The flexibilization of bankruptcy proceedings after the COVID-19 crisis.

The flexibilization of bankruptcy proceedings after the COVID-19 crisis.

In view of the more than foreseeable increase in insolvency proceedings, new temporary insolvency measures have been introduced in an attempt to avoid the massive destruction of the Spanish businesses.

As a general rule, a company that notices a situation of current or imminent insolvency must file an application for bankruptcy proceedings or, where appropriate, enter into negotiations with its creditors that will enable it to remedy the situation within two months.

If this rule is fully applied, and given the current situation of lack of liquidity of many companies, which have been closed for almost two months, the applications for insolvency proceedings would collapse commercial courts that already receive more than twice as many cases per year as they can handle. This situation could lead to the closure of thousands of companies, which would see their situations aggravated by the inability to receive an agile judicial response that would allow them to overcome the situation or, if necessary transfer the company to a third party that could continue the activity and maintain the jobs.

To try to avoid these negative effects, Royal Decree-law 16/2020 introduces exceptional and temporary insolvency measures that allow companies to gain time to restructure their debt, obtain more liquidity and compensate the losses generated during this exceptional period, either by recovering their activity or by accessing credit lines or public aid. The most immediate measures in this regard are the extension of the deadline for filing for bankruptcy until 31 December 2020, and not take into account the losses accumulated in the financial year 2020 for the purpose of establishing the legal grounds for dissolution due to losses. Moreover, during this period the courts will not admit any claims for bankruptcy filed by creditors since the declaration of the state of alarm.

Other measures aimed at obtaining fresh money from companies include the possible classification of credits against the company’s assets – i.e. those which, in the event of bankruptcy, are paid as a priority – of those claims arising from cash receipts in the form of loans, credits or the provision of guarantees in favour of the debtor, and this even if the borrowers are persons especially related to the company in bankruptcy (usually, its shareholders or relatives of the latter). Similarly, the Royal Decree-law provides that the credits of persons especially related to the debtor in insolvency proceedings that are filed within two years of the state of alarm are classified as ordinary and not subordinated credits.

Finally, and regarding those companies which, prior to the declaration of the state of alarm were already complying with an agreement with creditors, an out-of-court settlement or an approved refinancing agreement, may postpone the application for the opening of the liquidation phase and request, instead, the modification of the agreement or settlement.

If you have any doubts or queries about these new measures, you can contact us at

Marinel-lo @ Partners