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COVID-19, new emergency measures on insolvency law

On 30 April 2020, new emergency measures on insolvency law came into force, in response to the serious crisis of COVID-19.

These measures are mainly directed to address the most likely increase of insolvency proceedings as a result of the health and economic crisis, and to avoid the liquidation of businesses facing critical situations.

The most important measures are:

  1. The suspension until 31 December 2020 of the obligation of the debtor to apply for voluntary insolvency, in the event of current or imminent insolvency, even if the debtor has already communicated to the Court that negotiations with creditors were being carried out to reach a preventive, restructuring agreement.
  2. Courts will not admit petitions filed by creditors for mandatory insolvency until 31 December 2020. The voluntary insolvency petitions filed by the debtor prior to 31 December 2020 will be processed with priority over the creditor’s petitions, even if the latter have been previously filed.
  3. The debtor will be able to request, within one year from the state of emergency, the renegotiation of creditors’, restructuring and out-of-court agreements reached, instead of being forced to apply for mandatory liquidation in case of risk of default. In addition, within nine months from the state of emergency, the petitions of the creditors regarding non-compliance of such agreements will also be suspended.
  4. Also enacted are measures to reduce the length or complexity of insolvency proceedings currently pending or initiated within two years from the state of emergency.
  5. There are also significant measures of company law that have been introduced, such as not considering the potential loss for the financial year 2020 for the purposes of determining whether a company incurs in a dissolution cause, applicable when the company’s net assets are reduced by half of the share capital due to said losses.

Moreover, on 7 May 2020, the Spanish Insolvency Act Recast was published in the Spanish Official Gazette; it will enter into force on 1 September 2020. Thus, both the emergency measures referred to above and the Recast will coexist for some time.

Finally, Spain has to transpose, before 17 July 2021, the Directive (EU) 2019/2013 on restructuring and insolvency. The transposition of this Directive will indeed mean new reforms of Spanish insolvency law.

Therefore, in order to face or react to insolvency situations, it is now more important than ever to analyse with special care the specific scenario and the particular actions and measures to be taken in the light of applicable rules.

Contact the authors: Héctor Sbert and María de Mulder.

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