The state of alarm declared in Spain has brought about numerous changes, not only at the economic, cultural or social level, but also from a legal point of view, with the suspension of the deadlines provided for in the procedural laws for all courts. In bankruptcy matters, the changes are set out in the Royal Decree-Law 8/2020 and address, inter alia, the deadlines to apply for bankruptcy proceedings during the state of alarm.
Changes in the deadlines to apply for bankruptcy proceedings
Article 43 of Royal Decree-Law 8/2020 embodies the novelties in bankruptcy matters since the declaration of the state of alarm.
It introduces a complete flexibility of bankruptcy deadlines so long as the state of alarm persists to prevent the collapse of the Courts in the next few months. Indeed, it is foreseeable that companies that cannot meet their enforceable obligations will apply for bankruptcy proceedings, whether it be voluntary or necessary.
As a result and during the validity of Royal Decree-Law 8/2020, the debtor in a state of insolvency will not have the obligation to apply for bankruptcy proceedings, nor will his creditors be entitled to request it.
In other words, if under normal circumstances the Bankruptcy Law granted a period of two months to apply for bankruptcy proceedings, during the state of alarm, the deadline is suspended and the debtor is temporarily relieved of his obligation.
On the other hand, and concerning the necessary bankruptcy applications, Royal Decree 8/2020 empowers judges to dismiss applications under this modality, not only during the state of alarm, but also in the next two months following its termination.
Finally, Article 43 clearly states that so long as the state of alarm persists, debtors will not have the obligation to apply for bankruptcy proceedings in case they have communicated to the competent court:
- The start of negotiations with creditors to reach a refinancing agreement
- An out-of-court payment agreement
- The obtaining of adhesions to an advance agreement proposal (even if the period referred to in paragraph 5 of Article 5 bis of the Bankruptcy Law has expired, i.e. the deadline of the following month, after the expiry of the three months from the notification to the Commercial Court).
One of the most likely economic consequences of the state of alarm will be the bankrupt of those companies that cannot meet their enforceable obligations. Thus the modification of the deadlines during the state of alarm to apply for bankruptcy proceedings to alleviate the situation. Since the exceptional nature of the situation may lead to further changes, companies should pay particular attention to future legal developments.
This article is not considered as legal advice