Insolvency 2021

Last Updated November 23, 2021


Law and Practice


KPMG ABOGADOS, S.L.P. has a sizeable team handling dispute resolution and insolvency matters in Spain, from offices in Madrid, Barcelona and Valencia, among others. The firm is a market leader in insolvency proceedings and has handled some of the most high-profile matters in recent times, including the Martinsa-Fadesa and Eurona Wireless bankruptcies. It also has extensive experience in the full range of commercial, company and civil law litigation, arbitration and mediation matters. The size and depth of the dispute resolution team enables the firm to handle a great number of cases and complex judicial proceedings, as illustrated by its recent work on behalf of Bankia, Banco Santander, Caixa, Unicaja and Cajamar in cases related to banking products. Beyond its focus on financial institutions, the firm also acts for clients in the energy, manufacturing, hospitality, technology, advertising, food and drink and automotive sectors.

According to the 2020 “Doing Business in Spain” report issued by the World Bank Group, the recovery rate in Spain rose to 77.5 (compared to 70.2 OECD high income and Norway 92.9 best performance), while the index that measures the strength of the insolvency framework in Spain displays 12 over 16 (slightly above the 11.9 OECD high income).

In addition, the average insolvency proceeding is estimated to take 18 months, and the costs associated with a reorganisation proceeding amount to approximately 11% of the value of the estate.

Figures show that more than 95% of companies involved in an insolvency proceeding end up in liquidation. To combat this inefficiency, there have been several amendments to the Spanish insolvency legal framework over the last decade, aimed at reinforcing early restructuring procedures.

A provisional draft to implement EU Directive 2019/1023 of 20 June on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt in Spain was presented on 5 August and has so far gathered significant critics.

While proposed amendments to strengthen and simplify pre-insolvency mechanisms are regarded as positive, there are concerns about the brand-new “debtor-driven proceeding”, which is applicable to 90% of cases where the aggregated liabilities and taskforce do not exceed EUR5 million or 50 employees, respectively.

The provisional draft proposes to simplify proceedings through implementing standardised online applications, and foresees an online platform to liquidate assets and the minimisation of costs by reducing the intervention of insolvency practitioners (IPs), except at the request and cost of creditors. Should this proposal succeed, the creditors' lack of confidence in the debtor-driven proceeding could end up increasing court intervention in cases with multiple creditors challenging pleas.

The number of insolvency proceedings had been decreasing over the past five years, having reached a peak in the 2008 crisis. However, the COVID-19 pandemic brought huge concern, particularly for the HORECA (hotel/restaurant/catering) sector and small and medium enterprises (SMEs), which have faced payment delays and a subsequent cash flow challenge.

A significant increase in insolvency proceedings was expected during 2020 and 2021, but “only” 6,718 insolvency proceedings were declared in 2020, according to the latest information published by the National Statistical Institute, indicating a drop of 13.6% compared to 2019.

However, this drop is far from being representative, considering all the COVID-19 legislative measures that were implemented to protect companies and employment during the pandemic, such as the deferral of debtors' obligation to apply for insolvency and creditors' rights for petition until 31 December 2021.

In addition, the government approved up to EUR140 billion in loans in 2020 and 2021, guaranteed up to 80% by the Official Credit Institute, whose initial maturity and stays have been extended in line with the five outbreaks of COVID-19. Combined with labour law mechanisms aimed at adapting the workforce to activity, such as the so-called Records of Temporary Employment Regulation (ERTE), all of these measures have contributed to reducing insolvencies and maintaining business and industrial activity.

In reality, however, the first quarter of 2021 showed a significant increase compared to 2020, with 2,799 companies being declared insolvent (which entails an increase of 86.5% over 2020), despite the moratorium.

From an economy sector perspective, retail accounts for the highest number of insolvencies, with 229 proceedings, followed by the HORECA sector with 226 cases, and the real estate and construction sector with 150.

In terms of territories, Catalonia has more than twice as many declared bankruptcy proceedings as Madrid, with 948 compared to 381, followed by Valencia with 366. Andalusia's increase to 221 can be attributed to the 64 million tourists lost during 2020.

In light of this, the early and proper use of the restructuring and insolvency mechanisms already available under Spanish regulation becomes essential to recover or at least maintain economic and industrial activity as well as employment rates.

