the new text of the Bankruptcy Law (approved in Royal Legislative Decree 1/2020, 5 May) will enter into force on 1 September 2020, adapting the Spanish standard to the European Directive in aspects such as the frameworks for restructuring, debt waiver and disqualifications,as well as other measures to increase the efficiency of restructuring, insolvency,… Etc.
It will also enable regulatory reforms to be activated to alleviate the economic effects on companies arising from the Coronavirus COVID-19,which will mean that Bankruptcy Law 22/2003 of 9 July will be repealed almost entirely.
New consolidated text of the Bankruptcy Law
On 7 May 2020, Royal Legislative Decree 1/2020 of 5 May approved in the BOE approving the consolidated text of the Bankruptcy Law (TRLC). This Law enters into force from 1 September 2020 and, among other rules, will repeal the current Bankruptcy Law 22/2003 of 9 July, and some – but not all – of its additional and final provisions.
Until its regulatory development is carried out, the amendments that the TRLC makes to Articles 27 (subjective conditions for the appointment of insolvency administrators), 34 (remuneration of the insolvency administration) and 198 LCs (Public Bankruptcy Register), which shall remain in force in its wording prior to Law 17/2014 shall not enter into force, 30 September, which takes urgent action on refinancing and corporate restructuring. Similarly, Articles 91 to 93 of the consolidated text of the Bankruptcy Law, relating to the tariff guarantee account, shall not enter into force until their regulatory development is approved.
The consolidated text of the Bankruptcy Act (FTA) does not mean the repeal of urgent insolvency measures which have been approved in the context of the COVID-19 crisis, such as Royal Decree-Law 16/2020 of 28 April, of procedural and organisational measures to deal with COVID-19 in the field of the Administration of Justice, so that both rules will temporarily coexist.
It should be recalled that according to RDL 16/2020 until 31 December 2020, the insolvent debtor is not obligedto enter into a creditor tender, even if he is in insolvency. Nor will judges accept the necessary competition claims. As regards pre-insolvency files, it turns out that if the debtor communicates one of those files (extrajudicial payment agreement or advance agreement) before 30 September 2020, he must abide by the general insolvency regime. If, on the other hand, you submit pre-insolvency files after 30 September this year, you may abide by the insolvency facilities of the transitional regime.
In the absence of an obligation to submit competition until the end of the year, insolvency companies can wait to file a pre-insolvency file and will have 4 more months until they have the obligation to apply for the voluntary competition. As we can see, this temporary regulation is essential to successfully lead company restructurings, since even if the trading company is insolvent today, we still have a lot of room for manoeuvre until April next year. Throughout this period a restructuring can be attempted so that perhaps in April 2021 the company is no longer in insolvency and therefore no longer necessary or even to submit competition.
What’s new in the new Bankruptcy Law
Among other novelties of the new Bankruptcy Law we can highlight the following:
1. CONTEST STATEMENT
- The current criterion for the consolidation of inventories and lists of creditors in jointly declared or accumulated tenders is amended where there is confusion of assets for the sole purpose of drawing up the insolvency administration’s report, replacing it with the court’s power to exceptionally agree to the mass consolidation of those contests.
- If the declaration of competition is upheld by way of appeal, the date of declaration shall be that of the appealed decision.
2. THE COMPETITION BODIES
- The jurisdiction of the competition judge to hear actions of liability against administrators or liquidators is extended, where they are directed against the natural person representing the legal entity administrator and the person who has higher management powers where there is no permanent delegation of powers.
- The power of the Commercial Judge is introduced for the joint declaration or accumulation of competitions of a natural non-entrepreneur, natural person of business or legal person.
- It is clarified that the jurisdictional rule for the learning of new declaratory judgments applies from the declaration of competition to the effectiveness of the Agreement or, if no convention had been approved or the approved one had been breached, until the conclusion of the proceedings.
- It details the regime of responsibility and accountability of the insolvency administration.
3. EFFECTS OF THE CONTEST STATEMENT
- It is established that the payment made to the insolvency party shall release the debtor (without the need for validatement by the insolvency administration) if, at the time of making the benefit, the debtor was unans without the declaration of competition, showing such knowledge since the publication of the declaration of competition in the BOE.
- The penalty of invalidity is incorporated into actions that contravene the suspension of actions and enforcement proceedings against the assets of the active mass.
- It is clarified that it is for the competition judge to declare the unsused nature of a good or right in order to continue (i) job executions in which the embargo prededs to the declaration of competition and (ii) administrative executions whose diligence of embargo was also prior to the declaration of competition.
