Insolvency reform published in the Official State Gazette (BOE)

The text of the law reforming the insolvency system and adapting it to the European directive on restructuring and insolvency has finally been published. The reform of the consolidated text of the Insolvency Law (texto refundido de la Ley Concursal) was published in the Official State Gazette (BOE) of September 6, and its entry into force is set at 20 days after its publication, save for certain exceptions.

The aim of this Law is to ensure the continuity of companies and businesses that are viable but are facing financial difficulties that may threaten their solvency and lead to the ensuing insolvency proceedings (concurso); these measures are also aimed at relieving congestion in the courts.
The approved insolvency reform seeks to streamline and incentivize insolvency proceedings and to offer alternatives to the liquidation of companies, as well as to encourage greater use of second-chance (segunda oportunidad) mechanisms and to harmonize requirements with the rest of the European Union, by transposing an EU directive.
It should be noted that the bill pays particular attention to micro-enterprises, which will have a procedure specifically adapted to their needs and characteristics, with legal assistance guaranteed. This new procedure will enter into force on January 1, 2023, as will the provision on the deferral and installment payment of tax debts by the Spanish Tax Agency (AEAT).
In addition to transforming insolvency proceedings into a single procedure, that of restructuring plans, and introducing the pioneering figure of the restructuring expert, the reform sets maximum time limits of 12 months between the opening of the first phase and the closing of the fifth, whereas the current average duration is between four and five years, and a two-month time limit for resolving appeals before the Provincial Courts (Audiencias Provinciales).
The threshold for the special procedure for SMEs has been narrowed to businesses that do not reach a turnover of €700,000 or liabilities of €350,000, or that have fewer than ten employees. Likewise, the requirement of representation by a court procedural representative (procurador) and a lawyer has been reinstated, in view of the doubts that had been raised regarding the right of defense and the right to effective judicial protection, and the entry into force of this mechanism has been postponed.
Second Chance
As regards the second chance mechanism, the discharges provided for in the bill of up to €1,000 vis-à-vis the tax authorities and another €1,000 vis-à-vis Social Security are raised to €10,000 for individuals. According to estimates presented in the debate on the basis of data from the General Council of the Judiciary (Consejo General del Poder Judicial), this level of discharge will allow more than 90% of debtors to obtain a full discharge.
Likewise, it will be possible to apply for deferral and installment payment of debts owed to the tax authorities during the voluntary payment period without the need to provide guarantees for amounts of up to €30,000. The exceptions have also been limited so that certain debtors may obtain the discharge of their unsatisfied liabilities after having been criminally convicted or penalized, even gaining access to write-downs of public-law claims.
Rescue of companies in insolvency proceedings

The rescue of companies in insolvency proceedings by their workers, organized as a cooperative, an employee-participated company, or a worker-owned company (sociedad laboral), is also facilitated, and their offer will be given priority over another offer of the same scope.
Lastly, workers are allowed to capitalize their contributions, that is, to use the unemployment benefit to which they would be entitled as capital.
In summary, these are the main new features
• Restructuring plans: these are pre-insolvency mechanisms aimed at avoiding or overcoming insolvency; this figure abolishes the current pre-insolvency instruments.
To apply for these plans, the debtor must “meet the objective requirement” and be in a state of probable, imminent, or actual insolvency, and where the situation affects several companies of the same group, the notification is filed jointly.
• The insolvency practitioner: may not have been appointed as expert in the negotiation of the restructuring plan; nor may they be specially related to anyone who has provided professional services to the debtor.
• The insolvency procedure for self-employed workers and micro-enterprises: A single procedure is created for pre-insolvency and insolvency situations, which will be mandatory for self-employed workers and micro-enterprises (micro-enterprises are those with fewer than 10 employees on average or an annual turnover of less than €700,000 and liabilities of less than €350,000, according to the latest accounts closed in the previous financial year).
• The second chance procedure: the range of dischargeable debts is extended, and the option of discharging debts without prior liquidation of the debtor’s assets is introduced. It will also allow the retention of the main residence, the discharge of up to €10,000 of debt owed to Social Security and €10,000 owed to the Tax Agency, as well as the retention of certain business assets.
• The time limits of insolvency proceedings: these are shortened, and emphasis is placed on the approval of a composition agreement (convenio) where the company is viable and on swift liquidation where it is not.
From now on, the Commercial Courts (Juzgados de lo Mercantil) will have exclusive jurisdiction over insolvency matters. The judge’s intervention in these cases will be limited to key moments of the proceedings, and the time limits will be a maximum of 12 months between the opening of the first phase and the closing of the fifth.