Various aspects of the previous legal framework have been reformed. Pre-insolvency (preconcurso) was completely reorganised in the second book of the law and new regulations for insolvency proceedings of micro-enterprises were created in the third book. The new legislation seeks to streamline insolvency proceedings in Spain and to implement the European Directive on Restructuring and Insolvency.
Purpose of the Reform
This reform has long been in the making, as the one-year extension requested by the Spanish government to transpose the EU directive expired in July this year.
The reform is intended to remedy the most significant weak spots of the previous legal framework. The four areas that have seen significant improvement are: pre-insolvency instruments, insolvency proceedings being initiated too late, excessive duration of proceedings and their customary ending in liquidation as well as under-utilisation of the proceedings for discharge of residual debt.
The first book has undergone the following essential changes:
- Abolition of the early proposal for an insolvency settlement and holding of the creditors’ meeting by written procedure. In addition, there is now the possibility of amending the intercreditor agreement and directors’ liability can be examined at this early stage.
- Abolition of plans for liquidation in their previous form.
- New rules on debts of the insolvency estate and lack of assets.
- New rules for insolvency proceedings without assets.
- Consolidation of case law from the Spanish Constitutional Court regarding business succession through sales of production units in insolvency proceedings, with respect to the subject-matter jurisdiction of the insolvency court.
- New regulation on the insolvency administrator’s role with regard to suitability, remuneration and term of office.
- Regulation of the insolvency “pre-pack”, i.e., sale of a production unit supervised by an independent expert.
- New regulation of residual debt discharge for natural persons. Simplification of the procedure without the need for asset liquidation. No discharge of residual debt for liabilities to the tax and social security authorities up to an amount of €10,000 each. Obligation of debtors registers to update their records when a debtor is discharged of residual debt.
New pre-insolvency proceedings: Restructuring plans
At the heart of the new pre-insolvency scheme are restructuring plans, described as “a measure at a stage prior to that of the current pre-insolvency instruments, without the stigma attached to bankruptcy, which increases the measure’s effectiveness”. The introduction of restructuring plans represents a radical change to the second book of the former insolvency law, as it departs from the latter’s refinancing arrangements and out-of-court payment arrangements.
The “restructuring practitioner” is also a new element in the insolvency panorama; there are certain cases in which the EU Directive provides for the appointment of such an expert. Another extremely interesting newcomer is the concept of insolvencia probable, where it is objectively foreseeable that, in the absence of a restructuring plan, the debtor will not be able to regularly meet its obligations due in the next two years.
When it comes to judicial approval of these plans, there is now an option for creditors representing more than 50% of the liabilities to request prior judicial confirmation of the classes of creditors, this new notion of “class of creditors” being an essential feature. If the plan is approved by all groups of creditors as well as by the debtor and its shareholders, proof of the creditors’ best interest is introduced as a new ground for objection. If no consensus is reached between all the parties involved, the law opts for the “absolute priority rule”, one of the options provided by the EU Directive, according to which no one can claim more than what is owed to them or less than what is due to them.
Special Procedure for Micro-Enterprises
A new third book has been added, dedicated to the Special Procedure for Micro-Enterprises, a unique insolvency instrument specifically tailored to the needs of the smallest companies and characterised by maximum procedural simplification. Micro-enterprises (microempresas) within the meaning of the insolvency reform are companies that employ fewer than ten employees and have an annual turnover of less than €700,000 or liabilities of less than €350,000. For these companies, the Special Procedure combines ongoing pre-bankruptcy and insolvency proceedings, so that they do not have access to restructuring plans.
Of particular importance are continuation plans, which are equivalent to intercreditor agreements, but where the rules of the game are changed and the principle of “silence gives consent” applies, so that “creditors who do not make use of their voting rights are considered to be in favour of the plan”, thus encouraging creditor participation in these procedures.
In the event of liquidation, the use of an online liquidation platform is envisaged, the development of which has been entrusted to the Ministry of Justice and which is to be completed within six months. Starting up the Special Procedure for Micro-Enterprises is closely linked to the implementation of this platform.
If the debtor microenterprise is a natural person, his/her right to legal aid for all formalities of the Special Procedure is expressly recognised. Commercial courts have subject-matter jurisdiction to conduct the Special Procedure even when a debtor is a natural person.
Use of information technologies
In addition to the already mentioned platform for special insolvency proceedings, the reform provides for the use of various other computerised services:
- An application for the automatic calculation of the payment plan, which will be accessible online and free of charge and will contain various simulations of a continuation plan.
- Before the Third Book enters into force, the official forms, which will be accessible free of charge and are intended for the Special Procedure for Micro-Enterprises, will have gone online.
- Creation of an advisory service for small and medium-sized enterprises in early-stage financial difficulties with the aim of preventing insolvency. This service would be provided only at companies’ request, it would be confidential and would not impose any obligations on the companies using it, nor would it entail any liability on the part of the service providers.
- Website for self-diagnosis of the business situation, enabling small and medium-sized enterprises to assess their solvency.
- Platform for liquidations in the Public Insolvency Register (Registro Público Concursal). Within a maximum of six months after the entry into force of the new law, a list of companies in insolvency liquidation, including all the information required for their sale, will become available online.
Transitional provisions and entry into force
With the exception of Book Three and the provisions on the deferral of tax debts, the new insolvency law will enter into force on 26 September 2022.
For insolvency proceedings filed prior to the entry into force of the reform, the provisions of the previous law shall apply. However, there will be exceptions, where the new law applies despite the filing date, namely the insolvency administration report, avoidance actions, proposed intercreditor agreements and applications for residual debt discharge, among others.