The bankruptcy is a legal procedure to solve the problems of insolvency and illiquidity of a business process pursued by a party creditors can charge and another finding solutions for business continuity and avoid bankruptcy.

It can be both applicable to an individual, as an autonomous, as a legal person, both SMEs and large enterprises. Most requested bankruptcy proceedings in Spain are companies.

It is therefore a system that helps companies or enterprises and freelancers in case of insolvency to articulate an orderly mechanism to deal with debts. By requesting the bankruptcy, the matter is put in the hands of a judge and can paralyze executions and reduce debt or defer payment of the debt with the Commercial Court.

Law in which the bankruptcy, Law 22/2003 of July 9, rests not try the complete dissolution of the company and promotes heritage conservation. In this policy, the partner puts his heritage as mortgage and is the last to collect the debt.

When will apply for bankruptcy?

The law is explicit in referring insolvency as the inability to continue with the credit obligations of the company, establishing the difference with what may be a “temporary blip”.

The company has to go through genuine economic difficulties providing for their failure and to avoid it, go through this process of reorganization where creditors will met in more or less their debts and activity of workers will not be extinguished.

Thus, it is required that the debtor suffers an insolvency situation so he can not fulfill their obligations regularly. This situation involves traversing many companies unable to meet their debts, they go to banks to borrow in order to pay them.


Application types contest

There are two types of application:

  • voluntary request: When performed by the individual or the person responsible for the company in the case of companies. In these cases, the individual or corporate entrepreneur is who, upon learning of the possible bankruptcy of the company or insolvency still undeclared, is obliged to submit the application for insolvency proceedings within a maximum period of two months. If it is admitted to be a voluntary bankruptcy proceeding. Apply not exposed to penalty fines or even criminal charges because the judge may think that bankruptcy was triggered for illegal purposes.
  • forced applicationWhen the bankruptcy is the result of a request of a creditor or any of thepartnersCompany generally unhappy with management. A judge shall process the application for bankruptcy and decide whether or not to approve.

Time mode and application documents

The application must be submitted in a commercial court within two months following the date has been aware of insolvency, writing and clarifying whether an actual or imminent insolvency, the following documentation:

  • Statement standing to bring the contest.
  • Economic Report of the debtor.
  • Inventory of goods and rights.
  • List of creditors in alphabetical order.

If successful and the court approved the bankruptcy, the same will be published in the Official Gazette and from that time creditors may file in court the application and justification of debts.

The judge will decide which debts are properly justified and enter into the bidding process and immediately appoint an administrator, who will be in charge during the period stipulated by the judge to negotiate debt with suppliers to extend payment periods and even proceed to reductions and remove debt. The trustee may be a single person or a team of three, in these cases it is normal to be a lawyer, an economist or auditor and one of the creditors.

If there is an agreement, the agreement of bankruptcy is signed with the new deadlines and quantities agreed in each case and the company can continue its normal activity, rising slowly up with their creditors.

There is a mechanism of protection for creditors called rescission action, which means declaring void all acts which have resulted in a reduction of the assets of the company and have been made in the two years preceding the declaration of insolvency. This way you get restore the assets of the company in case of fraudulent actions.

There are businesses that date back following an appeal and others that eventually end up breaking and entering into liquidation. In any case, despite the bad image of business failure in Spain, it should be clear that it is commonplace in the business world and in other countries is considered a fundamental source of learning to finish succeeding with a company.

4 phases of bankruptcy

Although the law establishes six phases, in practice there are four stages of bankruptcy why you should spend an SME:

  1. preliminaries

The preliminaries are the actions that take place before the admission of the contest by writ (filing, documentation, etc.). It is such a broad and complex phase in which the budgets of the declaration of insolvency as the fundamentals of the procedure for the declaration of insolvency being considered.

  1. Common Phase

This phase ranges from auto admissibility until the bankruptcy report is delivered. The law exempts the debtor repressive guilt and ensures, as far as possible, the creditor finish charging your debt, although imposed a number of obligations. In addition, once entered this procedural stage, paralyze executions and performances by selling assets at the request of a single creditor is prevented.

The real starting point for work is to know the heritage of the bankrupt and how much you owe to the creditor, which is, determine the active and passive mass bankruptcy.

  1. Resolution phase

After the common phase. to which the auto Mercantile Judge ends, opening the resolution phase.

The law provides for two possible resolutions: either the agreement or settlement. Regardless of which is processed, if you choose to arrange settlement can still file a “proposed late agreement” and if you opt for the agreement (to preserve society) but its failure is given, the total liquidation will be processed.

Progress has been made and that liquidation is the least desirable solution, but it is preferable to determine the continuity of the company will lead to the assumption of an unpaid debt.

  1. Determination of liability

The law is implicit in this phase, only proceed if the approval of the agreement is very expensive and if an opening of the settlement or default convention occurs.

Determining the quality of the contest as “fortuitous” or “serious” determined pursuit of the culprit. It should be considered if there has been fault of the debtor or any of their legal representatives in insolvency.


This publication is also available in: Spanish French