Profound modification of the revised text of the Insolvency Law and restructuring mechanisms
Last September 6, Law 16/2022 of September 5 was published in the Official State Gazette (BOE), by which a profound reform of the Consolidated Text of the Insolvency Law was carried out, by means of which Directive 2019/1023 on preventive restructuring frameworks is transposed.
I.- To whom the new law applies:
The new regulations apply to bankruptcy applications filed or declared after its entry into force. Bankruptcy proceedings declared before the entry into force will be governed by the provisions of the previous legislation, with certain exceptions that will be governed by the new regulation. In this sense, the following will be governed by the new regulations: (i) the report of the insolvency administration (including the list of creditors and inventory of the estate) that is filed after its entry into force, (ii) the rescissory actions that are exercised after its entry into force, (iii) the proposals of agreement, accessions and processing, that are filed or carried out after its entry into force, (iv) the modification of the agreement that is requested after its entry into force, (v) the phase of liquidation of the active mass that is opened after its entry into force, (vi) requests for exoneration of liabilities that are filed after its entry into force, (vii) the regime of qualification of the insolvency proceeding when the sixth section has been opened or reopened after its entry into force and (viii) the appeals to be filed against the resolutions of the insolvency judge issued after its entry into force.
II.- Entry into force
The insolvency reform, for the most part, will enter into force on September 26. The new special microenterprise procedure created by Law 16/2022 will enter into force on January 1, 2023.
III.- Main novelties:
The following are some of the most relevant aspects introduced by Law 16/2022.
(a) Establishment of early warning mechanisms
Directive 2019/1023 transposed by Law 16/2022 aims to encourage the entrepreneur to resort in time to the mechanisms to save the insolvency situation, if the activity is viable, by establishing early warning tools and prejudicial debt restructuring mechanisms. The main early warning tools provided for in Law 16/2022 are the following:
- The creation of a self-diagnosis service for SMEs by the Ministry of Industry.
- The possibility of requesting a report on the company’s risk position provided by the Association of Property and Mercantile Registrars on the basis of the deposited accounts.
- The establishment of advisory services for SMEs promoted by the Government.
- The amendment of article 589.3 of the LEC provides that in an enforcement proceeding, if the executed party does not indicate assets subject to seizure or the value of those indicated is insufficient for the purpose of the enforcement, the attorney for the Administration of Justice will issue a decree warning of the possibility of resorting to pre-bankruptcy institutions in the event of probable insolvency, imminent insolvency or current insolvency, and of the obligation to file for bankruptcy in the event of being in a state of current insolvency.
b) Situation of current / imminent / probable insolvency
Three insolvency situations are differentiated:
- Current insolvency: when payment obligations cannot be regularly met. The situation of current insolvency obliges the debtor to file for insolvency proceedings and enables creditors to file for insolvency proceedings.
- Imminent insolvency: it is foreseen that payment obligations cannot be met regularly and on time within the next three months. The situation of imminent insolvency entitles the debtor to file for insolvency proceedings, but does not entitle creditors to file for insolvency proceedings.
- Probable insolvency: when it is objectively foreseeable that, if a restructuring plan is not reached, the debtor will not be able to regularly meet its obligations due within the next two years. The situation of probable insolvency does not entitle the debtor to file for insolvency proceedings, but it does entitle the debtor to file for preinsolvency proceedings in order to reach a restructuring plan.
c) Special procedure for micro-companies
A special procedure is created for micro-enterprises. Those debtors who are natural or legal persons carrying out a business or professional activity and who have an annual turnover of less than 700,000 euros, liabilities of less than 350,000 euros, and who have employed an average of less than 10 workers during the previous year are considered as such.
Main characteristics of the special procedure for micro-companies:
- Micro-companies can avail themselves of a specific “preconcurso”, the purpose of which is either to agree on a continuation plan, or a liquidation with transfer of the productive unit in operation. For these, the rules of the “ordinary pre-contests” apply, with certain particularities and without the possibility of extending the same.
- The special procedure may follow the continuation procedure or the liquidation procedure with or without sale of the production unit.
- The obligation to request the initiation of this procedure, within a period of one month after the three months provided for in Article 2.4.5 of the TRLC (“The general dismissal in the payment of the tax obligations payable during the three months prior to the request for insolvency proceedings; that of the social security contributions and other items of joint collection during the same period, or that of the salaries and indemnities to the workers and other remuneration deriving from the labor relations corresponding to the last three monthly payments”).
- The appointment of an insolvency administrator is not necessary and the process remains in the hands of the insolvent party itself.
- The processing is carried out by means of standardized forms and the communications by means of electronic procedures.
- It is foreseen that the serious inaccuracy in the information provided by the bankrupt party constitutes a presumption iures et de iure of guilt of the bankruptcy (it is considered that a serious inaccuracy is incurred when the total amount of a fiscal year, of liabilities or assets, or of income or expenses, is actually higher or lower than twenty percent of the amount stated in the form, provided that it represents an amount of at least 10,000 euros). This makes it very important to be very rigorous with the information included in the bankruptcy application forms.
d) Main modifications of the Ordinary Proceeding
Modifications to the creditors’ agreement
- The anticipated proposal of arrangement disappears.
- The process of approval of the arrangement is simplified. The creditors’ meeting disappears and the creditors must adhere to the agreement proposal in writing or electronically.
- The credits accrued after the approval of the insolvency proceeding are considered as insolvency credits instead of credits against the mass.
Modifications to the liquidation phase:
- The Liquidation Plan disappears.
