Bankruptcy

Bankruptcy proceeding is the name given to the judicial process that companies, and also individuals, resort to in a situation of imminent or actual insolvency. That is, when they are in a situation where they cannot meet the payments to their creditors. In this situation, companies request a Commercial Court to declare them in BANKRUPTCY.When the bankruptcy proceeding is requested by the company itself, it is called a VOLUNTARY BANKRUPTCY, and when it is requested by a creditor, it is called a NECESSARY BANKRUPTCY:

• The request for bankruptcy by the debtor (Voluntary) must be made within two months following the date on which they knew or should have known of their state of insolvency. The request must be accompanied by certain documentation, stating whether it is a current or imminent insolvency.
• In the case of a bankruptcy initiated by the creditor (Necessary), the following requirement must be met; execution or enforcement has been dispatched against the debtor and in its collection, the existence of one of the following situations has been detected: the general cessation of current payment of the debtor's obligations, the existence of attachments for pending executions that generally affect the debtor's assets, the concealment or hasty or ruinous liquidation of their assets, etc.

The bankruptcy proceeding establishes a process supervised by a Commercial Judge and the Bankruptcy Administration appointed by them, to evaluate and carry out, in an orderly manner and with due legal guarantees, the payment of the debt to the creditors. It is therefore a collective procedure for debt payment, under the protection of the Bankruptcy Law, which sets out a procedure that evaluates the credits, establishes priorities among them, and sets the mechanism for the debtor to propose the amount and terms of payment.The commercial court, once the information presented in the bankruptcy petition has been analyzed, will declare, if it deems it appropriate, the bankruptcy through a judicial document called the Bankruptcy Declaration Order. The date of this order is decisive for establishing what are Bankruptcy Debts or Credits (debts or credits owed by the company in bankruptcy up to the date of the bankruptcy declaration) and what are Claims against the Estate (debts subsequent to the date of the bankruptcy declaration).The declaration of bankruptcy does not mean the paralysis of the bankrupt company's activities, but rather the opposite; it establishes temporary protection against the execution of attachments and guarantees, allows the reactivation of ongoing contracts, and provides security in payment to new creditors after the declaration of bankruptcy, which favors a reactivation of the business, essential to successfully carry out the restructuring process.The bankruptcy administration has the obligation to send a letter to each of the creditors requesting each one to communicate their claims, that is, for the creditor themselves to state, in writing, what debt the bankrupt company has with them.One of the most important tasks of the bankruptcy administration is to prepare a report where, among other things, it will be established who the creditors are and how much they are owed (PASSIVE ESTATE) as of the date of the bankruptcy declaration and what assets and rights the bankrupt company has to face those creditors as of the date of issuance of the report (ACTIVE ESTATE).Creditors have the duty to communicate their claims to the bankruptcy administration within a specified period that will be indicated in the letter sent to them (one month from the publication of the bankruptcy declaration in the BOE). In addition, creditors will communicate to the bankruptcy administration the composition of their claims, the amount, and other data that will be indicated in the letter sent to them. These data will subsequently be reviewed and verified to establish the PASSIVE ESTATE or total debt that the bankrupt company has with all its creditors as of the date of the bankruptcy declaration.

The most important effect that occurs once a company's bankruptcy situation has been declared is that, for the moment, the bankruptcy creditors will not be paid their claims. The law aims for all creditors to have the same opportunities for payment (taking into account that the Bankruptcy Law itself establishes the order of priority of claims) and thus, that some creditors do not get paid before others because they were faster or because they were chosen arbitrarily by the bankrupt company.The most important consequences that occur from the declaration of bankruptcy are the following:

• The process is being supervised by the bankruptcy administration appointed by the judge, which looks after the interests of the creditors.
• The credit included in the “passive estate” remains on the balance sheet, with no possibility of payment by legal imperative, until the bankruptcy procedure has been fully substantiated, through a definitive report from the administrators, and an approved Creditors' Agreement.
• A procedure for reviewing and confirming the total debt of the bankrupt company is established, with due procedural guarantees and deadlines for its presentation, and with the possibility of challenge in case of disagreement. In this process, the outstanding balances are quantified and classified as privileged, ordinary, or subordinated debt.
• No enforcement proceedings may be initiated.

Creditors with real security may not initiate execution until the agreement is approved or one year has passed since the declaration of bankruptcy without liquidation having occurred.

• The offsetting of credits and debts of the bankruptcy is not permitted.
• The accrual of interest will be suspended, except for that corresponding to credits with real security.

A. CLAIMS AGAINST THE ESTATE (ART. 84 BANKRUPTCY LAW)In general, those generated after the declaration of bankruptcy.CLAIMS AGAINST THE ESTATE are treated differently from BANKRUPTCY CLAIMS. Claims that arise after the declaration of bankruptcy CAN BE PAID. The payment of claims against the estate will be made regardless of their origin (the law does not distinguish whether they are employees' salaries, debts to the Public Treasury, or debts to a simple supplier, with the sole exception of claims for wages for the thirty days prior to the declaration of bankruptcy in an amount not exceeding double the minimum interprofessional wage, which will be paid with preference over any other). They will be paid in the strict order of their due date, that is, claims against the estate whose due dates (dates on which it was indicated when the credits should be paid) are earlier than the due dates of other credits will be paid first, regardless, we insist, of their origin and nature, with the aforementioned exception of labor claims for the thirty days prior to the bankruptcy.