- It is clarified that the money obtained with the singular execution of uns necessary goods or rights will be used to pay the appropriation relating to the execution, integrating the surplus into the active mass (except in the case of third-party best right for the existence of preferred insolvency credits, in which case what has been obtained from the execution will be made available to the competition).
- It is clarified that the communication to the insolvency administration of the credit subject to compensation shall not prevent such compensation from being carried out, if it complies with the legal requirements.
- Compensation a consequence a consequence of the same legal relationship (improper compensation or liquidation) is established to fall outside the statutory prohibition of compensation.
- The exercise of the right to resolve the contract is allowed in the interest of the contest against any contract with reciprocal obligations.
- The insolvency administration is allowed to rehabilitate all financing contracts, always limited to cases of early maturity for non-payment of depreciation fees or accrued interest produced within three months preceding the contest statement.
4. ACTIVE AND PASSIVE MASS OF THE CONTEST
- It includes the concept of productive unit, which is defined as the set of means organized for the exercise of an essential or andyria economic activity.
- In the sale of a production unit, the competence to declare the existence of succession of an undertaking and to determine its effects on unpaid appropriations falls exclusively to the competition judge. As regards labour and social security claims, the succession of a company to workers in the production unit in whose contracts the acquirer is subrogated is limited.
- Once the liquidation is opened, the tax authorities cannot issue a hurry to make their claims against the mass effective until the effects of the contest statement are lifted, having to urge such payment before the contest judge via insolvency proceedings.
- In the event of a conclusion of competition for insufficient mass, the prelation rule operates where the insolvency administration communicates such a circumstance, affecting claims due before communication and which may expire after the communication. It is established that settlements linked to crime shall be collected as contingent appropriations until a final judgment is made on them.
5. BANKRUPTCY ADMINISTRATION REPORT
- The cases in which the final list of creditors can be amended can be extended, and may be amended in cases where actions are deemed to be brought against decisions of the competition judge in incidents of challenge to the list of creditors and where decisions resulting in the existence, modification of the amount or class of credit or termination of insolvency proceedings are made.
6. CONVENTION PHASE
- When approving the agreement, it is established that the judge may not modify its content except to correct material or calculation errors, or to correctly interpret any of its clauses. In addition, the judgment shall include the full text of the approved Convention.
- It is specified that the content of the agreement shall bind the debtor and ordinary creditors whose claims preded to the competition, even if they had not acceded to or voted in favour of the proposed Convention.
- Special privileged creditors who have been affected by the Convention may initiate or resume separate executions once the declaration of non-compliance has been finally reached.
7. LIQUIDATION PHASE
- The preparation of the settlement plan shall take into account not only the interest of the competition, but also the best satisfaction of creditors.
- It is available that the settlement plan approval order shall contain the full text of the approved settlement plan.
- The insolvency administration is empowered to request the judge at any time to amend the approved settlement plan if it des fit for the interest of the contest and the fastest satisfaction of creditors.
8. CONTEST QUALIFICATION SECTION
- The insolvency administration and the Public Prosecutor’s Office are exclusively given the power to propose the classification of the competition, so that creditors and other interested parties may only claim in writing what they consider relevant so that they can base the classification as guilty.
- It is clarified that the insolvency administration’s report and the opinion of the Public Prosecutor’s Office proposing the guilty rating will have the structure of a claim.
- In the qualification judgment resulting from a plurality of convicts, the court may establish the solidarity character or not between them.
- It is established that the sentence of disqualification may only reach natural persons.
9. CONCLUSION OF THE CONTEST
- In its accountability report, the insolvency administration will also express the remuneration that would have been set for each stage of the competition and the amounts finally received by it, its workers, delegated assistants, appraisal experts and specialized entities, and will detail the hours spent on the competition by all these persons.
- The finding, in the final list of creditors, of the existence of a single creditor is added as the cause of conclusion of the competition.
10. PROCEDURAL NEWS
- The consideration of parties to the insolvency incident is limited only to those against which the claim is directed.
- It is specified that the mediation procedures in process at the date of the contest declaration will continue until the end of the mediation.
- After the period of two months which confers subsidiary legitimacy on creditors to bring reintegration actions, if the creditors have already exercised it, the claims subsequently brought by the insolvency administration on the same subject matter shall be accumulated ex officio to them.
