Insolvency Proceedings

Whether you are an individual, an entrepreneur, a creditor of an insolvent company, or if you have to file for an insolvency procedure, Ypama Abogados will team with you.

Filing for insolvency may be a strategic choice to collect your debts.

When a creditor files for an insolvency procedure of a debtor, this is called a “Compulsory Insolvency Procedure”.

Once the compulsory insolvency proceeding has been opened, all the debtor’s present and future assets and rights, except for non-attachable assets and rights, are attached. The opening of the insolvency proceeding is recorded in the registers in which these assets and rights are entered. And, in order to prevent any of the debtor’s assets being disposed of, the judge will suspend the debtor’s power to administer and dispose of these assets and confer these powers instead on an administrator.

Another consequence is the presumption of personal liability of the managers of the company and the possibility of recovering debts from their personal assets (and not only from the assets of the company, which may be insufficient). Under certain circumstances, the business manager`s assets can be seizure, as a precautionary measure, to guarantee the debts.

Therefore, the compulsory insolvency procedure is feared by the business managers and their use by the creditor must be included in his debt recovery strategy.

But it is very important to be careful, because it is possible that your debtor suppliers refuse to serve him if word spreads and you will lose your chances of collecting your debt. There are many other strategies, but they work better if they do not become public.

Other circumstances for a creditor that make applying for insolvency proceedings interesting are the advantage of converting 25% of debt in a privileged one (it will be paid over and above other creditors) and the possibility of recovering judicial costs.

Ypama Abogados offers you the advice you need for a debt recovery strategy, including the filing for insolvency proceedings, since we are specialized in insolvency of medium and small businesses. Learn about our services in insolvency law.

Do not write your debt off just because the debtor has been declared insolvent.

In cases where a debtor has been declared insolvent, the most important thing is to act diligently, because you have to lodge your claim in writing (“communication of the debt”) to the Insolvency Administrator within the short period of one month. You must do so by sending a signed letter to the administrators together with the invoice or other document providing evidence of the claim.

Creditors do not need a lawyer to do so, but this does not mean that the advice of a lawyer is not essential.

It is the experience of these creditors attending the insolvency proceedings without appropriate advice (where almost 100% of cases will not recover their credits) that leads to generate the rumour that when the creditor has been declared insolvent there is no way to collect the debt.

The first thing a creditor must have clear is the classification and rating of his credit, because that is what will decide the chances of collecting the debt.

The insolvency administrator must draw up a list of creditors, in which the claims on the debtor are recognized and ranked. If a creditor fail to lodge his claim within the specified one month period, it may be demoted from its original classification and classified as subordinated debt.

The Law makes provision for three types of claim: preferential, unsecured and subordinate. Unsecured claims are claims that are not preferential or subordinate.

The Insolvency Law differentiates between two types of preferential claim: special and general. Claims with special preference are claims on specific assets or rights secured by collateral. Claims with general preference are claims on all the assets of the debtor that are covered by the insolvency proceedings, ranked in a certain order.

Payment of subordinate claims is postponed until preferential and unsecured claims have been paid. The following are subordinate claims: claims lodged late, interest, fines and penalties and claims by creditors who have a special relationship with the debtor (in the case of a natural person, relatives, and in the case of a legal person, de facto and de jure directors, the group companies or the main shareholders).

The possibilities of recovering your money go down as you descend in the previous classification, but the possibilities of proactive actions in the procedure are the same for everyone.

Even within the insolvency procedure a creditor well advised can move things on and, for example, generate new assets for the insolvent company so there is enough to collect his credit.

In addition, an “active” creditor in the procedure can be a “nuisance” of whom the insolvent company would be much more than happy to get rid of.

It is all a matter of studying the specific situation and developing a strategy. For this reason, a lawyer with a background in finance and accounting is essential.

There is also the possibility of studying a criminal proceeding as a way of defence, by which filing against the insolvent company manager to answer for the debts of the company. This alternative way will be interesting if the administrator has sufficient private assets to respond.

It will be possible to take this route when the business manager has made unlawful and knowingly businesses to damage creditors. Some examples would be leaving the company without assets, benefit some creditors to the detriment of others, etc.

Recent cases of this type of actions are Marsans, New Rumasa Group or Lábaro Group.

In Ypama Abogados we are dedicated to debt collection among many other services, including insolvency proceedings, for our clients. Our legal and financial training makes us your best lawyers for this work. Learn about our services in insolvency law.

If you are a small or medium enterprise, you should face the situation of insolvency and consider filing for insolvency as a solution.

When a debtor files for insolvency then it is a “voluntary insolvency proceeding”.