The following are considered claims against the estate:

1. Claims for salaries for the last thirty days of effective work prior to the declaration of bankruptcy and in an amount not exceeding double the minimum interprofessional wage.
2. Those for court costs and expenses necessary for the request and declaration of bankruptcy, the adoption of precautionary measures, the publication of the judicial resolutions provided for in this Law, and the assistance and representation of the bankrupt party and the bankruptcy administration throughout the processing of the procedure and its incidents, when their intervention is legally mandatory or is carried out in the interest of the estate, until the effectiveness of the agreement or, otherwise, until the conclusion of the bankruptcy, with the exception of those caused by appeals filed against resolutions of the judge when they are totally or partially dismissed with express condemnation in costs.
3. Those for court costs and expenses incurred for the assistance and representation of the debtor, the bankruptcy administration, or legitimized creditors in the trials that, in the interest of the estate, continue or initiate in accordance with the provisions of this Law, except as provided for in cases of withdrawal, settlement, transaction, and separate defense of the debtor and, where appropriate, up to the quantitative limits established therein.
4. Those for the debtor's maintenance and that of the persons for whom he had a legal duty to provide it, in accordance with the provisions of this Law on its origin and amount, as well as, to the full extent established in the corresponding judicial resolution subsequent to the declaration of bankruptcy, those for maintenance charged to the bankrupt party agreed by the judge of first instance in any of the processes referred to in Title I of Book IV of the Civil Procedure Law. Claims of this type accrued after the declaration of bankruptcy when they originate from a judicial resolution issued previously will also have this consideration.
5. Those generated by the exercise of the debtor's professional or business activity after the declaration of bankruptcy, including labor claims, including in them dismissal or termination of employment contract indemnities, as well as surcharges on benefits for non-compliance with obligations in matters of occupational health, until the judge agrees to the cessation of the professional or business activity, or declares the conclusion of the bankruptcy. Claims for indemnities derived from collective terminations of employment contracts ordered by the bankruptcy judge will be understood to be communicated and recognized by the resolution that approves them, whatever the moment.
6. Those that, in accordance with this Law, result from benefits charged to the bankrupt party in contracts with reciprocal obligations pending fulfillment that remain in force after the declaration of bankruptcy, and from obligations of restitution and compensation in case of voluntary resolution or breach by the bankrupt party.
7. Those that, in cases of payment of credits with special privilege without the realization of the affected assets or rights, in the rehabilitation of contracts or in the enervation of eviction and in the other cases provided for in this Law, correspond to the amounts owed and those with future maturity charged to the bankrupt party.
8. Those that, in cases of bankruptcy rescission of acts performed by the debtor, correspond to the return of considerations received by him, unless the sentence appreciates bad faith in the holder of this credit.
9. Those that result from obligations validly contracted during the procedure by the bankruptcy administration or, with its authorization or conformity, by the intervened bankrupt party.
10. Those that result from obligations arising from the Law or from the non-contractual liability of the bankrupt party subsequent to the declaration of bankruptcy and until its conclusion.
11. Fifty percent of the credits that represent new cash inflows and have been granted within the framework of a refinancing agreement, under the conditions provided for in article 71.6. In the event of liquidation, the credits granted to the bankrupt party within the framework of an agreement in accordance with the provisions of article 100.5. This classification does not apply to cash inflows made by the debtor himself or by specially related persons through a capital increase operation, loans, or acts with a similar purpose.
12. Any other credits to which this Law expressly attributes such consideration.

These are the claims that have been generated prior to the declaration of bankruptcy and are divided into:

1. Claims secured by a voluntary or legal mortgage, real or personal, or by a pledge without transfer of possession, on the mortgaged or pledged assets or rights.
2. Claims secured by antichresis, on the fruits of the encumbered property.
3. Refactionary credits, on the refactioned assets, including those of workers on the objects made by them while they are the property or in the possession of the bankrupt party.
4. Claims for financial leasing installments or deferred payment sale installments for movable or immovable property, in favor of the lessors or sellers and, where appropriate, the financiers, on the leased or sold goods with reservation of title, with a prohibition on disposal or with a resolutory condition in case of non-payment.
5. Claims with a guarantee of securities represented by book entries, on the encumbered securities.
6. Claims secured by a pledge constituted in a public document, on the pledged assets or rights that are in the possession of the creditor or a third party. If it is a pledge of credits, it will be sufficient for it to be recorded in a document with a reliable date to enjoy privilege over the pledged credits. The pledge as a guarantee for future credits will only attribute special privilege to credits arising before the declaration of bankruptcy, as well as to credits arising after it, when by virtue of article 68 their rehabilitation is carried out or when the pledge was registered in a public registry prior to the declaration of bankruptcy.

