«Concurso de acreedores». The spanish way for business insolvency.

Do you know what an «Concurso de acreedores» (Insolvency proceeding) is?

When a company is insolvent, i.e. it is unable to meet its current payment obligations, it can file for a «Concurso de acreedores», that means insolvency proceedings. It can be either voluntary or necessary insolvency proceedings.

What is the difference between them?

If it is voluntary, it is the company itself that proposes the insolvency proceedings, whereas if it is necessary, it is the creditors to whom the company owes money who propose the proceedings.

First it will have to be demonstrated that the company really is insolvent or will be imminently insolvent. This is called the pre-insolvency phase, because, as the name suggests, it is carried out before the insolvency proceedings.

*As of friday 8th, when the «Reforma concursal» comes into effect, the «Plan de reestructuración» will be used for theses cases. In the nexts days, on the blog will be talking about it

What does the «Concurso de acreedores» do?

What it does is protect the company’s assets. Why? There is a logical explanation. If a creditor denounces the company for non-payment, the company’s assets will be seized in order to pay the debt. But if the company has debts with more than one creditor, all the other creditors will lose out. Therefore, the assets are protected, avoiding the embargo so that most of the creditors can recover the money or part of it.

How will they recover the money?

There are two ways:

Through an agreement.
Through the liquidation of the company.

Agreement

The agreement is based on an arrangement between the company and the creditors where conditions are set that the company will have to comply with, these are called «quitas y esperas» (waivers and waits). They are so called because part of the debt is removed or the company waits to be able to pay it, depending on what is agreed. If the agreement is not accepted or the agreement is breached, the company will go into liquidation.

«La Refomar concursal» (The reform of the insolvency law) that has been approved this friday, will modify the agreement process. What the reform dictates is that the agreement will be made in the pre-insolvency phase, the general rule being liquidation if an agreement is not reached.

Liquidation

Liquidation is based on the distribution of all the company’s capital, which will disappear. It will be distributed among the creditors, including the profit from the sale of the properties.

Qualification of the insolvency proceedings

While the insolvency proceedings are being carried out in parallel, an insolvency administrator is appointed, who is responsible for the qualification of the insolvency proceedings, among other things. He will declare it fortuitous if the insolvency has been reached due to the situation and the circumstances, or guilty if it is due to mismanagement by the entrepreneur.

If the result is culpable, the entrepreneur will be liable with his own assets (regardless of whether the company has limited liability).

Do you know what financial restructuring plans are?
It is a new tool put at our disposal by the insolvency reform to be able to «save» those viable companies from an insolvency proceeding.
We were already working in this way before the reform, studying each case in a particular and customized way, looking for the best solutions to avoid closure or liquidate in the least painful way.We are experts in financial management, and we also have lawyers specialized in Insolvency Law.

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