the health crisis caused by coronavirus has caused many companies to be going through serious economic difficulties,and although different support measures have been established such as cessation of activity, the moratorium on the payment of rents and mortgages or ICO credits among others, in some cases these measures may not be sufficient.
In view of this situation, a solution appears for companies: the Second Chance Act. A law that was passed in 2015, but is unknown to many companies.
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What is the Second Chance Act?
Regulated by Royal Decree Law 1/2015, the Second Chance Act allows to overcome a bad economic situation without neglectingthe collection rights of creditors, through a renegotiation or exemption from debts.
The Second Chance Act serves a dual function: social and collection effectiveness.
Its main objective is to alleviate the poor economic situation of an individual, self-employedperson or company that cannot afford its debts, and to save the collection of creditors as much as possible.
That said, experts say that taking advantage of the Second Chance Act is only valid when there is no alternativeleft, being a useful tool to prevent a social catastrophe. But the problem is that this law requires multiple long and complicated processes,which are usually not solved before two years.
So the Coronavirus Times Second Chance Act can be a long-term solution, butit will in no case alleviate a company’s poor situation immediately.
In addition, everything suggests that the coronavirus will trigger applicationsto qualify for this Second Chance Act, which could further delay it, taking into account that more than 2,000 applications were received in 2019 alone.
How does the Second Chance Act work?
The first objective of the Second Chance Act is to reach an out-of-courtsettlement of payments for debt payments. To do this, new repayment conditions must be negotiated with creditors, always taking into account their basic needs.
If an agreement has not been reached after negotiation, the judicial procedure will have to be taken to try to cancel or exempt the debt.
> Main benefits of the Second Chance Act:
- Possibility to start from scratch.
- Request new funding.
- Disappear from the delinquent lists.
- Being able to use credit cards.
The Second Chance Act is based on two main instruments: out-of-court settlements and debt relief.
> Out-of-court settlements
It consists of a meeting with creditors to try to renegotiatethe debt repayment terms, which will be protected by a judge, being able to use the figure of a insolvency mediator trying to reach an agreement between both parties.
A plan and a timetable of payments by the debtor will have to becreated, and as established by the Royal Decree, the negotiation process may not exceed two months.
> Debt waiver
If an out-of-court settlement has not been reached, it would seek to obtain the exemption of 100% of the debts,which would be the judge’s decision. In this case, creditors could request the revocation of the BEPI if any of the following occurred:
- Non-compliance with the payment plan.
- Existence of income or hidden goods.
- Improvement of the debtor’s economy.
Requirements companies must meet in order to qualify for the Second Chance Act
Far from being a tool aimed at getting rid of payments, the Second Chance Act is a relief mechanism for companies that have proven to be good payers, but are in a bad economic situation at a certain time, for different reasons.
It therefore takes into account the credit history of the insolvent debtor,who must meet a number of requirements in order to qualify for this law:
- Not to be immersed in a guilty contest, nor to have been previously convicted of economic or social crimes.
- Act in good faith, trying to carry out an out-of-court solution that has not thwarted the possibilities of payment.
- Not having gone to the payment waiver benefit in the last ten years.
- To have fulfilled all the credits against the mass and privileged.
- Have paid 25% of the regular credits, or show that they were attempted to pay.
- The debt may not exceed EUR 5 million.
The Second Chance Act could be an outlet for many companies that are going through a very poor economic situation due to the coronavirus health crisis. It is a tedious, long and complicated process, but it can serve to “see the light at the end of the tunnel”.