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What is the Spain’s New Bankruptcy Law?

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 since the COVID-19 pandemic, have affected the normal development of commercial and business activity. A new Spain bankruptcy law promises to address this, titled the Spanish Law on Insolvency.

Unfortunately, these restricted measures continue to create situations of financial stress for small and large companies. For many, their contractual obligations with third parties are unsustainable. Making payments for services or even delivering products and services can become untenable. 

Bankruptcy is the viable solution in such an event. Bankruptcy proceedings, broadly speaking, are a judicial procedure in Spanish legislation. The law enables debt restructuring and project viability for both individuals and companies. This allows debtors to repay debts, albeit slower than previously agreed.

In September of 2022, the Spanish Law on Insolvency passed, the first of its kind following The Spanish Bankruptcy Act in 2003. With the intent of streamlining filings, Spain introduced new rules to follow. 

This blog will help you understand what to do if your business is facing an unsustainable situation, and possible steps to take.

Changes to Spain’s Bankruptcy Proceedings at a Glance

  • Introduction of a pre-insolvency framework allowing debtors to negotiate with creditors outside of a formal process. This to help companies avoid insolvency by reaching a restructuring agreement with their creditors before their financial difficulties become too severe.
  • Reduction of the duration of insolvency proceedings from five years to four years.
  • Greater flexibility in choosing your representation, or “insolvency administrator.” Your choice is no longer restricted to lawyers and economists, and can include other professionals, such as auditors and accountants.
  • Introduction of the “fresh start” procedure: This procedure is for individuals who are unable to pay their debts. It makes legal the cancellation of certain debts after a period of time, providing the individual meets specific conditions.

What’s Helpful About Restructuring Plans with Spain’s bankruptcy law?

This new law replaces the old model, which used to have a preliminary Bankruptcy phase that highly regulated out-of-court payment agreements and financing agreements.he current model . The new regulation unifies these two systems into a single process called restructuring plans.

The new law dictates the 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.

To date, most companies that go into bankruptcy proceedings in Spain are small- or medium-sized. Because of this, the government has updated the law to account for the flood of micro bankruptcy proceedings.

While these updates reinforce the protection of creditors, there is still a bright side. It also makes it easier for individuals and companies to re-organize their businesses and restructure their debts.

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 creates 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 introduces digital forms that allow the debtor to manage the process on their own, online.

Lexidy usually helps companies avoid bankruptcy by reaching refinancing agreements that have allowed our clients the matter entirely. If this is an option for your circumstances, we will assist with the refinancing agreement.

If your circumstances necessitate a declaration of bankruptcy, some of the ways our team can assist you include:

  • Drafting the necessary documents to determine the value of the assets to be transferred. The sale of production units is a common operation in commercial transactions, so our team has extensive experience.  
  • Assisting clients with their restructuring plans.
  • Carrying out the transaction and formalizing the relevant agreements so that interested creditors can buy part of your business. Our Corporate Department can assist you with this to help you pay off part, or all, of the debt. 
  • Guiding you through the whole process and ensuring your rights are protected when navigating Spain’s new bankruptcy law.

What Possible Next Steps Can I Take?

Whether you hope to avoid bankruptcy entirely, or are looking to initiate the process, there are several steps you can take now to get the ball rolling.

Maintain a healthy cash flow.

We know, you’ve already thought of this. But expand your horizons. Maintaining a positive cash flow is the lifeblood of any business, identify the cash shortfalls at every turn, and eliminate them. If you aren’t already, you can achieve this by maintaining a proper balance between income and expenses.

Reduce your expenses.

We’re saying it louder. Avoid bankruptcy by reducing expenses. Review expenses and identify areas where you can substitute for a less costly option, and cut costs without affecting operations.

Diversify your revenue streams.

Relying on a single source of revenue can be risky, especially in this day and age. You can avoid bankruptcy by diversifying your revenue streams and exploring new markets and products with the help of a professional.

Manage your debts.

Debt can feel like a significant burden for businesses, and it is important to manage it properly so it doesn’t spiral out of control. You can do this by negotiating better terms with your creditors, consolidating debts, and prioritizing paying off high-interest debts.

Seek out professional advice.

Seeking professional advice from accountants, lawyers, and financial advisors can help businesses to identify potential risks and take steps to avoid bankruptcy. While it is an additional cost, these professionals can provide valuable insights and help you develop a solid financial strategy for long term savings.

Monitor market trends.

Keeping an eye on market trends and changes in the business environment can help you to adapt quickly and avoid bankruptcy. This includes monitoring industry trends, analyzing customer behavior, and keeping up with regulatory changes.

Be proactive.

Don’t wait until it’s too late to take action. The sooner you start taking steps to improve your financial situation, the better your chances of avoiding bankruptcy. 


Finally, 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. 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.

If you are facing this situation, it is important to seek legal advice to understand your options and rights under Spain’s new bankruptcy law. We encourage you to contact us to see if our services are right for your situation and budget. 

Lexidy can help guide you through the process and ensure your rights are protected; reach out to us for more information.

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