The extrajudicial payments agreement procedure in Spain

Proceedings for its development

  1. The debtor must request (from the notary public of his home address) the appointment of a bankruptcy mediator if the debtor is a natural person. However, if the debtor is an entrepreneur or a legal person capable of registration at the Commercial Registry, then the debtor must request the appointment of a bankruptcy mediator from the Commercial Registrar of the debtor’s registered office. The debtor’s request for the extrajudicial payments agreement must include the available cash and liquid assets, a list of creditors (including the holders of public credit and the secured creditors), a list of current contracts, and a list of anticipated monthly expenses.
  2. The appointment will be made (in a sequential manner) considering the persons on the list that the Registry of Mediators and Mediation Institutions of the Justice Department provide.
  3. Once the bankruptcy mediator accepts the appointment, he or she must verify the existence and amount of the credits. He or she must also send a payment plan to creditors with the outstanding credits at the date of the request and call a meeting that must take place within the next two months.
  4. Creditors will have 10 calendar days from the consignment of the payment proposal by the bankruptcy mediator to offer alternatives or make amendments to the plan. If during this period creditors representing at least the majority of the liability that the agreement will affect (excluding secured credits and public ones) decide not to continue with the negotiations, the bankruptcy mediator must immediately request the debtor’s declaration of bankruptcy.
  5. All notified creditors who have not expressed their approval or disapproval must attend the meeting. Otherwise, their credits will be qualified as subordinated if the negotiation fails and the creditors’ meeting is declared.
  6. The payment plan, along with the viability plan that accompanies it, can be amended at the meeting if the payment conditions of the creditors who do not attend the meeting (having expressed their position within the 10-day period previously mentioned) are not altered.
  7. Approval of the plan depends on a quorum met and the favourable vote of at least 60% of the liability that the agreement may affect (if the plan provides for the sale of goods as payment, the required percentage rises to 75%, and the favourable vote of creditors secured by the concerned property is required). If the required majority is not attained, the bankruptcy mediator must immediately request the declaration of bankruptcy, which will follow.
  8. The bankruptcy mediator shall supervise compliance with the agreement. If he or she considers that compliance with the agreement is lacking, he or she must request a special bankruptcy proceeding (concurso definitivo).

Effects of the proceedings

The debtor who chooses to negotiate an extrajudicial payments agreement can benefit from the deadlines that the Insolvency Act provides to request the declaration of bankruptcy. The timeframe is three months from the notice that the Commercial Registrar or the notary (having appointed the bankruptcy mediator) issues in which the start of negotiations for the agreement’s adoption is made known to the Court, plus one month to request the declaration of bankruptcy.

Additionally, since the publication of the opening of proceedings, creditors who may be at risk due to the agreement’s provisions will not be able to initiate or continue any enforcement on the debtor’s assets while the agreement is in negotiation up to a maximum period of three months. This prohibition will remain once the agreement in respect of debts prior to the publication of the opening of the file is approved. Secured creditors may decide whether to start or continue the procedure, in which case they may not participate in the settlement.

Once the request is submitted, the debtor can continue his or her business or professional activity, albeit with certain limitations: debtors in these circumstances will not be able to request funding; they will have to return credit cards to the issuers; and they may not use electronic means of payment.

Special features of the subsequent bankruptcy proceedings in case the agreement fails: subsequent bankruptcy proceedings (concurso consecutivo)

These special proceedings will take place in cases in which bankruptcy is declared at the request of the bankruptcy mediator, the debtor, or the creditors while facing the impossibility of reaching an extrajudicial payments agreement or because of the failure or cancellation of the agreement. These circumstances determine the following characteristics of this type of proceedings:

  • Except for fair cause, the bankruptcy mediator shall be appointed receiver.
  • The expenses of the extrajudicial proceedings, as well as the other credits generated during the processing that are classified as such under the Law, shall be considered as credits against the bankruptcy assets.
  • A period of two years for the determination of the cancellable acts shall be counted from the date of the request for the extrajudicial payments agreement.
  • Creditors having signed the payment agreement will not have to request the recognition of their credits.
  • When the debtor is a natural person, if the bankruptcy proceedings are qualified as a casualty, all the debts that are not paid in the settlement, except for public debts, shall be waived if the credits against the bankruptcy assets and the privileged bankruptcy credits are entirely paid.
  • The subsequent bankruptcy proceedings must open during the settlement phase (as long as the bankruptcy assets are sufficient).

This article is not considered as legal advice

Advice on  Debt Collection in Spain

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