The liquidation will be carried out by the mechanisms provided for in the Bankruptcy Law, unless the Bankruptcy Judge, after hearing the Bankruptcy Administration, approves special liquidation rules. Creditors do not have the right to make allegations with respect to the special rules, but may file an appeal for reconsideration against them.
However, these special liquidation rules will be without effect, if so requested by creditors representing more than 50% of the ordinary liabilities or of the total liabilities.
- Supplementary general rules of liquidation.
As a general rule, the disposal as a whole of all the establishments, operations and productive units of the insolvent company is foreseen, unless the Judge authorizes the disposal on an individual basis, or the CA so requests.
The manner of realization of any property or asset having a value greater than 5% of the total value will be carried out by electronic auction, unless otherwise provided for in the special rules.
- Modifications in the qualification piece.
A predominant role is given to the creditors in the qualification phase of the insolvency proceedings, in which the necessary intervention of the Public Prosecutor’s Office disappears, which is replaced by the optional participation of the creditors.
The possibility of reaching transactional agreements in the qualification piece, between the insolvency administration, the creditors who have filed a qualification report and the persons affected by the same, is foreseen.
- Modifications in the “concurso expres”.
It is possible for the creditors to oppose the order of simultaneous conclusion. Once the insolvency without assets has been declared, creditors representing at least 5% of the liabilities are granted a term to request the appointment of an Insolvency Administrator
The remuneration of the insolvency administrator will be paid by the creditors who have requested his appointment
The insolvency administrator who is appointed must prepare a report on the existence or not of detrimental acts that can be rescinded, grounds for filing a corporate action for liability against the administrators or indications of guilt.
e) Modification of the second opportunity procedure:
The procedure for exoneration of unsatisfied liabilities is modified in depth, making it more restrictive than the current procedure. In the new regulation, the Extrajudicial Payment Agreement disappears, no longer as a requirement to obtain the benefit of exoneration, but as an institution provided for in the Law. New impediments are added to access the benefit of exoneration- In this sense, the new impediments to access the benefit of exoneration are: (i)the existence of firm administrative sanction for serious tax, social security or social order infractions, the derivation of liability to the debtor in the previous 10 years, (ii) the declaration of the debtor as affected by guilty qualification of a third party within 10 previous years, (iii) the breach of the duty of information and collaboration, (iv) provision of false or misleading information, or negligent or reckless behavior when contracting the indebtedness, or verifying its obligations. The list of non-waivable credits is extended. The following are non-exonerable credits:
- the debts for non-contractual civil liability, for death or personal damages, as well as for compensations derived from work accident and professional disease (whatever the date of the resolution that declares them).
- The debts for civil liability derived from crime.
- Debts for alimony.
- The debts for salaries corresponding to the last sixty days of effective work carried out before the declaration of bankruptcy in an amount that does not exceed three times the minimum interprofessional salary, as well as those that had been accrued during the procedure, as long as their payment had not been assumed by the Wage Guarantee Fund.
- The debts for credits of public law, only those whose collection management is the responsibility of the State Agency of Tax Administration or debts of the social security, which can be exonerated up to the maximum amount of ten thousand Euros per debtor; for the first five thousand Euros of debt the exoneration will be total, and from this figure the exoneration will reach fifty percent of the debt up to the maximum indicated.
- The debts for fines to which the debtor has been condemned in criminal proceedings and for very serious administrative sanctions.
- Debts for legal costs and expenses derived from the processing of the request for exoneration.
- The debts with real guarantee within the limit of the special privilege, calculated in accordance with the provisions of the TR of the Insolvency Law.
It is provided that, exceptionally, the judge may declare that debts that in principle would be exonerable are not totally or partially exonerable, when it is necessary to avoid the insolvency of the creditor affected by the extinguishment of the credit right. The possibility of obtaining exoneration with the safeguarding of the property is expressly provided for. It is not necessary to pay the non-extinguishable amount in order to obtain the exoneration. However, these creditors will be able to claim judicially their non-exonerated debt.
f) Modification of the pre-bankruptcy institutes:
With the disappearance of the early reorganization proposal, the preconcurso is only envisaged for the purpose of reaching a restructuring agreement. The broadening of the content of the information to be submitted with the “preconcurso” request makes it much more complex to prepare than it is at present. The figure of the restructuring expert is created, a professional in charge of the supervision of the restructuring, of obligatory appointment in certain cases. Regarding the effects of the pre-bankruptcy:
- May be extended to reach a maximum duration of 6 months.
- Any creditor may request that the pre-bankruptcy be cancelled if the agreement is not being negotiated or is impossible to reach.
The figure of the prepack is introduced, through the appointment of a restructuring expert, with the purpose of obtaining purchase offers for the productive unit. Refinancing plans are modified and replaced by restructuring plans:
- It is intended to be more agile and efficient.
- Creditors are provided with instruments enabling them to:
- Suspend the insolvency petition filed by the debtor after the beginning of the restructuring plan.
- Approve a plan, even without the necessary approval of the company’s partners, whenever the company is in actual or imminent insolvency.
- The plan may affect all types of creditors (with limitations with respect to public law claims).
The entry into force of Law 16/2022 constitutes a profound revision of the entire insolvency procedure, it gives a new regulation to refinancing plans (which are now called “restructuring plans”) with the purpose of making them more effective and helping to avoid subsequent insolvency proceedings. With the special procedure for micro-companies, an attempt is made to modernize and simplify the insolvency procedure for small companies, leaving a large part of the procedure in the hands of the businessman himself and the creditors, which opens up many possibilities, while at the same time generating doubts as to how this procedure will operate in practice and increasing the liability of the insolvent company. The legal department of AddVANTE is at your disposal to answer any questions you may have in this regard.