The Spanish legal framework applicable to financial restructurings, liquidations and insolvencies was recently restated by Royal Legislative Decree 1/2020, of 5 May, which enacted the Recast Spanish Insolvency Act (RIA) and has been in force since 1 September 2020.

The former Spanish Insolvency Act 22/2003 underwent 27 amendments to adapt to the international best practices endorsed by the Eurogroup in its meeting of 22 April 2016; in particular, a reasonable discharge period for honest entrepreneurs was introduced, and early restructuring procedures were reinforced.

In addition, through the COVID-19 outbreak, legislation on bankruptcy was passed to mitigate the economic impact and minimise the risk of insolvency.

Special mention is to be made of EU Directive 2019/1023, which is still pending implementation into Spanish legislation. The Draft Law has so far raised critique from stakeholders as it contains certain provisions (see 1.1 Market Trends and Changes) that set aside the spirit of the Directive and may entail difficulties if they are finally approved as proposed. The current wording seems inappropriate to reduce court involvement and procedure length.

There are two main types of mechanisms: out-of-court and court-driven proceedings.

Out-of-Court Preventative Restructuring Mechanisms

The RIA foresees an umbrella protection period known as preconcurso (Article 583 of the RIA) to allow companies and individuals to make use of one of the following three available preventative restructuring mechanisms to overcome imminent or actual insolvency (see 3.2 Consensual Restructuring and Workout Processes):

  • proposals for an anticipated company voluntary arrangement (CVA);
  • out-of-court refinancing agreements – there can be collective agreements or individual agreements, but these have very limited impact in practice; or
  • out-of-court agreements for individuals, entrepreneurs and SMEs.

Court-Driven Proceedings

When an out-of-court solution is not possible, the debtor has no option but to submit to a court-driven proceeding. Its initial phase, known as fase común, is aimed at determining the assets and liabilities of the debtor.

Once this stage concludes, there are two possible outcomes for a court-driven insolvency proceeding:

  • a reorganisation process or CVA – this is the preferred solution as it permits business continuity; or
  • the liquidation of the company – where no CVA is proposed or if one is not approved by the statutory majorities, the company is wound up.

Voluntary or Involuntary Insolvency

Insolvency proceedings may be classified according to who submits the court petition: insolvency is considered involuntary (concurso necesario) when a creditor applies for the declaration of insolvency, but is considered voluntary (concurso voluntario) when it is the debtor who makes the petition to the court.

If the debtor is a legal corporation, the Board of Directors shall decide on the request, but the equity and others who might be held directly liable for the company's debts are also entitled to instigate proceedings.

Term to File for Insolvency Proceedings

Imminent or actual insolvency is the basis of an application for insolvency proceedings. Directors are legally bound to file for insolvency within two months from their actual or due awareness of the company’s failure to regularly attend debts as they become due.

An additional four-month moratorium of this term will be granted if the debtor notifies the competent court of the initiation of negotiations for an out-of-court agreement with creditors. During this four-month period, creditor petitions for insolvency will not be admitted.

Due to the COVID-19 crisis, Royal Decree-Law (RDL) 5/2021 deferred debtors' obligation to file for insolvency until 31 December 2021, and applications for necessary insolvency proceedings will not be admitted until 2022.

Liability due to a Failure to Apply for Insolvency

If directors fail to comply with the obligation to apply for insolvency within the relevant period, they face several penalties when malicious intent or gross negligence has caused or aggravated insolvency.

In this regard, in the absence of proof to the contrary, the RIA presumes the debtor’s awareness of the state of insolvency if any of the facts that may form the grounds of an application for insolvency have occurred.

Insolvency Classification Phase

Directors' liability is analysed specifically in the so-called “insolvency classification phase”. The insolvency proceeding will be declared fortuitous or guilty. While only creditors will be heard, the Prosecutor’s Office and the IPs are the only parties entitled to request a declaration of guiltiness.

The court ruling shall include a list of those affected by the guilty qualification, and might include the following penalties:

  • banning a director from managing third parties’ assets for a period from two to 15 years;
  • the loss of their rights as creditors, and devolution of unduly credits or rights obtained from the bankrupt’s estate;
  • the obligation to compensate the damages and losses caused; and
  • in the event of liquidation, liability for the impaired claims accrued during the insolvency proceedings.

