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New moratorium on insolvency proceedings

| News | Restructuring and Insolvency

Claudio Aguiló explains the approval of the new moratorium on the obligation to file for insolvency proceedings in El Economista.

The economic - and social - health crisis caused by the appearance of COVID-19 is well known and has led to a multitude of companies in different sectors becoming insolvent and incurring economic losses.

To mitigate the impact of this situation, a year ago the government began to implement measures aimed at injecting liquidity through the well-known ICO lines which, in the words of the Bank of Spain, have been granted with a certain relaxation of the criteria and conditions for their concession by the banks, which we have no doubt will have inevitable consequences when the grace periods come to an end. Furthermore, with the clear aim of extending the life of companies during this period of losses and defaults, the government agreed to suspend the duty of company administrators to request the declaration of insolvency of their companies so that, even if they are in insolvency proceedings, they do not request it; in other words, it agreed to allow the survival of those companies so that even without apparent viability they can remain in the market accumulating debts and defaults and thus create a false illusion of the real economic situation.

This second measure began in April 2020 and, to see how the pandemic situation would affect the business world, a time limit was set until 31st December 2020. Until the same date, the admissibility of any bankruptcy proceedings brought against debtors was also suspended. Subsequently, this measure was extended until 14th March 2021 and now, we are at the anniversary of the first COVID-19 state of alarm, it has been extended once again.

In this complex scenario, we believe that the first moratorium should serve to allow entrepreneurs to detect problems in advance and thus, in conjunction with other employment, commercial and fiscal measures established by the Government, they could carry out an analysis of their business model and, if necessary, their business restructuring without any apparent fear of non-compliance with their duties and obligations.

The truth is that few companies have done their homework and solved their problems. Many of them have taken a flight forward. According to data from the Bank of Spain, the percentage of companies under financial pressure has risen from 13% in 2019 to 40% in the case of SMEs and it considers that insolvency levels could reach percentages close to 20%.

According to data published by the INE, in 2019 a total of 7,772 insolvency proceedings were filed while in 2020 a total of 6,718 were filed, i.e., 15.7% less; all this when 2020 has been the year with the greatest economic decline since the Civil War. This data alone should be enough to warn us that something is happening: many companies are surviving by defaulting on payments to their creditors, tax deferrals that they will probably never be able to meet and acquiring external financing that they will probably never be able to repay. Be incredibly careful, everything points to the fact that the elements are in place for the perfect storm.

Let us realise that, through the continuous moratoriums, the government is only suspending the bankruptcy responsibility of requesting its declaration, but nothing is said about the public credit, that is, the Treasury and Social Security. We could have expected the government not to eliminate its insolvency privilege, which would have helped so much in achieving the creditors' agreements, but what less could we expect than an imposition of an obligation on these creditors to support the agreements presented by the debtor.

Be that as it may, we will see what position this type of public creditor will take when it sees its claims harmed by unsatisfied deferrals or for any other reason, we will see if it also chooses to soften the obligations that are demanded of the company administrator or, on the contrary, will act for the derivation of liability against them for not having acted diligently. As was said when crossing the Rubicon: the die has been cast.


Read the complete article in El Economista

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