Spanish Bankruptcy Law: A Comprehensive Analysis
Objective and Subjective Bankruptcy
The declaration of bankruptcy requires that a common debtor is in a state of insolvency. Understanding the Ley Concursal (LCON), when the debtor cannot meet regularly and punctually with its enforceable obligations (art. 2.2). This article provides a broader concept of insolvency than the previous law, referring to it as a lack of regular and timely compliance with required obligations.
The LCON clarifies the concept of insolvency with a few details. These differ depending on whether the application for a declaration of bankruptcy is filed by the debtor or a creditor.
If filed by the debtor, the insolvency rule may be “present” or “imminent.” This means the debtor may not regularly meet their obligations, although they must justify their debt and insolvency.
If filed by a creditor, art. 2.4 states the application must be based on:
- A title by which implementation has been shipped or pressure without the free goods but enough to prove payment.
- The presence of any of the following facts:
- General cessation of the debtor’s current payment obligations.
- Existence of liens pending executions generally affecting the debtor’s assets.
- The hasty or ruinous liquidation of assets by the debtor.
- Widespread non-compliance with tax obligations due during the 3 months preceding the application for bankruptcy; non-payment of social security contributions and salaries/allowances in the last 3 months.
Setting of Assets and Liabilities
Active Mass Notion
Active Mass
The LCON states that the estate comprises the debtor’s property and rights at the date of the insolvency declaration. It is to be reintegrated or purchased until the procedure’s end. Assets and rights that remain a legally indefeasible estate are not part of it.
Separate Property of the Estate
The principle of separation of assets states that alien property in the bankrupt’s possession (which they are not entitled to use) will be delivered by the receivers to the rightful owners upon request.
If property has been alienated by the debtor before the bankruptcy declaration to a third party who claims it, two solutions exist:
- Require assignment of the right to receive consideration from the sale if the customer has not yet done so.
- Inform the receivers of the credit for the value of the rights and property sold, plus legal interest.
Formation of Active Mass Inventory
Under Article 82 of the LCON, the inventory must contain a complete list of the debtor’s property and rights that integrate the active mass. It must indicate their nature, characteristics, location, identification data, registry, and market-based valuation. A list of actions that could be promoted for reintegration into the mass must accompany the inventory.
Bankruptcy Administration
The LCON has simplified the necessary bodies. It reduced them to the judge (major role throughout the procedure) and the receivers (appointed by the judge).
Structure of the Bankruptcy Board of Directors
It usually consists of 3 members:
- A lawyer with at least 5 years of practice.
- An accountant, economist, chartered commercial owner, or business administration graduate with 5 years of practice.
- A creditor (natural or legal person).
Functions of Bankruptcy Trustees
These include:
- Preparing a report for the judge about the debtor’s facts and circumstances, the state of the debtor’s accounts, and an account of major decisions and actions taken.
- In voluntary bankruptcy, the debtor retains administrative and disposal powers over their property, under the administrators’ intervention. In necessary bankruptcy, administrators have these powers.
Compensation of Bankruptcy Trustees
Receivers’ remuneration is charged to the estate. LCON art. 34 states that remuneration is subject to a tariff, respecting proportionality between remuneration and the task’s difficulty and demands.
Office of Cargo and Liability of Bankruptcy Trustees
Receivers must perform their duties with the diligence of a manager and a loyal representative. The administration is under bankruptcy court supervision. Insolvency administrators are jointly and severally liable to the debtor and creditors for damages caused to the mass by acts or omissions against the LCON or those made without due diligence. They can be exempted if they prove they did not intervene in the wrongful act or expressly opposed it.
Characteristics of Insolvency Proceedings
When a borrower defaults on an obligation voluntarily, they proceed to mandatory compliance. This leads to the alienation of part of their heritage. However, this (done in the creditor’s interest) can be difficult when the debtor’s financial assets are insufficient to pay all creditors or the debtor is insolvent. Bankruptcy proceedings aim to prevent creditors from unfairly charging more diligent or closer creditors.
Effects of Bankruptcy
On the Debtor
Bankruptcy declaration does not necessarily disrupt the debtor’s continued business. The debtor does not automatically lose all administrative and disposal powers over their assets. This depends on whether it is voluntary or necessary bankruptcy.
If the debtor is suspended from their powers, the judge may limit their rights (e.g., intervention of correspondence and communications, residency requirements, judicial authorization to enter certain buildings).
If the debtor is a corporation, this does not imply the removal of directors. When the bankruptcy is deemed guilty or assets are insufficient to pay creditors, the judge may seize property managers’ assets. Receivers can require members to pay capital calls or any pending contributions.