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What Does Spain’s New Bankruptcy Law Mean for You?

An outstretched hand for a handshake amid Spain's Bankruptcy Laws

In recent years we have seen how different events, and especially the restrictions imposed because of the Coronavirus pandemic, have affected the normal development of commercial and business activity. A new Spain bankruptcy law promises to address this.

This has led to situations of financial stress for small and large companies. For many, their contractual obligations with third parties are unsustainable. This can mean making payments for services or delivering products. 

Bankruptcy proceedings, broadly speaking, are a judicial procedure in Spanish legislation. The law structures debt restructuring and project viability for both individuals and companies. This allows debtors to repay debts, albeit slower than previously agreed.

The Spanish Bankruptcy Act dates back to 2003 and by the end of the summer of 2002, a new law is due to pass. This blog will help you understand what to do if your business is facing an unsustainable situation.

What’s Happening to Restructuring Plans with Spain’s bankruptcy law?

The current model has a preliminary Bankruptcy phase that highly regulates out-of-court payment agreements and financing agreements. However, the new regulation plans to unify these two systems into a single process called restructuring plans.

The new law proposes using this approach for up to two years before total or imminent Bankruptcy. It provides the troubled company with incentives to undergo financial and/or operational restructuring, if necessary, to maintain the company and ensure its viability going forward.

What About Acquiring a Business Unit Together With Applying for Bankruptcy?

When a debtor files for bankruptcy, they call it a voluntary bankruptcy. In these cases, a creditor or third party must accompany the application for such proceedings with a binding written proposal if one or more business units are being acquired.

This measure allows the insolvent party to submit a proposal to ease the financial trouble that a company is enduring by selling part of its assets. A creditor or a third party can buy these assets, but the aim is to offset the debt.

What’s the Procedure for the Self-Employed and Small Companies?

The new law will also create a so-called “express” process for freelancers or companies. To qualify, the revenue must be less than €2 million a year or there are fewer than 10 employees. They must also be unable to meet their financial and contractual obligations with third parties.

As a result, it’s no longer necessary to have a Bankruptcy administrator or the direct help of a lawyer under Spain’s new bankruptcy law. Therefore, this reduces the cost to the troubled individual or company as well as the time it takes.

The new process will also introduce digital forms that will allow the debtor to manage the process on their own online.

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What Else do I Need to Know about Spain’s Bankruptcy Law?

We have previously helped companies avoid Bankruptcy situations by reaching refinancing agreements that have allowed our clients to avoid bankruptcy situations. We have also assisted them with future restructuring plans.

Furthermore, the sale of production units is a common operation in commercial transactions. We draft the necessary documents and determine the value of the assets to be transferred.

If creditors are interested in buying part of your business, you can pay off part or all of the debt. Our Corporate Department can assist you in carrying out the transaction and formalizing the relevant agreements.

Finally, most companies that go into bankruptcy proceedings in Spain are small- or medium-sized. The government has updated the law as it expects a flood of micro bankruptcy proceedings.

Lexidy can guide you through the whole process and ensure your rights are protected when navigating Spain’s new bankruptcy law.

The new law will reinforce the protection of creditors. It will also make it easier for individuals and companies to re-organize their businesses and restructure their debts.

Although it is important to keep in mind that it is not possible to file for bankruptcy without first having a valid Bankruptcy plan and a lender willing to support the debt repayment.

Therefore, if you are in these situations, we encourage you to contact us to see if our services are right for your situation and budget.

The process of reaching an agreement with creditors to restructure the debts of a company, or even an individual, can be complex and time-consuming. Often it is not possible to do so on your own. Lexidy can help you understand Spain’s new bankruptcy laws, so speak with us today!

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