Spanish bankruptcy legislation has special means to prepare companies and professionals for a future bankruptcy. They will be helpful to solve many of the complicated issues at stake, during and after the Co-vid crisis.

Companies can be protected through a preventive restructuring, before they enter into greater difficulties. It is a system to protect the viable sectors or lines of business within the company.  

Furthermore, the situation of the company’s directors and shareholders who have guaranteed the company’s debts with their personal assets, is also protected in Spain. Our Law gives them a “Second Opportunity” through the forgiveness of their personal debts. This is a way to make easier to the entrepreneur the starting of a new entrepreneurial activity, under the premise that the situation of over-indebtedness is provisional.

The mechanisms provided in bankruptcy regulations to anticipate and prevent insolvency are:

  • Pre-bankruptcy proceedings: Article 5 Bis of the Spanish Bankruptcy Law;
  • Refinancing agreements;
  • Extrajudicial “creditors agreements”. The debtor, informs the Court that it is in negotiations with creditors to reach a refinancing agreement.

These pre-bankruptcy procedures have the following effects: 

Extension of the 2-month period that Spanish Law confers on debtors to request the bankruptcy protection, so that Directors are not declared guilty of the bankruptcy.  

Inadmissibility, for 3 months, of the bankruptcy claims that may be served by creditors. 

Prohibition of judicial and extrajudicial executions on the debtor’s assets, or suspension of those already initiated. 

These are interesting procedures, to limit the personal liabilities of companies’ Directors and shareholders, in these very complicated times.

Pilar Pallares.