The so called “pre-bankruptcy proceeding” in Spain during the State of Alert
Article 5 of the Bankruptcy Law states that “the debtor must request the declaration of bankruptcy within two months counted from the date on which it knew or should have known about the insolvency”. However, Article 43 of the very new Royal Decree Law 8/2020 of March 17th establishes that while the state of alert is in force in Spain, the debtor who is in a situation of insolvency will not be obliged to request the declaration of bankruptcy.
Article 5 bis of the Bankrupcy Law then regulates the possibility of renegotiation of debts with creditors and reaching a refinancing agreement for those companies that were on a situation of insolvency. The Law gives these companies three months to reach these kinds of agreements with its creditors and, if that period has expired with no agreement, the insolvent company will have another month to submit the request for a declaration of insolvency to the Commercial Court.
Additionally, during the period of the State of Alert, applying for the declaration of bankruptcy will not be a duty for the debtor who has notified the court with jurisdiction for the declaration of bankruptcy about the initiation of negotiations with creditors to reach either a refinancing agreement, an out-of-court payment settlement, or to obtain adherence to an advance proposal of agreement, even if the period referred to in the fifth paragraph of Article 5 bis of the Bankruptcy Law has expired (that is to say, the period of the following month, after the three months from the communication to the Commercial Court have elapsed).
During these four months of pre-bankruptcy, the Commercial Court does not intervene in the company’s development as it is only necessary to record the pre-bankruptcy notification made by the debtor. This communication is important because it prevents the processing of possible applications for the declaration of the involuntary insolvency proceedings made by the creditors. However, the pre-bankruptcy notice does not prevent creditors from initiating their claims individually.
This extension gives the company’s administrators time to try to reach pre-bankruptcy agreements with the creditors, to refinance the debt or to get an early proposal for a settlement and, therefore, to speed up the bankruptcy proceedings if they do finally take place. Furthermore, unlike in insolvency proceedings, in pre-bankruptcy the situation of the company will not be published, so the external image of the company can be maintained.
Finally, it is important to highlight that during this phase of pre-bankruptcy the company maintains its administrative and management bodies exercising full powers without the intervention of an insolvency administrator.
Lawyer. Procedural Area Devesa y Calvo Abogados