Companies will no longer be able to continue to be wound up after the 2022 accounting close.
The countdown begins. There is very little time left to find partners or convince creditors to capitalise their debt. In the final stretch of the 2022 financial year -there are two months left until the year-end accounts close-, those companies that are already in dissolution or expect to be in dissolution on 31 December must hurry to find solutions: they have time until the end of February. Four months from now.
As the Capital Companies Act states, the cause for dissolution arises when, due to losses, equity has fallen below half of the share capital. This is a situation in which, foreseeably, thousands of companies are already or will be at the end of the year. In 2020 and 2021, this had no consequences because when the pandemic broke out, the government suspended the obligation of company directors to restore the equity balance. It was a way of betting on the continuity of the companies, probably thinking that future profits would help to compensate for the extraordinary losses of those years. And that everything would be more bearable?
The basic options are to turn to existing or new partners or to capitalise part or all of the creditors’ debt.
But this has not been the case. Generally speaking, profits in 2022 are rather meagre: the recovery in sales is relative or partial in many cases and inflation has narrowed the margins of companies, which are also seeing how financial costs are already rising. What are companies in difficulty doing?
Authoritative voices indicate that some have considered restructuring plans or filing for insolvency proceedings, while others are considering classic solutions, such as calling a shareholders’ meeting to increase capital or capitalise debt. Others indicate that companies are taking measures, such as converting financing into equity loans (which are treated as equity for accounting purposes), seeking contributions from existing or new shareholders, or undertaking corporate reorganisations that serve to restructure the balance sheet.
The year-end accounting close will require many companies to make decisions.
The casuistry is immense and, on the basis that what has been experienced in recent years has been extremely complex to manage, there is often a certain lack of action. We are seeing situations and there are also cases of companies that have been kept alive artificially, with a certain amount of abuse on the part of the administrators, who have felt protected by the covid moratorium, and this is coming to an end.
The reform of the insolvency law, in force since the end of September, opens up new possibilities for insolvent companies or companies at risk of insolvency, such as restructuring plans. Unlike traditional insolvency management, in which the debtor and the creditors were on different sides, these plans can solve liquidity and solvency problems at the same time by allowing certain groups of creditors – usually financial – to become shareholders.
And how do banks see it? They look at the balance sheets, whether they are sound or not, and not so much at whether they are going to have to re-establish a balance sheet; for financial institutions, what is important is that there is a plan for the future with prospects of getting ahead. If this plan exists, the solutions will come.
At our firm, we help to detect situations of solvency risk for companies, and we apply and/or propose restructuring plans that are perfectly plausible in our legal-business environment.
The law is there to be applied, no matter how bad an image or impression it may give to clients and suppliers, but we understand that it is always better to “go head-on” and for both parties to actively participate in “saving” the company, that is to say “saving” the creditor’s own credit, than to file for insolvency proceedings “by treachery”.
Difficult times are just around the corner, and it is the responsibility of the company’s management body to face them responsibly and diligently.
Commercial – Insolvency Department
MITJANS ADVOCATS SLP.