The number of insolvency cases in Spain is expected to increase from the current figure of 6,000 a year, to more than 15,000 as a result of COVID-19. Spanish law provides a series of procedures for those companies which cannot meet their payment commitments.

In general, it is a matter of adapting the deadline regulations contained in the Spanish bankruptcy law to the particular situation. The new provisions include:

  1.  Pre-insolvency. This consists of communicating to the appropriate commercial court that the company has entered into negotiations with its creditors. Once submitted, the debtor has 4 months to reach an agreement or, if it fails to do so, file insolvency proceedings.
  2. Out-of-court payment agreement. This instrument can be used by natural persons and legal entities with less than 50 creditors, liabilities not exceeding EUR 5 million, assets and rights with a value of less than EUR 5 million and with sufficient means to cover the expenses of the agreement itself. It is a quick and simplified procedure, which can be processed before a notary at a cost much lower than that of the insolvency proceedings.
  3. Insolvency proceedings. The case itself is filed before a judge specialised in commercial matters who then appoints an insolvency administrator. The administrator must issue a report on the financial situation of the company, an inventory of assets and a list of creditors and also limits the powers of the company directors (administradores). Afterwards, a creditor’s meeting is called to try to reach an agreement. If no agreement is reached, the company is liquidated. This is a costly procedure with an estimated average processing time of 5 years.A variant of this is the “express” insolvency proceedings in Spain, which is available for companies which do not have assets of sufficient value to afford the expenses of the insolvency proceedings (fees, insolvency administrator, etc.). In this case, the judge opens and concludes the insolvency proceedings without appointing an administrator, explain the Ecovis experts (Member of Insol Europe and Bankrupcy Commission-UIA).

For the company directors to avoid incurring personal liability, they must initiate the above-mentioned procedures within 2 months of the date on which the situation of insolvency is confirmed. However, as a consequence of COVID-19, the obligation to file for insolvency has been suspended until 31 December 2020.

For further information please contact:

Fernando von Carstenn-Lichterfelde, Partner, ECOVIS Legal Spain, Madrid, Spain