My company cannot meet its debts. Do I need to apply for the voluntary insolvency proceeding?

The answer is yes. According to Article 5 of the Insolvency Act 22/2002 of 9 July, the debtor must request the declaration of insolvency within two months of the date on which the insolvency was known or should have been known.

Certainly, the period from when the company starts to have liquidity problems until it knows that it is in a state of insolvency will vary according to each company. Nonetheless, save proving the contrary, it will be presumed that the debtor was aware of the state of insolvency of his/her company if, during the last three months, it had not been able to fulfil the payment of tax obligations, social security payments or the salaries or indemnification of his/her workers, amongst others, as well as where there have been attempted seizures of the company´s goods without satisfaction.

If a company is in this situation, the fact of voluntarily requesting the insolvency proceedings will allow the preservation of the faculties of management and control over the company, while the exercise of same will be subject to review by the insolvency administrators by consent or authorisation.

What documents should accompany the voluntary insolvency proceeding?

To request voluntary insolvency proceedings for a company, the application should be accompanied by a special power to request the insolvency proceedings (which can be substituted by an apud acta power of attorney), a complete report on the economic and legal situation etc. of the company, an inventory of the goods and rights of the company, a list of creditors and information on the workforce and its representatives.

If it were legally obliged to keep accounts, the application should be accompanied also by:

• The last three submitted annual accounts and, where applicable, tax reports or audit reports
• Report of the significant operational changes in equity since the last financial statements and any operations which were carried out outside of the natural course of business
• Interim financial statements to cover the period since the last filed annual accounts, where the debtor is obliged to communicate or refer them to supervisory authorities
• Where the debtor is part of a group of companies, as parent or subsidiary, the last three year´s annual accounts, the consolidated management reports, the auditor report relating to these accounts and a report explaining transactions carried out with the other group companies during the same period

Where the application is not accompanied by these documents, the reasons for such omission should be set out.

Where voluntary insolvency proceedings are not requested, the creditors can solicit necessary insolvency proceedings. In this case, the debtor´s powers of execution are suspended, and the insolvency administrators will be given the powers of management and control of the equity.

Also, note that where the director of a company does not apply for voluntary liquidation when it was required, in addition to losing control of the company (as the insolvency administrators have been appointed) he or she could be ordered to provide their equity to satisfy the debts of the company and/or incur criminal liability.

For additional information regarding voluntary insolvency proceedings in Spain,