One of the main reasons that encourage a creditor to request the necessary bankruptcy application of his debtor is that, once the bankruptcy has been initiated, fifty per cent of the amount of his credit is legally classified as a credit of general privilege. This means that, in the liquidation of the debtor’s assets, the creditor filing the application for bankruptcy will hold preference in the payment of his claim over ordinary and subordinated creditors.
What circumstances allow the creditor to file for the necessary bankruptcy application?
Article 2.4 of Law 22/2003, of 9 July, on Insolvency (LC) establishes that, if the application for a declaration of bankruptcy is submitted by a creditor it must be based either on an enforceable right for which enforcement has been carried out without the seizure resulting in sufficient unencumbered assets, or on the existence of any of the following circumstances:
- General dismissal of the current payment of the debtor’s obligations
- The existence of sequestrations for pending foreclosures that generally affect the debtor’s patrimony
- The hasty or ruinous assets stripping or liquidation of assets by the debtor
- Failure to comply with obligations of any of the following classes:
- The payment of tax obligations due during the three months prior to the application for bankruptcy
- The payment of Social Security contributions, and other concepts of joint recovery due during the same period
- The payment of salaries and indemnities, and other remunerations derived from work relations corresponding to the last three monthly payments.
From now on, we will focus on the unsuccessful enforcement by the creditor.
In what procedural context should the enforceable title be?
The title or enforceable right must be at the last stage of a judicial procedure, i.e. in court. That is to say that:
- A conviction (including foreign judgments) has been passed
- The creditor has ordered the execution of the judgment
- The Court has issued an enforcement order
- Said enforcement order has not resulted in sufficient unencumbered assets for the payment of the credit.
Means of evidence to support the necessary declaration of bankruptcy
In order to prove before the judge that the execution has been unsuccessful, the creditor must provide in his application for the necessary insolvency proceedings all the procedural actions carried out in court.
One of the main advantages when the application has been filed by a creditor and is based on an unsuccessful seizure or assets investigation is that the judge is legally obliged to issue the declaration of bankruptcy on the first working day following the application, without further processing (article 15 of the LC).
What else needs to be considered in the application for bankruptcy?
When submitting a necessary bankruptcy application it is also important to bear in mind that the debtor must have sufficient assets (active assets) to be able to cover the costs of the bankruptcy (bankruptcy administration and defence fees, legal and registration expenses). In determining this circumstance, account should also be taken of the predictability or otherwise of the exercise of actions for reinstatement, contestation or liability of third parties, as well as the qualification as guilty of the insolvency proceedings.
Otherwise, the judge will proceed with the conclusion for insufficiency of active assets, even in the same bankruptcy proceeding (article 176 bis of the LC).
It is also important for the creditor to examine, and if necessary argue in his application, possible reasons why he believes the bankruptcy qualification will be guilty.
Bankruptcy Law in Spain classifies this instrument as one of the main arguments for the creditor to substantiate the necessary bankruptcy application.
This article is not considered as legal advice