Preparing for the end of the insolvency moratorium
4 July 2022
The insolvency moratorium
As part of the measures to address the consequences of the pandemic, the Spanish legislature introduced the so-called insolvency moratorium, which temporarily suspended the obligation to file for insolvency and protected the debtor against potential insolvency petitions by creditors, allowing the debtor to seek a temporary solution.
Other European countries adopted similar measures, and have gradually withdrawn them as the pandemic progressed.
The Spanish insolvency moratorium has been extended several times, and finally came to an end on 30 June.
Aspects to consider as the insolvency moratorium comes to an end
a) Debtors in a situation of actual insolvency must once again file for insolvency within two months of becoming insolvent, unless they file a communication with the corresponding commercial court informing that they intend to start negotiations with a view to reaching a refinancing or in-court creditor agreement (convenio de acreedores) ( “Pre-Insolvency Notice”).
If they do, the period to file for voluntary insolvency will be extended to a maximum of four months from the date the Pre-Insolvency Notice is filed, provided the debtor remains in an actual insolvency situation at the end of this period.
- Cash-flow test: a debtor is in an actual insolvency situation if it is unable to pay its debts regularly as they fall due.
- Insolvency may be classified as negligent (culpable) if the debtor fails to file for voluntary insolvency by the deadline provided to this end. It is therefore very important to not lose sight of these legally stipulated deadlines.
b) Debtors in an actual insolvency situation before 30 June would have two months to file for insolvency as from 30 June (article 6.1 of Law 3/2020 of 18 September as restated in Royal Decree-Law 27/2021 of 23 November) unless they file a Pre-Insolvency Notice.
c) From 1 July, creditors can again file an involuntary insolvency petition (solicitud de concurso necesario).
d) From that date on, involuntary insolvency petitions filed during the moratorium but which the commercial court in question has not yet admitted would continue to be processed, except in the following cases:
- The debtor filed the Pre-Insolvency Notice prior to the creditor’s involuntary insolvency petition. In this case, the creditor’s petition would be suspended and will only be processed if the debtor does not file for insolvency by the deadlines provided to this end (article 594 of the Insolvency Law).
- The debtor filed for voluntary insolvency before the end of the insolvency moratorium.
e) The bill to reform the Insolvency Law to implement Directive (EU) 2019/1023 of 20 June is currently undergoing parliamentary scrutiny but is expected to be finally approved by the end of July. Pre-Insolvency Notices and applications for insolvency proceedings filed after the end of the insolvency moratorium but before the new law enters into force will (generally) be regulated by the current Insolvency Law. However, the following should be taken into account:
- Any transitional provision that may apply in accordance with the final wording of the new law.
- The potential advantages and disadvantages for debtors, creditors, etc. of the current Insolvency Law compared with the new law. On this basis, it might be preferable to start the process before the new law enters into force or to wait for it to be implemented, depending on each party’s specific interests and the strategy at hand.
The operational and legal management of insolvent companies during the insolvency moratorium has been very difficult, particularly with regard to director liability. Even though the obligation to file for insolvency was suspended, directors had to act diligently to avoid making the insolvency situation worse and causing greater damage to third party interests.
This situation may become even more complex from now on once the insolvency moratorium is lifted. Therefore, debtors and creditors should explore ways of reaching a restructuring agreement (through refinancing, raising new money or capital, etc.) in order to avoid insolvency. If this is not possible, potential pre-pack sales with new investors may be worth exploring as well.
In any case, the legal obligations in the abovementioned scenario should not be disregarded.
Getting specialised legal advice to navigate through these troubled waters is highly recommended.