As a general rule, the RIA enables creditors to apply for insolvency proceedings, submitting evidence of the current or imminent situation of a debtor's insolvency, giving way to the so-called concurso necesario. In exceptional cases, those creditors who acquired the outstanding credit within the six months prior to the insolvency application are prohibited from requesting insolvency.

In addition, if certain requirements are met, a debtor’s heirs, the Spanish Securities & Exchange Commission, the Public Prosecutor and the IP of a holding company are also entitled to apply for insolvency.

A debtor is insolvent when it fails to regularly attend its debts as they fall due. This is what is called “actual insolvency”, entailing the legal obligation of directors to file for insolvency (see 2.3 Obligation to Commence Formal Insolvency Proceedings).

However, the debtor may also file for insolvency proceedings if its insolvency is not actual but imminent, if there are objective reasons to believe that inability to attend payments will soon occur, although it is not legally required to do so.

It must be pointed out that the Provisional Draft to reform the current RIA proposes to expand the concept of insolvency to enable debtors to apply for an insolvency decree in the scenario of probable insolvency.

The RIA foresees certain presumptions of insolvency and demands documentary proof that varies depending on who requests the declaration of insolvency.

  • Where the debtor is the applicant for a declaration of bankruptcy, he or she must justify their situation of insolvency, which can be actual or imminent. The application must include extensive documentary evidence, particularly a memo of the main triggers of insolvency.
  • On the other hand, a creditor’s application for insolvency must be grounded in:
    1. the writ of enforcement without the seizure resulting in sufficient free assets for payment;
    2. the general failure of the debtor to comply with its outstanding payments;
    3. the existence of attachments for pending executions over the debtor's assets;
    4. the abrupt or ruinous liquidation of the debtor’s assets; and
    5. general failure to comply with tax, Social Security or wage obligations (ie, three monthly payments overdue).

Notwithstanding the general regime provided for in the insolvency legislation, the following special regimes applicable to specific types of debtors can be found in the RIA.

  • Credit institutions, investment service companies and insurance undertakings: the specialties for insolvency situations established in their specific legislation will apply, except for those regarding the composition, appointment and activity of the IPs.
  • Public works and services concession companies or public administration contractors: the specialties provided for in the public sector contract legislation or the specific legislation regulating each category of contract will be applicable.
  • Sport companies or clubs: if the debtor participates in official competitions, the specialties applicable are provided for in the sports legislation. In any case, insolvency proceedings shall not interrupt the debtor’s activity nor prevent the application of regulations governing participation in competitions.

Out-of-court proceedings have been reinforced in the Spanish legal framework throughout the last decade, to reduce the number of statutory insolvency proceedings, which end in liquidation in 95% of cases and are now fully regulated in Book II of the RIA, bringing security to stakeholders.

The RIA still does not impose any mandatory out-of-court procedure before statutory insolvency can be applied for.

Banks and credit funds have gradually increased their support of out-of-court restructuring, thanks to the amendments to increase legal certainty and protection of their rights.

Refinancing agreements are the preferred solution, but their number is still far from reaching desirable rates compared to the rest of Europe.

Notwithstanding the efforts to foster those mechanisms, statutory insolvency proceedings are still used too frequently by companies, due to the lack of anticipation in the use of out-of-court mechanisms by debtors.

The “Umbrella Protection Period”

A debtor might communicate to the court that he or she has started to negotiate an out-of-court solution with their creditors. The main effect of doing so is that the following applies during this time:

  • any application for a compulsory insolvency decree shall not be admitted by the court;
  • no judicial or extrajudicial enforcement (except for executions arising out of public law claims) of property or rights that are necessary for the continuity of the debtor's business activity may commence from the presentation of the communication, and those already filed will be suspended if requested by the debtor;
  • executions promoted by the creditors of financial liabilities may be suspended or denied, provided that not less than 51% of the financial liabilities have expressly supported the commencement of negotiations aimed at signing the refinancing agreement; and
  • secured creditors will be deprived of exercising the in rem action against the collateral, or it may be paralysed.

Refinancing agreements may include moratoriums for up to ten years, debt reductions or corporate restructurings as foreseen in the Structural Modifications Act, such as mergers or the sale of business units as an ongoing concern.

