There are mechanisms to defend the interests of a company when it is going through a complicated period and this is applicable to individuals or legal entities under commercial law, namely insolvency proceedings (concurso de crededores). Today we break down this term and tell you how you can deal with it and what stages you have to go through during the process.
What is an insolvency proceeding?
Insolvency proceedings are an essential legal tool for preserving the business fabric when a company’s situation is at the limit. It has become popular to falsely claim that the declaration of insolvency means the death of the company. Although it is true that insolvency proceedings can lead to liquidation, in reality their main function is to act as a protective shield to avoid this, offering the possibility of reorganising the company through an agreement in order to increase its viability.
When can insolvency proceedings be filed?
Insolvency proceedings are filed when a company is in a situation of present or imminent insolvency. In this sense, the law requires the declaration of insolvency proceedings at the very moment when the company is unable to meet its obligations on a regular basis.
Who can file for insolvency proceedings?
The law determines that the insolvency proceedings may be requested by the debtor, the creditors and the mediator in the event that an out-of-court payment agreement is not reached or there is non-compliance with the agreement.
Types of insolvency proceedings
Although voluntary and necessary insolvency proceedings are the most common, there are also other types depending on how they end, the recurring liability and the steps taken:
According to who initiates them.
This type of insolvency proceedings are the best known and by which insolvency proceedings in Spain have traditionally been divided. They are traditionally known as voluntary insolvency proceedings or necessary insolvency proceedings.
Voluntary
This is the one in which the debtor decides to initiate the insolvency proceedings because he is aware of the situation and intends to pre-empt possible legal action by his creditors. In voluntary insolvency proceedings, the debtor admits that he is unable to meet his payments.
Necessary
As its name suggests, this is the forced insolvency proceedings in which creditors demonstrate the debtor’s inability to make payments. In this type, creditors must prove their status and that the debts exist.
According to how they are terminated
Depending on the outcome of the insolvency proceedings, a distinction can be made between arrangement and liquidation.
In agreement
When the insolvency judge approves the legal agreement between the insolvent party and the creditors to satisfy the creditors by means of reductions, waivers, waivers and other clauses, we speak of a composition.
In liquidation
The insolvency proceedings end in liquidation when it has not been possible to reach an agreement. This occurs when there is no agreement with the creditors or it has not been possible to comply with it. This is the most common outcome in an insolvency situation.
According to concurrent liability
In the insolvency proceedings, the debtor’s liability to creditors is assessed, and this may be considered fortuitous or, on the contrary, the debtor may be considered to be at fault.
Incidental
Faced with a critical situation, the company may take risky decisions that put creditors’ collection rights at risk. In general, the company will always strive to stay afloat and make the best possible decisions with the resources available, and the liability to enter into insolvency proceedings is fortuitous.
Liable
Sometimes there are more serious situations than the legislation contemplates. This occurs when it is proven that the impossibility of meeting payments and putting creditors’ collection rights at excessive risk has occurred due to negligence or intentionality on the part of the debtor.
Depending on the steps taken
Depending on the formalities carried out, we can speak of proper insolvency proceedings and improper insolvency proceedings:
Own
These are all insolvency proceedings that follow the procedures established by the Insolvency Act. In reality, this categorisation exists only to differentiate it from the insolvency proceedings of improper creditors.
Improper
The insolvency proceedings are considered improper insolvency proceedings when the insolvency process is not fully identified with the insolvency proceedings:
- Second chance: The insolvency proceedings are aimed at individuals.
- Pre-insolvency: This is a negotiation phase prior to the declaration of insolvency proceedings.
- Express insolvency: This is an abbreviated insolvency procedure that is processed much more quickly and occurs when the debtor is unable to meet the costs of the entire process.
Terms for filing for insolvency proceedings
The law dictates that the deadline for communicating the state of insolvency to the Court must not exceed 2 months from the moment of becoming aware of such a situation. If this requirement is not communicated, the debtor may incur liabilities.
Phases of the insolvency proceedings
Prior acts
This refers to the application for insolvency proceedings and the presentation of all the initial documentation in order to take the first steps.
Common phase
This begins with the declaration of the insolvency proceedings and the appointment of an insolvency administrator, who is responsible for verifying the debtor’s assets and liabilities.
Agreement phase
This begins when the debtor and the creditors present their proposals for an agreement with the intention of resolving the situation.
Winding-up phase
It can occur at any time, when the debtor decides to liquidate the company’s assets in order to assume the outstanding debt.
Qualification phase
This phase assesses the insolvent party and determines by a judge whether there has been liability on the part of the company or the debtor.
The insolvency administration
The insolvency administration is the entity in charge of intervening in a company when it is in a debtor situation.
What is the job of the insolvency administrator?
This figure is in charge of accounting for all the company’s assets (assets) and liabilities (debts) that the debtor has within the framework of the insolvency proceedings.
How is the appointment of an insolvency administrator carried out?
The appointment of an insolvency administrator is carried out by drawing lots among all the insolvency administrators appearing on the official list. If he/she does not accept the position, he/she will pass to the second on the list.
How much is the insolvency administrator paid?
The regulations establish that an insolvency administrator is paid 0.3% of a debt when the debt is less than €500,000 in the first phase of the insolvency proceedings. In the second phase, the administrator is paid 10%.
Other frequently asked questions
How long does an insolvency proceeding last?
The duration of an insolvency proceeding cannot be specified, it is very variable due to the number of ways in which an insolvency proceeding can be conducted.
Who gets paid first in an insolvency proceeding?
Firstly, the debts generated by the insolvency process itself must be settled; these are called credits against the mass and are the first to be settled. Subsequently, the privileged credits (against the Treasury and Social Security, labour and secured) are settled. Afterwards, the rest of the claims, the subordinated claims, are paid.
As for the debtors, the most recent debtor is the first to be paid.
What happens to the employees of the company in insolvency proceedings?
If there is business activity during the insolvency proceedings, the employment relationship continues, so the workers must continue to work and the company must pay wages.
Who pays the debts of a company’s employees?
Being in the middle of insolvency proceedings does not exempt the company from paying its workers. However, it often happens that the company is unable to meet the outstanding payments. Faced with this, the company can apply for a Wage Guarantee Fund (FOGASA) to settle the debts.
How much does it cost to file for insolvency proceedings?
It is very complex to calculate the costs of an insolvency proceeding. Everything will depend on the situation of each company in insolvency proceedings. As we have seen, this process can be conducted in many ways and in each of them the appropriate costs will have to be assumed.
Summary
If your company is in an extreme situation and you wish to initiate insolvency proceedings, please contact us so that we can study your case and offer you a proposal that guarantees the most favourable situation for you. Having an expert lawyer simplifies the procedures and management of an insolvency procedure, as well as providing you with a professional who will ensure that you obtain a successful outcome.
