Spain: Nobody likes the bankruptcy reform law

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JC González Vázquez * | On August 3rd, the Council of Ministers finally passed the long-awaited draft law to adapt our insolvency law to EU Directive 2019/1023 on preventive restructuring frameworks, debt relief and exclusion. In addition, measures to increase the efficiency of restructuring, insolvency and debt relief procedures.

It was hoped for because it was thought it would help save companies that were going through a difficult period but viable. However, those hopes were dashed when the contents became public. The bill was heavily criticized by all parties concerned and the high number and length of the allegations made show that the bill was unanimously rejected. And unfortunately we have to join most of the criticism. Of course, not all is negative as the European directive provides for certain changes that will improve our current regulatory system.

Since this is an excerpt from an article published in revistaconsejeros.com We cannot go into too much detail, so we are going to highlight three general aspects that permeate the whole reform. In our opinion, these denote the misguided attitude in which the implementation of the aforementioned directive was approached.

First, the unhealthy and fuzzy overprotection of anything that has to do with “work” or “what is public” (especially, but not limited to, work credits and public credits). Since the curtailment of the privileges for these loans in the Insolvency Act 2003, these privileges and protection have been increased in successive reforms despite widespread national and international criticism.

The same mistake is made in this bill. For example, restructuring plans are prevented from affecting jobs or public credit. What we find most shocking, however, is that there is no exemption from financial liability with public loans. And those who have received fixed administrative sanctions in the past 10 years or for whom criminal offenses classified as fraudulent are inferred will not be able to claim this exemption.

Second, the misconception that in order to speed up and make bankruptcy proceedings cheaper, one must reduce or even abolish the involvement of private insolvency administrators. As if they were responsible for making this process too long or not being very efficient at collecting creditors.

During the most recent reforms of insolvency law, especially since 2014-2015, there was a clear bias towards insolvency administrators, which in this draft law was extended to other professional groups involved in insolvency proceedings. Indeed, their presence in special procedures is not mandatory in relation to micro-enterprises. This bias is also reflected in the fact that their fees are halved if the various procedural phases continue for a certain number of months – as if they were responsible for the excessive procedural duration – and if a single procedure is carried out public platform for all electronic auctions. Quite the opposite of what the government did during the pandemic by promoting out-of-court settlements that have proven to be quite successful over the past year and a half.

Third, the lack of a clear definition of some key issues can be a source of conflict. For example, it is not clear what is meant when bridging finance is “necessary and appropriate” or from a restructuring expert who must be experienced in the field. This is in direct contradiction to the European Directive, as this expert can be appointed by debtors and creditors without the need for a review by an administrative or judicial authority.

To make matters worse, there is no provision for appeals against decisions and judgments in special proceedings that affect micro-enterprises. An attack on the right to legal protection that could make the bill unconstitutional.

In short, this bill was drafted from a perspective distorted by some unfounded ideological prejudice, without taking into account the reality of our courts and Spanish bankruptcy practice. As a result, we are very pessimistic about the possibility of a change during the passage through Parliament.

Lecturer in Business Law (UCM) | Partner at CECA MAGÁN law firm

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