Congress approves the new bankruptcy law: main amendments
The Congress has approved in plenary session the draft Law for the Reform of the Concursal law, whose objective is the transposition of the European Restructuring and Insolvency Directive, and introduces other reforms in the field of insolvency in order to have agile and effective instruments that improve insolvency procedures and facilitate the maintenance of viable companies. In short, they reinforce the productive fabric.
The new text incorporates a significant number of issues agreed upon in the amendment phase, improving the draft text, on issues such as exemption from public credit, legal assistance in bankruptcy proceedings, the special procedure for micro-SMEs, balancing it to the real size of said companies, the favoring of the possibility of acquisition of productive units by workers constituted in a cooperative or labor society, among others.
This bill constitutes one of the most important reforms included in the Recovery, Transformation and Resilience Plan to favor business demography, reinforce the productive fabric and boost economic growth.
This is a text aimed at ensuring that viable companies that are in financial difficulties have access to an effective preventive restructuring procedure that allows them to continue their activity; that entrepreneurs or insolvent individuals can see their debts exonerated after a reasonable period of time, favoring the second chance; and that the insolvency procedure increases its efficiency by reducing, among other factors, its duration.
It should be noted that the bill pays special attention to micro-enterprises, which will have a procedure specifically adapted to their needs and characteristics, guaranteeing legal assistance.
The reform is especially important in the current economic context, marked by the effects of the pandemic and the war in Ukraine, since the availability of this type of efficient and agile restructuring instruments will help minimize the impact on the production and the maintenance of viable companies and businesses.
The restructuring plans, which replace the current refinancing agreements, are one of the central elements of the Insolvency Directive and of the reform of the Concursal law to make it easier for viable debtor companies to have an effective instrument to avoid or exit insolvency.
It is a pre-bankruptcy instrument, aimed at companies with difficulties, which favors a restructuring in case of probability of insolvency, compared to the current requirement that it be imminent.
The Restructuring Plan constitutes a flexible mechanism, agile from the procedural point of view, which incorporates the best practices of other models of comparative law to contribute to its effectiveness. Its introduction will encourage an earlier restructuring and, therefore, with greater chances of success, it will contribute to the decongestion of the commercial courts, free up resources and allow for greater efficiency in bankruptcy proceedings.
Special procedure for freelancers and SMEs
Likewise, the bill introduces a new single insolvency procedure for the self-employed and micro-companies with less than 10 workers, faster, digitized and with a very low cost that increases the possibility of continuity of viable companies and facilitates the reallocation of resources.
This procedure is characterized by the simplification of the bankruptcy process, its modular nature and by offering, after a period of negotiation with the creditors of a maximum of three months, two possible itineraries:
Or a fast and flexible continuation plan, if an agreement is possible.
Or, failing that, by an orderly but quick settlement through an online platform.
The second chance procedure is being reformed in depth, aimed at natural persons and the self-employed in bankruptcy, with the aim of encouraging beneficiaries to continue with their work or business activity and enabling a truly effective second chance.
The bill introduces additional measures to those provided for in the Insolvency Directive, among which the possibility of exoneration without prior liquidation of the debtor’s assets and with a payment plan to creditors stands out, allowing the debtor, under certain conditions, to maintain their habitual residence and, if self-employed, continue with their activity and with the assets and rights necessary for it.
The payment plan will have a maximum duration of three years, which will be extended to five when the debtor’s habitual residence is not sold.
Likewise, the list of exonerable debts is extended, the amounts of exempt public credit are increased and certain restrictions are eliminated or relaxed to be able to access exonerations.
Finally, the bill also includes the reform of the bankruptcy procedure to increase its effectiveness. With this objective, numerous modifications are introduced aimed at streamlining the procedure and facilitating the approval of an agreement when the company is viable, facilitating the sale of productive units or, where appropriate, their liquidation.
The Congress refines the text in response to the requests of groups involved in the procedure, such as the registry, the bankruptcy administration and the legal profession.
Modification of the Organic Law of the Judiciary
As a necessary complement to the efficiency measures contained in the Bill, it is essential to relieve the jurisdiction of the commercial courts and the specialized sections of the provincial courts. These measures require the modification of the Organic Law of the Judiciary, for which a second reform is presented, as the Organic Law, complementary to that of the Bankruptcy Law.
This reform contemplates, among the most outstanding measures, that the courts of cases on general conditions of contracting and on consumer protection and certain claims in matters of transport (airline delays, baggage, etc.) go from the courts of commercial matters to the courts of first instance.
Finally, knowledge of the insolvency of non-business natural persons will return to the commercial courts.
For all these reasons, we invite you to seek advice from the insolvency department of our firm, since the second half of the current financial year 2022 and financial year 2023 do not augur a good economic situation, and you must be prepared for possible undesirable situations, but real.
MITJANS ADVOCATS SLP