Spanish Insolvency Law
Unfortunately, nowadays, economic global crisis pushes many companies and also individuals into insolvency. Because of that, situations where the Spanish Insolvency Law – called in Spanish Ley Concursal (hereinafter, “LC”) – is involved have boosted Insolvency as one of the most important practice areas for many Spanish law firms. Here are some key points regarding Insolvency in Spain.
At the beginning, it´s important to explain that LC rules insolvency situations for companies, but also for individuals. Both of them could go into Bankruptcy.
The declaration of insolvency could be requested by the debtor or even by the creditors.
Through Bankruptcy proceeding, LC seeks to reach many goals, but the most important one is the creditors’ protection, by an institution called par condition creditorum. It means that same ranked credits will be equally protected, no matter which creditor claimed it before; the kind of credit they hold is the only thing that matters.
There are two kinds of credits:
First, there are the credits generated during the arrangement with the creditors.
The other kind is the proper credits owed by the debtor to the creditors and that are going to be claimed. Those credits shall also be classified as:
- Special privileged credits: credits are protected by a concrete asset.
- General privileged credits: credits have a higher protection than Ordinary Credits, but they are not protected by a concrete asset.
- Ordinary credits.
- Subordinated credits: Those credits are the less protected ones. It happens very often that there is no asset left to pay them.
Another goal of the LC is to help companies continue their activities by debt restructuration. For this goal, debtor and creditors can arrange some acquittances (it can´t be more than 50% for common credits) and delays (it can´t be longer than 5 years). Even with those legal limits, in some special cases the LC allows debtors and creditors to arrange higher acquittances and longer delay periods.
One of the most important elements during the insolvency proceedings is the appointment by the Court of a Trustee in Bankruptcy who is going to administrate the debtor to ensure the creditors´ interests.
During this proceeding, there are several steps. Those steps are:
- Filing of the declaration of insolvency. As it has already been explained, debtors as well as creditors can request it.
- During the second step, the Court appoints the Trustee in Bankruptcy
- During the third and the fourth steps, Trustee in Bankruptcy must list the assets and the liabilities of the company or the individual
- Fifth step foresees two possibilities.
If debtor and creditors reach an arrangement, that phase will continue until the arrangement is completely achieved. It will be the composition phase. If they don´t reach any arrangement, the company will wind up, and creditors will be paid with the company´s assets in credits rank order. For individuals, it is not possible.
In this case, the amount they owe will rest and, according to the article 1911 of our Civil Code, debt will be paid with the debtor´s properties at that moment and also the future ones.
- Last step is about qualification of creditor´s liability of insolvency