Spanish Insolvency Law: Key Aspects and Procedures
Spanish Insolvency Law: An Analysis
The Spanish insolvency process, governed by the Insolvency Act of July 9, 2003, regulates insolvency proceedings. This law is the result of a long process to amend Spanish bankruptcy law, which was previously based on the Act of 1829. While there were some changes in the 20th century, this law represents a complete reform of bankruptcy law.
Key Principles of Insolvency Law
Insolvency law provides for a single procedure: the “contest,” which applies to any debtor, regardless of their status. This is known as the “principle of unity.” The contest has three main aspects:
- Subjective: Applicable to any natural or legal person.
- Objective: Initiated when the debtor is insolvent, meaning they cannot regularly pay their debts.
- Formal: The contest can be requested by the debtor (voluntary bankruptcy) or by creditors (required contest), each with different consequences. A single creditor cannot initiate a contest; there must be multiple creditors. For legal entities, administrators and liquidators are authorized to request the contest.
Debtors are obligated to seek assistance within two months of the first signs of self-declared insolvency. The contest (art. 21) specifies whether it is voluntary or required. In a voluntary contest, the debtor retains administrative powers but is supervised by receivers. In a required contest, the debtor loses administrative powers and is replaced by receivers. The common phase of processing begins when the order is issued. Insolvency administrators must communicate with each creditor, informing them of the statement and their duty to file claims.
According to Article 48.3 of the Insolvency Law, in the insolvency of a legal person, the bankruptcy judge may order the seizure of assets and rights of its directors or liquidators, and of those who held this position within the two years preceding the statement, if there is a possibility that the contest will be deemed culpable and the estate is insufficient to satisfy all debts. The seizure amount is determined by the judge.
Types of Bankruptcy Proceedings
There are two types of bankruptcy proceedings: regular and short. The distinction is based on the debtor’s initial assets. If the debtor is a legal person with assets of €10,000,000 or less, the summary procedure is followed. If the assets exceed this amount, the regular procedure is used. The main difference is that the short procedure reduces all timeframes by half. The regular process involves three receivers, while the short process uses a single trustee in bankruptcy.
Article 27 of the Insolvency Law outlines the subjective conditions for appointing receivers. The bankruptcy administration consists of three members:
- An attorney with at least 5 years of experience.
- An auditor with at least 5 years of experience.
- A creditor holding an ordinary or general privileged credit that is not guaranteed.
The bankruptcy administration is compensated for their services.
Effects of the Declaration of the Contest
The declaration of the contest has four main effects:
1) Effect on the Debtor
In a voluntary contest, the debtor retains administrative powers over their estate but is subject to intervention by the receivers. In a required contest, the debtor’s powers are suspended, and they are replaced by the insolvency administrators. Additionally, fundamental rights such as freedom of residence, inviolability of the home, and secrecy of communications may be limited.
2) Effect on Creditors
The main effect is the suspension of individual actions by creditors.