Articles 61 and following of Law 22/2003 provide for the effects of the termination of contracts in the context of bankruptcy proceedings in Spain. The law grants different mechanisms to the parties to guarantee the survival of the bankrupt company and the right of debt recovery of its creditors.
Following the decree of the State of Alarm, the Spanish Government has approved a package of measures on labour Law (by easing the suspension of employment contracts) and insolvency Law, in order that companies can better cope with their lack of liquidity.
Royal Decree-Law 8/2020 introduces changes to the deadlines for applying for bankruptcy proceedings in Spain, whether voluntary or necessary. It also empowers the judges to reject applications, up to two months after the end of the state of alarm.
Royal Decree-Law 8/2020 amends certain obligations of company directors when there is a legal or statutory cause for dissolution or if the company finds itself in a state of insolvency.
Informative note on the Royal Decree-Law 16/2020, of 28th April, regarding procedural and organisational measures to deal with Covid-19, especially concerning measures on insolvency proceedings.
When partners of a subsidiary in Spain decide its closing due to economic reasons, the question arises as to how to do it. Depending on each specific case, the company may be dissolved and liquidated with or without bankruptcy proceedings.
Unsuccessful enforcement by the creditor implies the existence of a title by which enforcement has been effected, without sequestration resulting in sufficient unencumbered assets for the payment of the outstanding credit.
The majority of Spanish bankruptcy proceedings end in favor of the debtor. The preliminary phases aim to achieve continuity of businesses that are in critical financial situations. Judicial approval is tantamount to a quasi-automatic resolution of a refinancing agreement, which put minority dissenting creditors at major disadvantages.
The legal framework for restructuring and insolvency proceedings governs the reorganization of debt. An insolvency proceeding is an in-court-restructuring procedure that consists of obtaining an insolvency order from a judge. An out-of-court restructuring is where a debtor negotiates directly with its creditors.
In 2014, the Spanish government implemented the out-of-court restructuring procedure through the Royal Decree Law. Its objective is to help debtors avoid bankruptcy by negotiating with their creditors. Given the time and effort it takes, an out-of-court restructuring can be very favourable to both parties.
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