Solutions in Case of Insolvency: Protect Assets and Minimize Losses
Sabemos que enfrentarse a una situación de insolvencia puede ser uno de los momentos más difíciles para una empresa y sus administradores. En Nextica Law & Tax, te asesoramos para explorar todas las opciones disponibles: desde reestructuraciones y acuerdos extrajudiciales de pagos hasta procedimientos concursales, con el objetivo de proteger los activos, minimizar las pérdidas y ayudarte a navegar este proceso de la manera más eficiente y con el menor impacto posible en tu negocio.
TYPES OF BANKRUPTCY PROCEEDINGS
| Procedure | Who is requesting it | When | Main effect |
|---|---|---|---|
| Voluntary contest | The debtor himself | When the debtor identifies their current or imminent insolvency | The debtor maintains the administration under the intervention of the bankruptcy administrator |
| Necessary contest | A creditor | When the debtor has not filed for bankruptcy on time | The debtor loses management and is replaced by the insolvency administrator. |
| Massless contest (express) | The debtor | When there are not enough assets to cover the costs of the contest | Dissolution of the company in the same order of declaration of the bankruptcy |
| Preliminary contest (art. 583 TRLC) | The debtor | Before presenting the contest, while negotiating with creditors | 3 months protection against individual executions (extendable to 6) |
Voluntary contest
Necessary contest
Massless contest (express)
Preliminary contest (art. 583 TRLC)
PRIOR ALTERNATIVES TO THE COMPETITION WE ANALYZE AT NEXTICA
Approved refinancing
agreement with the main financial creditors that may extend to non-signatories if certain majorities are met.
Out-of-court payment agreement (AEP)
pre-insolvency mechanism for individuals and SMEs with debt below 5 million euros. Supervised by an insolvency mediator.
Notification of pre-concursus (art. 583 TRLC)
temporary protection against executions during negotiations with creditors. Without registration publicity under certain conditions.
Sale of the productive unit
in certain cases, selling the ongoing business (with employees, contracts, and assets) may be the best option to preserve value and jobs.
En detalle
THE TRLC — THE RULE THAT REGULATES EVERYTHING
The Consolidated Text of the Insolvency Law (Royal Legislative Decree 1/2020, known as TRLC) is the regulation that governs the insolvency procedure in Spain. Its main provisions regarding the obligations of the debtor: → Art. 2 TRLC: defines the objective requirement of the insolvency — the current or imminent insolvency of the debtor. → Art. 5 TRLC: establishes the debtor's duty to file for insolvency within two months from the time they know or should know their state of insolvency. → Art. 583 TRLC: regulates the pre-insolvency communication, which allows the debtor to obtain a temporary protection of three months while negotiating with creditors.
THE PHASES OF THE BANKRUPTCY PROCESS
1. Request: presentation before the Commercial Court of the debtor's domicile. Mandatory documentation: economic-legal report, inventory of active assets, list of creditors, financial statements for the last three years. 2. Declaration of bankruptcy: the court issues the declaration order and appoints the bankruptcy administrator. 3. Common phase: the bankruptcy administrator prepares the report with the active and passive assets, classifies the credits and determines the final list of creditors. 4. Resolution phase: agreement with the creditors (may allow the company to continue with reductions and delays) or orderly liquidation of the assets. 5. Qualification: the court determines whether the bankruptcy is accidental (without personal consequences) or culpable, which may imply the disqualification of the administrator and their personal responsibility for the unpaid debts.
(introduction)
Not submitting the contest when it is mandatory does not avert the crisis: it worsens it. And it exposes the administrator to personal liability with their own assets.
Frequently asked questions
When is it mandatory to file for bankruptcy?
The bankruptcy is mandatory when the company is in a state of current insolvency: inability to regularly meet its enforceable obligations (art. 2.2 TRLC). The deadline to file it is two months from when the debtor knows or should know their state of insolvency (art. 5.1 TRLC). Imminent insolvency (when the debtor anticipates that they will not be able to meet their obligations regularly in the near future) does not obligate the filing of bankruptcy, but does empower them to do so voluntarily.
What are the consequences of not filing the competition on time?
The administrator of the company who does not file for bankruptcy within the legal deadline may be condemned to respond jointly with their personal assets for the company's debts incurred from the moment they should have filed for bankruptcy (art. 367 of the Capital Companies Act, in relation to art. 5.1 TRLC). In addition, the delay is an indication of culpable bankruptcy, which may lead to disqualification from managing companies.
Can the company continue operating during the competition?
In the voluntary insolvency, the debtor retains the powers of administration and disposition of their assets, although subject to the intervention of the insolvency administrator (who must authorize operations that exceed ordinary management). The continuity of the business activity during the insolvency is not only possible but preferable, as it preserves the value of the assets and increases the chances of reaching an agreement with the creditors.
What is the massless contest and when is it applied?
The contest without assets (also known as expedited contest) occurs when the judge perceives, in the own order declaring the contest, that the active assets of the company are insufficient to satisfy the claims against the assets (court costs, fees of the bankruptcy administrator, pending salaries). In that case, the contest is opened and concluded in the same act, with the dissolution of the company.
What is pre-bankruptcy and what is it for?
The pre-insolvency communication (art. 583 TRLC) is the communication to the court that the debtor has initiated negotiations with their creditors to reach a refinancing agreement or an out-of-court payment agreement, or that they have begun obtaining approvals for a preliminary proposal for a settlement. It results in a suspension of individual executions for three months (extendable to six if there are advances in the negotiations), allowing time to negotiate without executive pressure.
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