If the refinancing agreement is submitted to court for approval, under certain reinforced majorities it may become binding on dissenting or non-participating financial creditors, whether secured or unsecured.

If the debtor has not reached an agreement with his or her creditors three months after the communication to the court, he or she should apply for insolvency to avoid incurring liabilities within the following month.

Creditor Committees

The RIA does not regulate the creation of creditor committees but the most similar figure is the agent, who acts on behalf of financial creditors in the framework of a syndicated loan.

Information Provided to Creditors

In the framework of an out-of-court refinancing agreement, creditors can request the financial viability plan and the "Expert Report" on the reasonableness of the viability plan.

Change of Priorities

Finally, changes in priorities will depend on the content of the refinancing agreement, although the RIA allows measures such as the constitution of guarantees on pre-existing debts (which may not be subject to a subsequent claw-back action) or the capitalisation of debts, without the need to obtain a reinforced majority at the General Shareholders' Meeting.

Spanish regulation provides priority in ranking to “fresh money”, as follows.

  • In the framework of a refinancing agreement, if the debtor is finally declared bankrupt, the financing granted shall be ranked as a general secured claim.
  • In the framework of a CVA, in the event of default and opening of the liquidation phase, the financing granted to the debtor shall be considered as a credit incumbent on the estate.

Under the RIA, there is a common duty for creditors who are negotiating an out-of-court agreement to refrain from taking actions that lead to a better position against the debtor. Nevertheless, secured creditors may initiate foreclosures on the secured assets. If these assets are necessary for the continuity of business activity, the judge will suspend the foreclosure until three months from the date of the presentation of the communication of the opening of negotiations.

Regarding this, clause 590 of the RIA provides that, where more than 51% of financial liabilities supports the negotiation of a refinancing agreement with the debtor, the holders of financial claims that refuse to negotiate are deprived of their right to enforce their claims, and any claims already enforced shall be suspended, for the benefit of the majority.

This negotiation shall be carried out in good faith, and creditors for whom the refinancing causes a disproportionate sacrifice may challenge the approved agreement.

Disproportionate sacrifice may occur where the creditor who is dragged along by the refinancing agreement is left in a worse position than his or her previous situation and with respect to the rest of the creditors, and should the sacrifice imposed exceed what is necessary for the viability of the company. Attending to the “best interest test”, disproportionate sacrifice exists where the liquidation fee is higher than the outcome of the refinancing agreement for the dissenting creditor.

With the exception of cram-down majorities provided for in syndicated loan agreements, dissenting or non-voting creditors cannot be bound by an out-of-court financial restructuring or workout solution unless certain qualified majorities are met and the agreement has been ratified by the court.

Commercial creditors cannot be crammed down through an out-of-court solution but they can voluntarily adhere to a refinancing agreement.

Holders of financial liabilities who did not vote or voted against the solution may be bound by the terms and conditions of a refinancing agreement, as follows.

  • When an out-of-court agreement is reached by at least 60% of the aggregated financial liabilities, unsecured financial claims may be affected by up to five-year moratoriums and a debt-for-equity swap. To cram down unsecured financial creditors, a qualified majority of 65% is required.
  • When an out-of-court agreement is reached by at least 75% of the aggregated financial liabilities, unsecured claims may be affected by:
    1. a five to ten-year moratorium;
    2. debt reductions;
    3. debt-for-equity swap or debt instruments; and
    4. rights or asset assignments to creditors in payment of debts.

To cram down secured dissenter creditor holders of financial liabilities, a qualified majority of 80% is required.

Special mention should be made of syndicated loans, where the vote in favour of 75% of the aggregated liabilities will drag along the remaining 25% of dissenters, thus summing up the vote in favour of 100% of the syndicated loan liabilities.

Secured claims are those set forth in Article 270 of the RIA, as follows:

  • credits guaranteed with a voluntary or legal mortgage, real estate or chattel, or with a non-possessory pledge, on the mortgaged or pledged goods or rights;
  • credits guaranteed with antichresis, on the fruits of the encumbered property;
  • refractional credits, on the refurbished goods, including those of the workers on the objects manufactured by them while they are property or in possession of the bankrupt;
  • credits for financial leasing or purchase-sale contracts with deferred price of movable or immovable property, in favour of the lessors or sellers and, where applicable, the financiers, on the leased or sold property with reservation of title, with prohibition of disposition or with resolutory condition in the event of non-payment;
  • credits secured by securities represented by book entries on the taxed securities; and
  • credits secured by a pledge in a public document on the pledged goods or rights in the possession of the creditor or a third party.

