The judge in charge of the Martinsa-Fadesa insolvency proceedings has accepted the company’s request to go into voluntary administration. This move protects the company from its creditors, and allows it to continue trading until a restructuring plan is agreed by the court-appointed administrators, which could take months.

The request was accepted because of Martinsa-Fadesa’s “state of imminent insolvency”, brought about by a collapse in sales this year.

This process of voluntary administration, known as a ‘concurso voluntario de acreedores’ in Spain, is similar to Chapter 11 in the US. Martinsa-Fadesa’s management will continue to run the business, though all significant decisions, and expenditure above a certain limit, will have to be approved by the administrators. Two administrators have already been appointed: the lawyer Antonia Magdaleno Carmona, and Bankinter, a Spanish bank.

Voluntary administration can turn out to be bitter medicine for some creditors. The process allows companies in administration, such as Martinsa-Fadesa, to discount some debts by 50%, and delay payment of others by up to 5 years. A judge decides which creditors lose out.

Now that Martinsa-Fadesa is officially in administration, creditors can start preparing to line up with their claims. Home buyers who have paid money to Martinsa-Fadesa, but have no property to show for it will become ordinary creditors if they do not have a bank guarantee. Creditors will have a month from the beginning of September to register their claims with the administrators.

Martinsa-Fadesa has debts of 5.2 billion Euros, but assets valued at 10.8 billion Euros. However, 6.6 billion Euros of the company’s assets is made up of land, and 3.2 billion Euros of projects under construction. Given the state of the market, the value of these assets is falling by the day, whilst the debt is fixed, in nominal terms at least.