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How to Defend my Credit within a bankruptcy

defending credit within a bankruptcy

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It is common for companies with which one deals and trades with to face a complicated economic situation. Even more common under our current economic circumstances. Sometimes the only way out of this situation is to file bankruptcy. Yes, it happens.

Regulation around this have endured many regulatory changes over time, most recent upon the arrival of the pandemic and the need to streamline procedures is more common. In Spain, we currently have Law 16/2022, of September 5, reforming the consolidated text of the Bankruptcy Law on frameworks for preventive restructuring, debt relief and disqualification, and on measures to increase the efficiency of restructuring, insolvency and debt relief procedures. Along with an amending Directive (EU) 2017/1132 of the European Parliament and of the Council, on certain aspects of company law (Directive on restructuring and insolvency).

We refer to this current text to understand the playing field we have to defend our interests.

In this article, we focus on the point of view of the person (individual or legal entity) to whom money is owed by someone who files for insolvency.

What should I do if a debtor goes into bankruptcy?

First of all, do not consider the money to be lost. It can be recovered and we are here to advise you on ways to go about getting it back.

Once you know the bankruptcy situation of the debtor, you should contact a lawyer to evaluate the situation and help you communicate your credit. In general, most credits are ordinary. In the case you have a guarantee or similar, a lawyer informs you and tells you what rating the credit will be.

*Important advice: Don’t be late for the one-month communication period. Have a list of debtors and follow up on the Public Bankruptcy Registry. We can do it for you.

What will the future of my credit be?

Assuming your credit is considered an ordinary credit (the most common class), two options are given – alternative or consecutive.

1. Creditors Agreement

In this option, the debtor proposes an agreement with the creditors. The agreement is based on a viability plan because he believes in the future of the company. Logically, this is a sacrifice for the creditors who will give up part of their credit in hopes of recovering the rest.

We briefly explain the most common types of proposals:

  • Debt removal: Part of the debt is forgiven to ease the continuity of the company. Depending on the percentage of debt cancellation which is requested, a certain majority of votes in favor will be necessary. (If the necessary majority votes to approve the agreement is reached, creditors who voted against are drawn by it.)
  • Waiting for the debt: The debtor proposes a payment plan in which the payment of the debt is distributed over time. The gives the debtor oxygen to be able to restructure the company and make it profitable again. The wait cannot be more than 10 years.

Lexidy helps our clients by representing them in the negotiation, evaluating the proposal and advising on the best legal strategy. So that, in collusion with the economic strategy, they can recover the most possible amount of credit.

2. Liquidation

This is an option that can happen directly after the declaration of insolvency if the debtor does not believe the company can be revived. Or, in the event that a creditors ‘ agreement has been reached but finally could not have been fulfilled.

This procedure consists of ordering all the assets of the company and beginning to liquidate them to deal with the liabilities. Liabilities should be in an orderly manner (first the privileged credits, then ordinary…). It is very important to have the assistance of a lawyer who seeks the best defense of credit.

It is a process requiring considerable vigilance and monitoring by a lawyer to ensure the treatment corresponds to the credit. The priority of credits is followed correctly. And, secure the liquidation plan proposed by the bankruptcy administration is the most appropriate for the interests of the creditors.

Lexidy can solve this one for you

Dealing with a company who has filed bankruptcy can be incredibly stressful. Often, this is an entity you see as your fellow in some capacity. Having a lawyer help you navigate the entire situation and find the best solution is the best approach. Lexidy is here to help you through this unfortunate circumstance. We have a top-notch Litigation, Bankruptcy and Insolvency team.

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