Outside a situation of insolvency, secured creditors can access the foreclosure of their credits under the contractual and legal conditions.

In the context of a restructuring or insolvency proceeding, the possibility of foreclosure subsists for secured creditors but subject to the following restrictions in the case of assets or rights that are necessary for the continuity of the activity of the bankrupt party.

  • Within the umbrella protection period, the debtor can apply for the suspension of foreclosures against those assets considered necessary. The suspension agreed upon by the court's clerk may be lifted if the insolvency court refuses to consider the collateral as necessary and, in any case, once the four-month period has elapsed.
  • Once the insolvency proceeding has been declared, individual judicial or extrajudicial enforcement actions may not be initiated, nor may administrative or tax constraints be followed against the debtor's assets. Additionally, secured creditors with collateral on assets of the insolvency estate that are necessary for the continuity of their professional or business activity cannot initiate the foreclosure until a CVA that does not involve the collateral has been approved or until one year has elapsed since the declaration of insolvency without the opening of the liquidation phase.
  • In the event of liquidation, collateral will be realised in accordance with the provisions of the liquidation plan and subsidiarily pursuant to the provisions of the RIA. The particularity is that secured creditors that had not previously initiated foreclosure proceedings will definitely lose their right to individual enforcement but will retain the right to collect the proceeds of the sale of the collateral up until the amount of the “original debt”.
  • Under the scenario of a CVA, the secured claims are not subject to the waivers agreed thereon, except when cram-down majorities are gathered. Even more, the CVA can include specific agreements for each of the four different classes of secured creditors foreseen by the RIA: public secured creditors, labour secured creditors, financial secured credits and other secured creditors. Each specific proposal of the CVA can only be voted by the members of that particular class, all of which may be bound by the specific proposal of the CVA where cram-down majorities are met.

Secured financial creditors are not subject to contractual intercreditor covenants other than those arising from syndicated loan agreements, pursuant to which (except where covenants foresee a lower percentage) the vote in favour of 75% of the aggregated liabilities binds the dissenting 25%.

In addition, upon the judicial homologation of a refinancing agreement that meets the qualified majorities (see 6.1 Statutory Process for a Financial Restructuring/Reorganisation), secured financial creditors may be crammed down and bound by its content.

Secured creditors cannot prevent or block the approval of restructuring agreements or CVAs when requested majorities are met, merely because of their status as such.

Under a CVA scenario, a secured creditor's acceptance is requested to be bound by its content unless the qualified majorities within the same class of secured creditors are reached without said creditor's vote in favour.

Secured creditors do not have special procedural rights in statutory insolvency or restructuring proceedings beyond the possibility of separate enforcement, although they enjoy certain specialties in the insolvency proceedings that guarantee them a differentiated treatment, as follows:

  • in order to protect and optimise the value of the ongoing business, the IP can designate outstanding amounts of secured credits as debts incumbent on the estate to avoid realisation of the collateral;
  • the secured creditor must consent to the sale of the collateral unless the price offered covers 100% of the privilege or the sale is made with subsistence of the lien;
  • the secured creditors are only bound by the CVA when they vote in favour of it, or under certain qualified majorities; and
  • the sale of a production unit that includes the collateral of secured claims will need the approval of at least 75% of the preferred claims of the class affected by the transfer when the price obtained does not cover the collateral's value.

Depending on their class, unsecured creditors under the RIA have different rights and priorities, establishing the following order of priority of payments: general privileged creditors, ordinary credits and – lastly – subordinated credits.

It should be noted that general privileged creditors have the right to attend and vote at the creditors' meeting, to adhere to the early proposal of the reorganisation plan and to be bound by the reorganisation plan when they vote in favour or are dragged by the qualified or super-qualified majority (see 3.5 Out-of-Court Financial Restructuring or Workout) of the creditors of the same class.

Ordinary creditors have the right to vote if they are affected by a reorganisation plan, with their payment being subsequent to the payment of claims against the estate and privileged claims, and paid – in the event of insufficient assets – pro rata with the claims with special privilege in the part not covered by the proceeds of the collateral.

