The Royal Legislative Decree 1/2020 of May 5, approving the revised text of the new Spanish Insolvency Law, was published on May 7th on the Spanish Official State Gazette.
Just a few days after the publication of Royal Decree Law 16/2020, which introduced important innovations in Insolvency Law, a new legal text is published that, although it is a consolidation and harmonization of bankruptcy regulations that were already in force, can generate quite a bit of confusion among lawyers and judges as well as among the general public who until now were completely unaware of the matter and who suddenly find themselves with a text of more than seven hundred articles, which will be in force in less than four months and is going to coexist with the regulations introduced to mitigate the effects of COVID-19 for companies in difficulties.
Therefore, and without prejudice to the fact that in the coming weeks Ramón y Cajal will issue monographic Newsletters on this new law and convene Webinars to deal with it, we believe that it is necessary to answer two questions:
When does the new Spanish Insolvency Law come into force?
The second final provision of Royal Legislative Decree 1/2020 provides that the entry into force will take place on September 1, 2020. This means that until that time the current Insolvency Law, 22/2003, of July 9, will remain in force and fully applicable.
What happens to the urgent measures regarding insolvency matters approved on April 28th through the Royal Decree Law 16/2020?
Said measures, and without prejudice of any other legislative changes that may be introduced, will remain in force beyond September 1, 2020 and in any case will have priority application over the provisions of the current Spanish Insolvency Law 22/2003, of July 9, as well as over the new Spanish Insolvency Law regulated in Royal Legislative Decree 1/2020. These measures are exceptional and applicable during a specific period of time as a consequence of the effects of the pandemic.
Some of the essential temporary milestones of Royal Decree Law 16/2020 are the following:
Refinancing agreements
- Until March 14, 2021, the debtor who already had a judicially-approved refinancing agreement may inform the Insolvency court that it has started or intends to start negotiations with creditors to modify the current agreement or reach a new one.
- Until September 14, 2020, the Insolvency Court will inform the debtor of any requests for a declaration of default filed by creditors so that it might begin negotiations with creditors to modify the agreement.
Special temporary regime to request the insolvency declaration by any creditor
- Until December 31, 2020, the duty to request insolvency proceedings is postponed, even if the debtor is in a state insolvency. However, any creditor in that period may initiate enforcement proceedings against the debtor's assets. The only way to stop said enforcement process will be filing a writ by the debtor informing about the beginning of negotiations with creditors in which case, the time limit to present the insolvency will be the one established by the applicable rule (three months to negotiate plus additional month to file for insolvency).
- Until December 31, 2020, no necessary insolvency writ filed by a creditor will be processed by any Court.
Financing by parties specially related to the debtor
- In any bankruptcy proceedings declared by the Courts until March 14, 2022, cash revenue from loans, credits or other businesses of a similar nature granted out by parties specially related to the debtor will be considered ordinary credits.
- In the creditor’s agreements approved or modified before March 14, 2022, the economic contributions by any specially related person to the debtor will be considered as credit against the bulk.
Challenges to the inventory and creditors list
In the insolvencies declared until March 14, 2022, regarding challenges against the inventory and the list of creditors presented by the insolvency administration:
- The only admissible means of evidence will be documentary and expert evidence.
- Failure to answer the lawsuit by any defendant will be considered acquiescence unless they are public law creditors.
- The means of proof must necessarily accompany the lawsuit or the reply.
Possibility to modify the creditor’s agreement
Until March 14, 2021, any company in insolvency proceedings in the compliance phase of the agreement, may submit a proposal to modify an agreement during the compliance period.
Postponement of the duty to request the opening of the liquidation phase
Until March 14, 2021, the insolvent debtor that is in the compliance phase of the agreement will not have the obligation to request the opening of the liquidation period.
Sale of assets of the debtor
In any insolvencies that are declared until March 14, 2021 and in all those that are pending until that date, the auction of assets and rights of the debtor will be non-judicial, even if the liquidation plan provided otherwise. The only exemptions to these rules are the sale of the company as a whole or of one or more productive units, which may be carried out by judicial or non-judicial auction.