1. Wage claims that do not have special privilege recognized, in the amount resulting from multiplying triple the minimum interprofessional wage by the number of days of salary pending payment, indemnities derived from the termination of contracts, in the amount corresponding to the legal minimum calculated on a basis not exceeding triple the minimum interprofessional wage, indemnities derived from work accidents and professional diseases, accrued prior to the declaration of bankruptcy. The same privilege will be held by the Social Security cost capitals for which the bankrupt party is legally responsible, and the surcharges on benefits for non-compliance with obligations in matters of occupational health, provided they are accrued prior to the declaration of bankruptcy.
2. The amounts corresponding to tax and Social Security withholdings due by the bankrupt party in compliance with a legal obligation.
3. The claims of natural persons derived from non-dependent personal work and those corresponding to the author himself for the transfer of the exploitation rights of the work subject to intellectual property, accrued during the six months prior to the declaration of bankruptcy.
4. Tax claims and other public law claims, as well as Social Security claims that do not enjoy special privilege in accordance with section 1 of article 90, nor the general privilege of number 2 of this article. This privilege may be exercised for the set of claims of the Public Treasury and for the set of claims of the Social Security, respectively, up to 50% of their amount.
5. Claims for non-contractual civil liability. However, uninsured personal damages will be processed in concurrence with the claims listed in number 4 of this article. Claims for civil liability derived from a crime against the Public Treasury and against the Social Security.
6. The claims that represent new cash inflows granted within the framework of a refinancing agreement that meets the conditions provided for in article 71.6 and in the amount not recognized as a claim against the estate.
7. The claims of which the creditor at whose instance the bankruptcy was declared was the holder and which were not of a subordinated nature, up to 50% of their amount.

All bankruptcy claims that are not privileged or subordinated.

1. Claims that, having been communicated late, are included by the bankruptcy administration in the list of creditors, as well as those that, not having been communicated, or having been so late, are included in said list by subsequent communications or by the judge when ruling on its challenge. Claims under article 86.3, claims whose existence results from the debtor's documentation, those recorded in a document with executive force, claims secured with a real guarantee registered in a public registry, those that are otherwise recorded in the bankruptcy or in another judicial proceeding, and those others for whose determination the verification action of the public administrations is necessary, will not be subordinated for this reason, and will be classified as appropriate.
2. Claims that by contractual agreement have a subordinated character with respect to all other claims against the debtor.
3. Claims for surcharges and interest of any kind, including moratorium interest, except for those corresponding to claims with a real guarantee up to the extent of the respective guarantee.
4. Claims for fines and other pecuniary sanctions.
5. The claims of which any of the persons specially related to the debtor referred to in the following article is the holder, except for those included in article 91.1 when the debtor is a natural person and the claims are different from loans or acts with a similar purpose of which the partners referred to in article 93.2.1 and 3 are holders, who meet the conditions of participation in the capital indicated therein.
6. Claims that as a consequence of bankruptcy rescission result in favor of whoever has been declared a party in bad faith in the challenged act in the sentence.
7. Claims derived from contracts with reciprocal obligations referred to in articles 61, 62, 68, and 69, when the judge finds, after a report from the bankruptcy administration, that the creditor repeatedly obstructs the fulfillment of the contract to the detriment of the interest of the bankruptcy.

The most important effect that occurs once a company's bankruptcy situation has been declared is that, for the moment, the bankruptcy creditors will not be paid their claims. The law aims for all creditors to have the same opportunities for payment (taking into account that the Bankruptcy Law itself establishes the order of priority of claims) and thus, that some creditors do not get paid before others because they were faster or because they were chosen arbitrarily by the bankrupt company.The most important consequences that occur from the declaration of bankruptcy are the following:

• The process is being supervised by the bankruptcy administration appointed by the judge, which looks after the interests of the creditors.
• The credit included in the “passive estate” remains on the balance sheet, with no possibility of payment by legal imperative, until the bankruptcy procedure has been fully substantiated, through a definitive report from the administrators, and an approved Creditors' Agreement.
• A procedure for reviewing and confirming the total debt of the bankrupt company is established, with due procedural guarantees and deadlines for its presentation, and with the possibility of challenge in case of disagreement. In this process, the outstanding balances are quantified and classified as privileged, ordinary, or subordinated debt.

No enforcement proceedings may be initiated.

• Creditors with real security may not initiate execution until the agreement is approved or one year has passed since the declaration of bankruptcy without liquidation having occurred.
• The offsetting of credits and debts of the bankruptcy is not permitted.
• The accrual of interest will be suspended, except for that corresponding to credits with real security.

The bankruptcy proceeding will end in one of the following ways:

• PAYMENT of all bankruptcy claims to all its creditors.
• By reaching an AGREEMENT with the creditors and continuing its activity so that the assets are preserved at the service of the activity.
• By proceeding to the LIQUIDATION of the bankrupt company, which entails the termination of the activity and liquidation of the Assets.