Finally, in addition to being paid last, subordinated creditors will see their guarantees extinguished, cannot be appointed as IPs, do not have the right to vote at the creditors' meeting and are bound to the CVA even if they do not vote in favour of it.

Nevertheless, they are affected by the same write-off and stays as the ordinary claims, but the stay of the CVA to attend subordinated claims is recalculated from the date of compliance with the agreement with respect to the former, which implies – in most cases – the absence of the possibility of collection.

Relations with suppliers are carried on as business as usual until the declaration of an insolvency proceeding. Once insolvency is declared, the supplier's pre-insolvency claims will become part of the insolvency estate and the post-insolvency claims will be paid as claims incumbent on the estate (see 5.5 Priority Claims in Restructuring and Insolvency Proceedings). Payments made by the company shall be deemed valid unless there is pre-existing awareness of insolvency.

The declaration of insolvency is not a sufficient ground to cancel agreements. Creditors may apply for contractual resolution, but its subsistence may be agreed in the interest of the insolvency estate.

Unsecured creditors have the rights and remedies listed in 5.1 Differing Rights and Priorities, without being able to interrupt the process of forming a restructuring agreement or CVA due to the very nature of their credit, but only in view of the relevance of their respective credits in the aggregated liabilities estate or in their class, if any, for the purposes of majorities.

Prior to the filing of the insolvency proceeding, the relevant precautionary measures may be adopted to secure the creditors' claims.

Once the insolvency proceeding has been declared, the insolvency law prohibits the possibility of seizure, and the only option available is to continue with the enforcement actions on non-necessary assets that have already been seized in the case of labour executions and administrative enforcement proceedings.

It is important to point out that, with the declaration of insolvency proceedings, the lifting and cancellation of those seizures made prior to the declaration of insolvency proceedings may be agreed upon, except for administrative seizures.

Finally, the law allows the adoption of precautionary measures against the directors of the company when the following occur simultaneously:

  • an appearance of guilty insolvency;
  • a foreseeable insufficiency of the estate to attend credits; and
  • a possible condemnation of the director to cover the unsatisfied insolvency liabilities.

The first credits to be attended under insolvency proceeding are called "credits incumbent on the estate".

These credits are those set forth in Article 242 RIA, and include the following:

  • the last 30 days' salary of the workers prior to the declaration of insolvency proceedings;
  • the legal expenses and costs for the application and declaration of the insolvency proceeding and the assistance and representation of the insolvent party and the IP during the proceedings and their incidents;
  • those credits generated by the exercise of the professional or business activity of the insolvent party after the declaration of the insolvency proceedings;
  • those credits resulting from services to be provided by the insolvent party in contracts with reciprocal obligations pending fulfilment that continue in force after the declaration of insolvency, and from obligations of restitution and compensation in the event of termination in the interest of the insolvency or due to non-fulfilment after the declaration of insolvency by the insolvent party;
  • those credits that, in the payment of credits with special privilege without realisation of the goods or rights affected, or in the rehabilitation of contracts or of enervation of eviction and in the others foreseen in this law, correspond to the due amounts and those of a future maturity in charge of the bankrupt party;
  • those costs that, in the cases of bankruptcy rescission of acts carried out by the debtor, correspond to the return of considerations received by this one, unless the sentence appreciates bad faith in the holder of this credit;
  • those credits resulting from obligations validly contracted during the procedure by the insolvency administration or, with the authorisation or conformity of the latter, by the insolvent party subject to intervention; and
  • in the event of liquidation, the credits granted to the insolvent party prior to the opening of the liquidation phase to finance the viability plan necessary to comply with the CVA approved by the judge.

However, this priority only applies in insolvency proceedings and not in a pre-insolvency scenario.

In the RIA, the Statutory Restructuring Procedure is known as the company voluntary arrangement (CVA). In this procedure, the debtor or creditors that exceed 20% of the aggregate liabilities are entitled to propose a CVA, with the main purpose being to satisfy the majority debt of the creditors and maintain the business activity.

The CVA must have a minimum content, consisting in a discharge of debts or stay of payment, but it may also contain alternative or additional proposals, such as a debt-for-equity swap or the sale of a business unit.

