Start of main content

Reconsidering the benefits of the bankruptcy law

| News | Litigation

Javier Mata says that any sanctioning component must be removed from the universal process

After almost 20 years of the bankruptcy law, the legislator still considers, and does not redress, that the bankruptcy law has a certain sanctioning component and has only put a supposed temporary and circumstantial solution.

In 2020, the person or company that is unable to meet its obligations is not obliged to file for bankruptcy without fearing that the bankruptcy will be found guilty by a late application. It is tempting to wait.

In the meantime, if the circumstances that led to the insolvency do not disappear, the economic situation of the insolvent person will get worse and worse, and when 1st January 2021 comes around, despite not paying the liabilities due for 2020, it is more than possible - surely - that the insolvency proceedings will only be the death certificate.

This legislative provision will be of little use as soon as the creditors, legitimately, start legal action to claim their receivables. Only a pre-insolvency or bankruptcy filing will be able to paralyse seizures and foreclosures and prescribe a negotiation between creditors and debtors for the settlement of liabilities.

Despite the benefits of the pre-bankruptcy or bankruptcy file, there is an important number of companies (especially SMEs) that "flee" from the bankruptcy scope despite being in an insolvency situation.

And one of the efficient reasons for this flight is the fear of the consequences of the classification of bankruptcy.

I propose taking the classification from the bankruptcy file. It is in it because of a historical obstacle that arises from the old concept of "debtor’s prison" in Roman Law, which was accepted in the old bankruptcy system - "the arrest of the bankrupt"- and qualified, first, in the Law of Suspension of Payments and then in Bankruptcy Law.

Does the classification section, of a punitive and quasi-criminal nature, serve the interests of the bankruptcy? In my opinion, no. Its main objective (to reshape the assets) can be obtained by other means as it has been ineffective as a means of reshaping the assets which, on the other hand, has its natural redress in reinstatement actions.

If the bankruptcy administration or any creditor has grievances against the administrators, liquidators, or even partners of the bankrupt company, it could resort, but outside the bankruptcy, to the ordinary remedies; (1) actions of liability of administrators that during the bankruptcy can only be exercised by the bankruptcy administration; (2) civil actions on contractual or non-contractual liability; (3) criminal actions for accounting offences or punishable insolvency.

The rating section produces distortions in the insolvency proceedings in those cases where, because of the scarce assets or their zero net asset value, it is more burdensome -in time and cost- to process them than the result to be obtained for the creditors.

It prevents its conclusion, unless the bankruptcy administration is bold, investigates the assets of the possible affected parties, and reasons the Court that the rating will be ineffective.

Considering that most companies in Spain (service companies and small businesses, where their partners and administrators - by way of guarantees - also become insolvent), this situation is quite frequent.

The fear of rating conditions the filing of a lot of insolvency proceedings. It is the cause of the disorderly liquidation of thousands of companies that would have the possibility of surviving through an insolvency proceeding strategically aimed at reaching an agreement, simultaneously with the implementation of the necessary business management measures under the protective "umbrella" of the insolvency proceeding.

However, the awareness of having carried out unorthodox accounting or the performance of operations leading up to the bankruptcy, out of mere survival instinct, that would lead to a guilty rating of the bankruptcy, makes it preferable to assume the risk of de facto liquidation of the company.

We must return to the classic concept of the "benefit" of the bankruptcy file and for this purpose, any sanctioning component must be extracted from the universal process leaving as a residual the judicial intervention in a file that must have a business and technical solution.

You can see the article in Actualidad Jurídica Aranzadi

End of main content