financing granted by the bondholders, and thereby the imminent insolvency was “manufactured”. The appellants’ expert stated that the interim financing was not needed when it was granted, so its termination should not cause the insolvency of the company. The judge rejected the expert’s view as unreasonable since the interim financing was needed to comply with the cash covenant requirements under other financial instruments.
Lack of Viability of the Debtor Group
The expert report filed by Naviera provided a viability plan based on information from the company’s management team but also took into consideration current market data related to recent activity. The conclusions of this report were endorsed by the restructuring expert2. The Court concluded that the method and projections of the viability report were prudent and adequate, offering a logical scenario from both an operational and financial perspective. An appeal to the report was mounted on the basis that Naviera’s operating value was estimated to be lower than the liquidation value of the assets. This was rejected by the Court, which held that a liquidation would result in a significant deterioration of asset value (so the asset value would differ from current value). The lower liquidation price would be due to the loss of market synergies and the increase in supply in a reduced market. These considerations were also relevant in the assessment of the potential best interest of creditors (below).
Intra-Class Discriminatory Treatment and Discriminatory Treatment of Claims With the Same Insolvency Ranking
Four classes were formed in respect of all Naviera group companies, with the following treatment for each class:
|
Class |
Treatment |
|
Secured Debt (up to the value of the collateral securing the financing) |
Capitalization (obtaining 100% of the restructured group), refinancing, and a 100% write-off for a sub-tranche |
|
Syndicated Ordinary Debt |
100% write-off in respect of the group companies without surplus after the distribution towards the secured debt; capitalization in respect of companies with surplus (other than the parent) |
|
Non-Syndicated Ordinary Debt |
100% write-off |
|
Subordinated Debt |
100% write-off |
The appellants alleged that claims within the same class were not treated equally and that their claims received less favorable treatment than other claims of the same insolvency ranking3.
One issue raised was whether equal treatment should apply to all debtor companies in a group or only within each individual company. The Court decided that value distribution should be based on each company’s credit and value, so treatment within the same class across different companies does not need to be identical to satisfy the equal treatment test. Parity in ranking also applies only within each company.
Regarding unfavorable treatment in rank, the Court upheld the company’s valuation reports, finding no unfavorable treatment since the ordinary classes receive the same treatment, justified by each company’s value rather than the group’s.
Intra-Class Discriminatory Treatment and Discriminatory Treatment of Claims With the Same Insolvency Ranking
Four classes were formed in respect of all Naviera group companies, with the following treatment for each class:
|
Class |
Treatment |
|
Secured Debt (up to the value of the collateral securing the financing) |
Capitalization (obtaining 100% of the restructured group), refinancing, and a 100% write-off for a sub-tranche |
|
Syndicated Ordinary Debt |
100% write-off in respect of the group companies without surplus after the distribution towards the secured debt; capitalization in respect of companies with surplus (other than the parent) |
|
Non-Syndicated Ordinary Debt |
100% write-off |
|
Subordinated Debt |
100% write-off |
The appellants alleged that claims within the same class were not treated equally and that their claims received less favorable treatment than other claims of the same insolvency ranking3.
One issue raised was whether equal treatment should apply to all debtor companies in a group or only within each individual company. The Court decided that value distribution should be based on each company’s credit and value, so treatment within the same class across different companies does not need to be identical to satisfy the equal treatment test. Parity in ranking also applies only within each company.
Regarding unfavorable treatment in rank, the Court upheld the company’s valuation reports, finding no unfavorable treatment since the ordinary classes receive the same treatment, justified by each company’s value rather than the group’s.
Disproportionate Sacrifice
The appellants argued that Naviera’s viability does not require a 100% write-off. They argued that the viability plan was excessively conservative and that a more reasonable approach to the business plan could have been possible, including to the interim financing, which would have permitted partial recovery for ordinary creditors.
The reports filed by Naviera (endorsed by the restructuring expert), showed how the interim financing was adequate to avoid insolvency and that the Company was not in a position to assume further debt in addition to the indebtedness which was being capitalized under the terms of the plan, as supported by the viability plan.