With regard to the proposal's content, the RIA establishes the following prohibitions:

  • the proposal may not include the global liquidation of the assets to satisfy the creditors, nor the alteration of the classification or the amount of the credits established in the common phase of the insolvency procedure;
  • a deed in lieu to creditors may not be included when the assets or rights are necessary for the continuity of the business activity; and
  • CVAs cannot be conditional.

However, the CVA may contain the following:

  • the limitation of the debtor's rights during the CVA term;
  • the attribution of rights to the IP; and
  • the provision of a procedure for the sale of secured assets.

The CVA is a court-regulated process where the Insolvency Court must confirm that the requirements in terms of time, form and content are adequate. Then, the IP must evaluate its content and report on the viability of its compliance. The proposed agreement may be submitted in an ordinary or an early process. In the first scenario, the submission must take place between the term to lodge claims and the final term to challenge the claims classification; if the CVA is filed in an early manner, the term for submission extends from the filing of the insolvency petition until the expiration of the period to communicate claims.

In order to admit an early CVA, it is necessary to file adherences from creditors of any class whose claims:

  • are greater than one tenth of the aggregate liability if the proposal is submitted with the insolvency petition; or
  • are greater than one fifth of the aggregate liability if the proposal is submitted once the insolvency has been judicially declared.

It is also necessary to include a payment planning, according to the debtor's resources to comply with the CVA and, if necessary, a business viability plan as well.

Once these proceedings have been submitted, a creditors’ meeting will be called to vote on the proposals filed, and a quorum of at least half of the ordinary aggregate liabilities must concur.

The following majorities are necessary for the CVA to be considered accepted, depending on its content and the sacrifice requested from creditors:

  • 50% of the ordinary claims must vote in favour when the CVA contains a debt reduction equal to or less than half the amount of the claim and stays of up to five years;
  • 65% of ordinary claims must vote in favour when the CVA contains stays higher than five years (in no case may they exceed ten years) and debt reductions of up to 50% of the claim; and
  • a simple majority will suffice for a CVA consisting of the full payment of the credits within a term not exceeding three years, or the immediate payment of the ordinary claims with a written-off portion of less than 20%.

The content of the CVA that gathers such majorities and is judicially approved is binding and extends its effects to all ordinary and subordinate claims, even dissenters and creditors whose claims, for whatever reason, have not been recognised by the IP.

In addition, the CVA could affect secured claims if there is a voluntary vote in favour of the approved proposal or, compulsorily, if the proposal obtains the following qualified majorities (cram-down):

  • 60% of the aggregated secured liabilities of the same class when the CVA contains a debt reduction equal to or less than half the amount of the claim and stays of up to five years; or
  • 75% of the aggregated secured claims of the same class when the CVA contains stays higher than five years and debt reductions of up to 50% of the claim.

Creditors can challenge the CVA's approval through an insolvency procedural plea within ten days of the court verifying that the necessary majorities have been reached. The following grounds for challenging the CVA are foreseen in the RIA:

  • breach of the rules on the content of the CVA;
  • breach of the rules on the form and content of adherences;
  • breach of the rules of the written procedure;
  • breach of the rules on the constitution of the creditors' committee; and
  • when creditors representing 5% of the aggregated liability or the IP consider that carrying out the CVA is objectively unfeasible.

The challenge will be resolved by the Insolvency Court in a ruling that can only approve or reject the agreement, not being able to modify its content.

Please see 3.2 Consensual Restructuring and Workout Processes regarding whether a formal restructuring procedure provides the company with a moratorium on or automatic stay of claims asserted against it.

Please see 6.1 Statutory Process for a Financial Restructuring/Reorganisation regarding whether or not a company can continue to operate its business under such procedures, and whether or not the incumbent management continues to manage the company.

Please see 6.10 Priority New Money regarding whether or not a company can borrow money during the process.

Pursuant to the RIA, claims are classified into three main classes based on the classification of their credits:

  • privileged claims, which have rights to vote – please see 6.1 Statutory Process for a Financial Restructuring regarding the effects;
  • ordinary claims, which also have rights to vote – if the CVA is approved, its content will affect the holders of these claims even if they voted against it or did not vote; and
  • subordinate claims, which lack the right to vote – if the CVA is approved, its content will affect the holders of such claims in any case.

