14 March 2021 wasthe deadline for the last extension of the insolvency moratorium, through which those undertakings which were insolated because of COVID-19 were not required to enter competition. Otherwise, companies would have had two months to apply for the competition since the company’s administrators had detected the insolvency situation, aslaid down in the time limits of insolvency law.

However, given the situation generated by the coronavirus, the Council of Ministers approved an extension extending the insolvency moratorium until 31 December 2021,which means that the deadline for applying for the competition is extended by nine months.

This insolvency moratorium belongs to the extraordinary measures to support business solvency because of COVID-19 established in Royal Decree-Law 5/2021 of 12 March, which entered into force on 13 March.

More time to balance companies’ balance sheets, the goal of the insolvency moratorium

The objective of extending the time limit for submitting creditor competition is nothing more than to allow companies to rebalance their balance sheets,in order to avoid the application for unnecessary competitions that can be avoided, since many of these competitions would be driven by specific imbalances.

With this new extension, those viable companies under normal market conditions, which are going through economic difficulties due to the pandemic, will have a legal instrument that will allow them to maintain their activity and the employment of their workers.

Specifically, the moratoriums relating to the exemption from the debtor’s duty to apply for the declaration of competition and the non-admission to the processing of applications for competition submitted by creditors are extended. It also extends the time limit for renegotiating refinancing and out-of-court payment agreements, which are pre-contest instruments, as well as insolvency agreements.

Procedural measures to speed up processes, as well as preferential processing and promotion of out-of-court auction, are also extended until 31 December 2021.

Amendment of Law 3/2020 to Combat the COVID-19 Crisis

In addition, the seventh final provision provides for an amendment to Law 3/2020of 18 September on procedural and organisational measures to combat the COVID-19 crisis in the field of the Administration of Justice:

  • Amendment to Article 3 concerning the insolvency agreement:

“Until31 December 2021 inclusive, the contestant may submit a proposal to amend the Convention which is in compliance”.

  • Amendment of Article 4(1):

Until 31 December 2021 inclusive, the debtor shall not have the duty to request the liquidation of the working mass when he knows the impossibility of complying with the committed payments or the obligations incurred after the approval of the insolvency agreement, provided that the debtor submits a proposal to amend the Agreement and the contract is admitted for processing within that period”.

  • Amendment to Article 5 on refinancing agreements:

Until 31 December 2021 inclusive, a debtor who had a refinancing agreement approved may amend the agreement in force or reach a new agreement, even if one year of the previous type-approval has not elapsed in accordance with the provisions of Article 617 of the Royal Legislative Decree 1/2020 of 5 May, approving the consolidated text of the Bankruptcy LawL“.

  • Amendment of paragraphs 1 and 2 of Article 6.
  • A new Article 8a on incidents of reintegration of the active mass is added:

“Until31 December 2021, incidents to resolve claims for reintegration of the active mass will not require a hearing unless the contest judge decides otherwise.”

  • Amendment to Article 9 concerning the preferential processing of certain procedures.
  • Amendment of Article 10 concerning the disposal of the active mass.
  • Amendment to Article 12 concerning the speeding up of the processing of the out-of-court settlement of payments, consecutive tender and benefits for exemption from dissatisfied liabilities.

Finally, there is also a slight amendment of the Consolidated Text of the Bankruptcy Law (TRLC), which changes paragraph 2(J) of the single repeal provision of Royal Legislative Decree 1/2020 of 5 May, which approves the consolidated text of insolvency law, being worded as follows:

‘j) Article 21; Article 31; transitional provision of Law 14/2013 of 27September on support for entrepreneurs and their internationalization.’

In short, companies that have detected an insolvency situation will have until 31 December 2021 – including – to apply for a declaration of creditors’ tender, with nine more months trying to rebalance their balance sheets and avoid an unnecessary contest.

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