Disproportionate Sacrifice
The appellants argued that Naviera’s viability does not require a 100% write-off. They argued that the viability plan was excessively conservative and that a more reasonable approach to the business plan could have been possible, including to the interim financing, which would have permitted partial recovery for ordinary creditors.
The reports filed by Naviera (endorsed by the restructuring expert), showed how the interim financing was adequate to avoid insolvency and that the Company was not in a position to assume further debt in addition to the indebtedness which was being capitalized under the terms of the plan, as supported by the viability plan.
The Best Interest of Creditors
Under the SIA, creditors can challenge the restructuring if the plan results in them being in a worse situation than they would have had in a two-year liquidation scenario.
In the Naviera Armas case, the appellants pointed out errors in the calculation of the business value, resulting in a correction of the contrast value against a potential liquidation.
However, the Court noted that the special circumstances surrounding liquidation typically imply a lower value than the operating business. The Court took into consideration the market saturation of ships that would have resulted from the transfer in bulk of the fleet of Naviera during a liquidation, thus negatively impacting its value.
Reverse Rule
The SIA allows challenges if a plan grants a class more value than their claims (Reverse Rule or corollary of the absolute priority rule). The appellants claimed this rule was violated because the secured creditors would receive value in excess of their claims under the plan once their different tranches, sub-tranches, and participations in the interim financing was combined.
However, this was based on a miscalculation by the appellants’ expert, admitted by the expert in Court. It was shown that, under the plan, the secured class received less than the value of their claims.
The Gifting Doctrine
Under the SIA, the Absolute Priority Rule was introduced for the first time into the Spanish restructuring regime with very few exceptions, akin to Chapter 11 of the U.S. Bankruptcy Code. Some Spanish commentators have advocated for a reading of the statute which does not prohibit in-the-money creditors from voluntarily sharing value with parties out-of-the-money, a reading which may be convenient for strategic purposes. The Absolute Priority Rule is one of the features of the SIA which still need to be further developed by the Court and regarding which we expect more rulings in the near future. To this end, Spanish doctrine may benefit from developments of the Absolute Priority Rule in the U.S. and the academic and practical debates that have arisen around this rule over there.
The Naviera Armas decision is the first Spanish court ruling that addresses this matter. The appellants argued that the delivery of 6% of the share capital to the two former shareholders of Naviera, when the ordinary and subordinated debt classes suffered a 100% write-off, was a clear violation of the Absolute Priority Rule.
The Court in this case emphasized that transferring a percentage of the new post-restructuring equity from (former) secured creditors to the former shareholders pursuant to a lock-up agreement outside of the restructuring plan does not harm appealing creditors as they are “out-of-the-money” and lack standing to claim what is not theirs. In other words, if a higher-ranking class provided consideration to a lower-ranking class without affecting the fair treatment of intermediate (neutral) classes, the Absolute Priority Rule is not violated. This is the first judicial decision recognizing Gifting as an exception to the Absolute Priority Rule.
Takeaways
Takeaways
Valuation and Expert Reports
Accurate and reliable data, appropriate methods, and economic logic are crucial to avoid arbitrary decisions and baseless conclusions.
There is not a preference for a particular valuation method (although discounted cash flow seems to be favored) but it has to be reasonable and logic.
Valuation as a Group or at the Level of Each Company
The Court held that value distribution should be based on each company’s credit and value, not requiring identical treatment within the same class across different subsidiaries of Naviera’s group.
Parity in ranking applies only within each company.
Liquidation Valuation
The Court noted that liquidation usually results in a lower value.
It was also noted that a bulk sale of assets could saturate the market resulting in a lower price.
Gifting Doctrine
The Court recognized Gifting as an exception to the Absolute Priority Rule.
The delivery of stocks to former shareholders under a lock-up agreement did not harm appealing creditors, as they were “out-of-the-money.”
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