The foreign creditor in bankruptcy proceedings in Spain (4): Liability of debtors and directors

Within the bankruptcy proceedings in Spain, the sixth section regarding bankruptcy qualification analyses the behaviour of the debtors or directors to verify their impact on the origin or aggravation of the insolvency of the company declared bankrupt. It also examines whether or not their behaviour has complied with the applicable rules and duties.

To this end, the legislation lists a series of specific behaviours or conducts (whether or not proof to the contrary is admissible) to adduce the guilty nature of the bankruptcy.

Main requirements for a guilty classification of bankruptcy:

  • Active/passive behaviour of the debtor or the directors
  • Deceit or gross negligence
  • Creation or aggravation of the state of insolvency
  • There must be a causal link between the above requirements.

Main consequences of the guilty declaration of bankruptcy for the administrators:

  • Disqualification
  • Loss of rights associated with the position of the creditor of a bankruptcy
  • Obligation to repay undue advantage
  • Compensation for damages
  • Order to cover the insolvency deficit

Attention at the financial year-end of 2021

Directors of P.L.C and L.L.C. in Spain should be particularly attentive to the financial year-end.

While Art. 13.1 of Law 3/2020 provided for the suspension of dissolution due to losses during the financial year 2020, the article also states:

[…]If the financial year 2021 shows losses that reduce the net assets to less than half of the share capital, a general meeting to dissolve the company is necessary. Directors shall call for it, or any shareholder can request it within two months of the end of the financial year (Article 365) unless the capital is increased or reduced to a sufficient extent.

Subsequently, given the pandemic evolution, Royal Decree-Law 27/2021 of 23 November extended some economic measures and the suspension of dissolution due to losses to 2021.

1. For the sole purpose of determining the existence of the grounds for dissolution provided for in article 363.1.e) of the revised text of the Capital Companies Act and approved by Royal Legislative Decree 1/2010, of 2 July, the losses for financial years 2020 and 2021 shall not be taken into consideration. If the financial year 2022 shows losses that reduce the net assets to less than half of the share capital, a general meeting to dissolve the company is necessary. Directors shall call for it, or any shareholder can request it within two months of the end of the financial year (Article 365) unless the capital is increased or reduced to a sufficient extent.

In this regard, although the deficit for the years 2020 and 2021 will not be considered for determining the cause for dissolution due to losses, the directors must be attentive to the resulting net assets and, if necessary, take the appropriate actions:

  • Decide on a capital or equity increase to regularise the losses
  • Carry out a capital reduction
  • Agree on the dissolution of the company
  • File for bankruptcy proceedings, etc.).

Conclusion

We recommend foreign clients carry out good organisation and monitoring, both internally and externally, to detect any change in the relations with third parties (clients, debtors, etc.) and their financial situations. In particular, we advise the communication of the credit, even after the legally established deadline.

Rosario Rodríguez & José María Mesa

For further information regarding the liability of debtors and directors in Spain,

This article is not considered legal advice

José María Mesa

A licensed attorney with both Business Administration and Law degrees, José María Mesa is specialized in the areas of commercial contract, corporate law and mergers and acquisitions. Working languages: Spanish and English. For any query Contact José María Mesa