COVID-19: what’s next for insolvency in Spain?

The declaration of the state of emergency because of the COVID-19 crisis will significantly increase the number of applications for insolvency in Spain.

Measures proposed by the General Council of the Judiciary (Consejo General del Poder Judicial) (GCJ) are designed to streamline insolvency proceedings in order to facilitate the continuity of the business activity of insolvent companies or, at least, to enable them to obtain the maximum performance from the sale of their assets. 

In this context, the GCJ measures appear to be based on two principles: 

1. giving priority to insolvency matters over other kinds of judicial proceedings heard by commercial courts; and 
2. focusing efforts on avoiding the liquidation of companies in favor of refinancing agreements.

Note that the enforcement of the proposed measures may postpone the enactment of the Consolidated Text of the Insolvency Act (Texto Refundido de la Ley Concursal) and the implementation of Directive 2019/1023 on restructuring and insolvency, in order to adapt the existing insolvency legislation and case law to the current needs.

The proposed measures are as follows.

1. Commercial courts would hear insolvency proceedings related to both natural and legal persons (removal of article 85.6 of the Organic Law on Judiciary (OLJ) – Ley Orgánica del Poder Judicial – and amendment of article 86 ter.1 OLJ).
2. To allow companies not to fulfill payment obligations provided in refinancing (creditors’) agreements because of the declaration of the state of emergency until six months after the termination of the latter. In such case, either the debtor or – at least – 25 per cent of its creditors would be entitled to request an amendment of the affected refinancing agreement (amendment of the Third Transitory Provision of the Insolvency Act (IA) – Ley Concursal).
3. Liquidation plans would only foresee non-judicial auctions (eg before notary public) for the sale of debtor’s assets. Judicial auctions would be an alternative means for such purpose in accordance with the Procedural Act (amendment of article 149.2 IA).
4. Parties to side proceedings (incidentes concursales) would only be entitled to propose means of evidence supporting their interests during the prospective hearing (amendment of article 194.4 IA).
5. Hearings in side proceedings would only be held when the judge considers them necessary or relevant to make a decision on the merits, even when not requested by parties (amendment of article 194.4 IA).
6. Prior to the normal triggering of side proceedings, challenges to the insolvency report (ie list of creditors and inventory of assets) filed by any party would be provided to the insolvency trustee in order for him/her to decide whether such challenges should be accepted or rejected. If accepted, there would not be side proceedings (amendment of article 96.5 IA).
7. Requirement to send the insolvency trustee an out-of-court letter requesting either the acknowledgment or payment of a credit against the estate (crédito contra la masa) prior to triggering judicial side proceedings. If the insolvency trustee either rejects the creditor’s petition or does not answer it in the term of 10 days, the creditor must trigger judicial side proceedings in the next two months (amendment of article 84.4 IA).
8. To allow, under particular circumstances, the termination of natural persons’ insolvency proceedings without selling the main residence (vivienda habitual) (amendment of article 148 bis IA).
9. To sanction those insolvency trustees who unreasonably refuse to manage refinancing proceedings of natural persons (amendment of article 236 IA).
10. To develop regulation on insolvency trustees’ remuneration in order to avoid the triggering of side proceedings in this particular field.
11. Oral and unappealable judgments in side proceedings with an economic interest of less than €6,000 (amendment of articles 194 and 196 IA).
12. To facilitate the consolidation of different debtors’ insolvency proceedings when there is fair cause (amendment of articles 25.1 and 25 bis.1 IA).