- It is clarified that the appeal is the challenge route for the one who has not challenged in a timely and form the inventory or list of creditors against changes introduced by the judge by resolving other challenges.
- It is established that the judge may accumulate of its own motion all or several of the challenges to the inventory or list of creditors.
- Actions by workers or the Wage Guarantee Fund against the order deciding on collective labour issues, as well as those of workers who have the status of senior management personnel against the insolvency administration’s decision to extinguish or suspend their contracts, shall be finally indicated by the insolvency incident in labour matters in labour matters.
11. COMMUNICATION OF NEGOTIATIONS
- The communication of negotiations will not in itself result in the early maturity of deferred appropriations.
12. DISCLAIMER OF DISSATISFIED LIABILITIES
- It is expressly stated that the exemption from dissatisfied liabilities does not extend to public law claims (or food derivatives).
- The debtor is empowered to be able to withdraw from the application for exemption from dissatisfied liabilities under the general scheme and to opt for exemption through the judicial approval of a payment plan, once the Lawyer of the Administration of Justice has given him transfer of the deeds of the insolvency administration and the creditors persons.
- It is allowed to grant the definitive exemption from the dissatisfied liability to the debtor who, having not complied with the payment plan, had devoted at least half of his (non-unembagueable) income to his/her income during the 5 years following the provisional grant of the benefit, or 25% of those income under certain circumstances in view of his special vulnerability.
13. REFINANCING AGREEMENTS
- Unique refinancing agreements must respond to a feasibility plan that allows the debtor’s professional or business continuity in the short to medium term.
- For the calculation of most financial liabilities, creditors with real collateral identify with specially privileged creditors.
- It is established that the jurisdiction for the approval of a group or subgroup refinancing agreement rests with the court which has jurisdiction over the declaration of competition of the dominant company, or, if the parent company has not signed the agreement, that of the group company with the largest financial liability participating in the agreement.
- In the event of a refinancing agreement with credit capitalisation, creditors are expected to have one month from the effectiveness of the type-approval in order to opt for the conversion of their credit into equity or the corresponding de-approval.
- The transfer of goods or rights to creditors for payment of their claims is envisaged as possible content of the approved refinancing agreement.
- The application for approval in respect of the same debtor is prohibited until one year later, regardless of who requested the previous one.
- Criteria are introduced to determine the existence of disproportionate sacrifice, supported by judicial practice. In order to determine the existence of disproportionate sacrifice, the judge must take into account all concurrent circumstances. In any event, disproportionate sacrifice shall mean a disproportionate sacrifice which is different for equal or similar creditors, as well as whether the creditor who does not enjoy a security in the real term could obtain a greater share of satisfaction in the liquidation of the active mass than that provided for in the refinancing agreement.
- The estimation of the challenge to a refinancing agreement on the disproportionate nature of the sacrifice required of one or more of the creditors shall not prevent the approval of the agreement in respect of the other creditors.
- The final order for approval of the refinancing agreement provides that the court shall cancel of its own motion the embargoes decreed in the executions of appropriations affected by the type-approval and may also complete the singular executions which have been halted.
- The system of non-compliance with approved refinancing agreements and their effects extends to refinancing agreements not subject to approval.
- The declaration of non-compliance with the refinancing agreement is expected to result in the resolution of the refinancing agreement and the disappearance of the effects on the appropriations.
14. EXTRAJUDICIAL PAYMENT AGREEMENT
- Upon appointment of the mediator, the debtor with outstanding tax or social security debts must request his deferment or split if he considers that he cannot satisfy them, the processing of which will be governed by his specific regulations.
- The scope of the computable liability for adopting the agreement is expressly clarified, so that only the un guaranteed liability (i.e. claims without a security in real collateral, as well as the portion of the secured claims exceeding the value of the guarantee) and the security credits that would have accepted the proposed agreement must be calculated.
15. CONSECUTIVE CONTEST
- The consecutive contest is conceived not only as the one following an out-of-court payment agreement, but also as the procedure that can follow a refinancing agreement, establishing common rules and rules specific to each case.
- It is expressly clarified that the jurisdiction to hear the consecutive competition lies with the judge who had approved the refinancing agreement and, in the case of the out-of-court settlement of payments, in the court which declared it void, ineffective or breached.
- Among the common rules of the consecutive competition, it highlights the irrescindibility of approved refinancing agreements and out-of-court payment agreements that qualify for legal purposes, although it expressly extends that irrescindable nature to acts, businesses and payments made in the execution of such agreements.