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15/05/2020

New bankruptcy Law in Spain

On May 7, the Official Gazette No. 127 published the Real Legislative Decree 1/2020, of May 5, which approves the Consolidated Text of the Bankruptcy Act. This Law, whose object is the reordering, clarification and harmonization of the current Law, is made up of three books:

- First Bookt. Bankruptcy.
- Second Book. Pre-bankruptcy law.
- Third book. Private international law.

As explained in the Preamble, the first book, which is the largest, contains important novelties: "Thus, for example, there is a specific title on the powers of the relevant authorities, divided into two chapters, one dedicated to the judge of the bankruptcy and another to the bankruptcy administration; there is, as in the Proposal for the Draft Bankruptcy Act of 1995, a title on the active mass and another on the passive mass; there is a title on the report of the bankruptcy administration; there is an own title for the payment of the credits to the creditors, and a title on publicity. This new system has supposed the transfer and the relocation of many rules contained in different titles of the Insolvency Law ".

The second book is dedicated to that other law of the crisis that is alternative (and, sometimes, prior) to the traditional law of insolvency. This second book is divided into four independent titles: the first, from article 5 bis, relating to negotiations with creditors; the second deals with refinancing agreements; the third is related to out-of-court payment agreements; and the last one deals with the specialties of the consecutive procedure, be it a refinancing agreement, or an extrajudicial payment agreement.

Finally, the third book includes the rules of private international law that until now contained title IX of the Bankruptcy Law. The reason for the creation of this last book is found in Regulation (EU) 2015/848. These Regulations apply, not only to bankruptcy proceedings, but also to the "procedures" that the Consolidated Text groups in the second book.

As for the main novelties, we highlight:

- The inclusion of the criterion of the fair value of the good as well as the right on which the guarantee has been constituted as a limit of the special privilege of the guaranteed credit (articles 272 and 273).

- The recognition of the debtor's right to request the opening of the liquidation at any time.

- What happens when there is not sufficient mass to meet the costs of the procedure.

- Regarding the active and passive mass, the concept "productive unit" is introduced, which is defined as: "the set of organized means for the exercise of an essential or accessory economic activity" .

- The benefit of the exoneration of the unsatisfied liabilities. Pursuant to article 288:

"1. In order to obtain the benefit of exoneration of the unsatisfied liabilities, it will be necessary that in the bankruptcy the credits against the estate and the privileged bankruptcy credits had been fully satisfied and, if it met the requirements to be able to do so, that the debtor would have entered into, or at least attempted to enter into, an out-of-court settlement of payments with creditors.
2. If the debtor who meets the requirements to be able to do so has not attempted a prior out-of-court settlement of payments, he/she may obtain that benefit if, in addition to the claims against the estate and the privileged claims, at least the creditors have satisfied themselves , twenty-five percent of the amount of ordinary bankruptcy credits. "


That is, the requirement of the attempt of an out-of-court settlement of payments is no longer required to access the benefit of exoneration of the unsatisfied liability, and becomes a optional requirement applicable only to the debtor who uses the minimum liability threshold payment modality.

Other interesting news is the one referring to the definitive exemption regulated in article 499: "the bankruptcy judge, at the request of the debtor, shall issue an order granting the final exoneration of the unsatisfied liability in the bankruptcy."

This Consolidated Text of the Bankruptcy Law will enter into force on September 1, 2020 (second final provision) with the transitional regime established in its sole transitory provision.

María Vizán Palomino
Spanish Lawyer

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