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COVID-19 to put bankruptcies on hold in Spain

  • natasha

Due to the devastating spread of the COVID-19 virus, on March 15 the Spanish prime minister announced the state of emergency (“estado de alarma”). Subsequently, on March 17 a decree was passed, establishing certain measures on how to deal with the corona virus crisis. This decree has been further defined, more specifically by RDL 16/2020, establishing organizational measures in court proceedings.

Some of these measures affect bankruptcies. In the following paragraphs we will look into the most relevant ones. It is convenient to make the distinction between those bankruptcies that were ongoing before the state of emergency was declared and those that had been filed after.

1. Bankruptcies that were ongoing before COVID-19

  • Bankrupt debtors who reached a payment plan agreement with creditors have the right, during one year, to propose an amendment. This means that debtors are allowed to obtain a more beneficial payment plan which they can comply with, despite the harsh deeming from the COVID-19 crisis.
  • The same applies to financial agreements. That is, a debtor will have the right to propose new pay back conditions during one year after the emergency declaration.
  • Should the bankrupt debtor fail to comply with the payment plan reached within the scope of the bankruptcy, then the creditors will not have the right to ask for the liquidation of the company until six months after the emergency state declaration. The debtor will then have one month to inform the court that it has started or will start negotiations with creditors, so that a period of three months opens, during which the creditors will not be able to ask for the liquidation. Only one month after the said three months period, and if the debtor has not been able to reach an agreement, will the creditor be entitled to ask for the liquidation.

2. Bankruptcies can still be filed after COVID-19

  • A debtor who is not solvent will not have the obligation to file for his own bankruptcy until December 31, 2020. This is the debtor´s prerogative, i.e., the debtor is not obliged to, but can choose to do so.
  • A request from a creditor who wants to ask for the bankruptcy of a debtor, will only be processed by court after December 31, 2020. Should a debtor file for his own insolvency before December 31, 2020, then the request from the debtor will have preference, even if it is of a later date than that of the creditor.

More information
Would you like more information on this subject? Or do you have a Spanish debtor who has not paid an invoice? Feel free to contact us. We will be happy to help you.

Author: Antonio Illán Box

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