There are some points that have to be always in mind when considering applying for this kind of procedure:

  1. Filing for insolvency is not only an option, but under certain circumstances is a legal obligation, and has great advantages.Insolvency law states that a debtor is insolvent when he cannot regularly meet his already enforceable obligations by his creditors. He has to apply for insolvency within two months of knowing this situation.The application by the debtor has advantages such as:
    • Debts will not accrue interest.
    • Any causes of action against the company filed by creditors are suspended.
    • No new causes of action may be filed.
    • If any creditor files proceedings for the seizure of assets, such actions are suspended.
    • If mortgage loan or leasing instalments are not paid, the executions of guarantees over assets associated with the company’s activity are suspended for one year.
    • The insolvency is a flexible procedure, which takes you from the stage where you are negotiating to reach an agreement with creditors to the liquidation of the company; all in the same procedure, this saves costs.
    • The contest allows the negotiation of an agreement, through which you can obtain the following advantages:
      • Get a “quita” (debt reduction) up to 50%, a “espera” (deferral) of up to 5 years, or a combination of both alternatives. Sometimes these limits can be overcome.
      • Transform company debts into company shares. The creditor becomes partner.
      • Transforming debt into a participative loan, which is a hybrid of equity and debt that is accounted for as equity for purposes of compulsory dissolution rules or reduction of share capital.
      • Getting the chance to sell to a third party certain assets in order to obtain the revenue needed to finance the payment of debts under the terms established in the agreement.
  2. Being declared insolvent is no longer a stigma that undermines the image of the entrepreneur and his company.En estos momentos de crisis económica mundial, la gente entiende que las empresas sufran graves problemas. Son a las entidades financieras a las que se dirige el dedo acusador.Es precisamente este miedo el que provoca que las empresas soliciten el concurso de acreedores cuando ya es demasiado tarde y, en esta situación, más del 90 % de los concursos acaban en liquidación. Es decir, malvendiendo el activo de la empresa, dejando a todos sus acreedores ordinarios en la estacada, habiéndose declarado la insolvencia culpable y teniendo que afrontar el empresario el pago de las deudas con su patrimonio.
  3. Filing for insolvency has not the same consequences as the previous bankruptcy proceedings.Debtors do not go to prison on grounds of not paying their debts. However, not applying for the insolvency proceeding when it is compulsory may cause similar burdensome consequences to the previous bankruptcy.Failure to apply for insolvency when it is compulsory may result in the business manager having to pay the company`s debts with his own assets.
  4. The voluntary insolvency proceeding has many advantages, but they are even more when compared to the disadvantages of compulsory proceedings:
    • The judge will suspend the debtor’s power to administer and dispose of these assets and confer these powers instead on the insolvency administrator.
    • The presumption of personal liability of the business’ managers of the company and the possibility of recovering debts from their personal assets (and not only from the assets of the company, which may be insufficient). Under certain circumstances, the business manager`s assets can be seizure, as a precautionary measure, to guarantee the debts.

As it can be seen, filing for the voluntary insolvency proceeding means many benefits that can be achieved. But in order to get them you will need lawyers with extensive knowledge in finance. There are many tasks to perform, many documents that analyse and prepare in order to get your goals.

Ypama Abogados have these professionals. We also understand the economic difficulties of an insolvent company; this is why we offer financing plans for you. It will always be infinitely cheaper for you because it would be always less costly than what you can lose. Learn about our services in insolvency law.

For individuals (natural persons), the insolvency proceeding may be a solution to their problems.

In those cases where the principal debt, or almost the only one, is not the mortgage, the insolvency may be an option.

With the application for the insolvency preceding you will get, among others, the following advantages:

  1. Debts will not accrue interest.
  2. Any causes of action filed by creditors are suspended.
  3. If any creditor files proceedings for the seizure of assets, such actions are suspended.
  4. If mortgage loan or leasing instalments are not paid, the executions of guarantees over assets associated with the company’s activity are suspended for one year.
  5. No new causes of action may be filed.
  6. The insolvent natural person, who is in a state of need, shall have the right to receive alimentation during the handling of the insolvency proceeding, charged to the total assets, provided that there are sufficient goods therein to meet their needs and those of their spouse or registered partner, who has to fulfils certain requisites, and descendants under their custody.
  7. Ability to reach agreement in advance (Proposal for agreement) and again at the stage of agreement
  8. Great potential for success in the case of liabilities with financial institutions specializing in consumer loans and credit cards: Cofidis, Citibank, Carrefour cards, cards Corte Inglés.

But these advantages are the “other side of the coin” such as the appointment of an administrator to oversee all income and expenses of the debtor’s family, the obligation to conduct two separate proceedings in case of marriage (one for the spouse and one for the husband), setting strict deadlines to achieve agreements with creditors, the slowness of the courts, etc.

There is an essential element to consider and is that the proceeding does not stop foreclosure if an economic activity is not performed on the housing.

And so, the insolvency proceeding has advantages under certain circumstances for individuals that make it an alternative to consider. But, for situations where the principal debt is the mortgage, then the best way is to negotiate with the bank.

Currently, we must also take into account the Code of Good Practice for Banks and the possibility to clear mortgage debts with banks (foreclosure or deed in lieu) by handing over your home if It is your main residence.

This alternative way has “letra pequeña” (important issues hide in very small letters at the end of the document), since – in addition to meeting certain requirements to qualify for it – the foreclosure is the last of several alternatives, having ruled out previous ones, as a mortgage restructuring plan (apply a lack of capital 4 years Euribor + 0.25% over an extension of time). If fees are still higher than 60% of your income, then there are other measures such as a discount of 25% or other more complex criteria. Only if we discard all these other ways, you have twelve months to apply for deed in lieu.

But in addition, not all banks have subscribed to this Code of Conduct.

If you find yourself in a situation of serious economic difficulty, come to see us in Ypama Abogados. We will not judge the causes, nor plead anyone guilty. We will make our best efforts and knowledge in designing an action plan with your creditors, to carry it out and we will bring you the best legal defence in the case of legal procedures. Learn about our services to individuals .