In general, creditors are represented in the creditors' committee, which will be considered validly constituted when the following quorum is reached:

  • claims for an amount of at least half of the ordinary aggregate liabilities; or
  • creditors who represent at least half of the class of claims that could be affected by the contents of the proposed CVA (excluding subordinate creditors).

Creditors will have at their disposal the IP's report, the CVA proposals that could have been filed and the evaluation documents issued by the IP, from which they can request all the clarifications they require.

Dissenting creditors can be dragged along under the foreseen legal circumstances. In effect, the claims of dissenting creditors – whether ordinary or secured creditors – can be modified without their consent with the extension foreseen in the RIA when the CVA gathers the qualified majorities (see 6.1 Statutory Process for a Financial Restructuring).

The judicial approval of the proposed CVA provokes the novation of the dissenters' claims in the terms and conditions agreed upon with the qualified majorities.

In addition, the RIA states the possibility to grant a special treatment to a concrete class of claims within the CVA. In order to be valid and binding, this special treatment proposal must meet the vote in favour of the majorities required for the approval of the CVA within that class of claims affected (see 6.1 Statutory Process for a Financial Restructuring), but also the favourable vote in the same proportion of the aggregated liability not affected by the special treatment.

Trading of claims is allowed by the RIA. The subrogation of the new holder of the claim to the same rank as the former holder will take place by communicating and giving evidence to the court of the title of transfer. Exceptions to this rule occur when the new creditor is a person especially related to the insolvency debtor, in which case the acquired credit shall be ranked as a subordinate claim. In addition, a trade of claims that affects assets that are necessary for business continuity is prohibited.

The RIA allows business reorganisations (either mergers, spin-offs or global assignments of the assets and liabilities of the bankrupt legal entity) as a possible content and effect of the CVA. This operation requires judicial approval to comply with the requirements of the Spanish Corporate Act. In this case, the acquiring company will be subrogated to the legal position of the insolvency debtor.

In addition, a CVA can contain a debt-for-equity swap, in which case the capital increase agreement to formalise the swap may be adopted at the shareholders' meeting without the required statutory majorities.

Under a reorganisation plan, the liquidation of the whole aggregate assets is prohibited as a way of affecting the payment of creditors, as is the transfer of assets that are necessary for the continuity of business activity.

Consequently, only those assets that are not necessary for the company's activity could be disposed of, subject to the sale requirements as explained in 7. Statutory Insolvency and Liquidation Proceedings.

Once the company applies for insolvency, any sale of assets must obtain the approval of the court and/or the IP, depending on the scenario.

The general rule prevents the sale or encumbrance of the assets and rights of the insolvency estate without the authorisation of the court until the judicial approval of the CVA or the opening of the liquidation is sanctioned. As an exception, the IP may proceed to the sale of assets without such authorisation under certain circumstances, such as if the sale is deemed indispensable to cover the cash needs or to guarantee the debtor's subsistence.

The sale shall be reported to the court immediately, grounding its urgency, or when the sale relates to assets that are not necessary for the continuity of the activity and the bids are substantially coincident with the inventory value.

Any creditor/third party can make an offer on the debtor's assets as long as their offer is beneficial for the interest of the insolvency debtor – and its creditors – and meets the approval of the IP and the court. This sale procedure will vary depending on the phase of the insolvency proceeding – eg, in the liquidation phase, the sales of assets must be carried out according to the liquidation plan previously approved by the Insolvency Court. An auction is the preferred means of realisation but a direct sale or a sale through a specialised entity can be authorised by the court. Outside the CVA, the sale can be authorised where payment is made in cash and at market value, pursuant to a recent official appraisal.

There are also certain limitations during the sale procedure for related persons to the company.

The RIA provides for the sale of collateral free of liens and encumbrances as a potential content of the CVA, although it requires that the proceeds of the sale in an amount that does not exceed the value of the guarantee is committed to pay the secured claim.

The new money given to the debtor to finance the viability of the CVA will be considered a claim incumbent on the estate should the debtor fail to comply with the CVA and end up in liquidation.

However, this rule does not apply to new money that has been given by a person especially related to the debtor.

The classification of claims and the determination of their value are carried out by the IP in the first stage of the insolvency proceeding during the common phase. Claims can be classified into four classes:

  • special preferred claims or secured claims named créditos con privilegio especial, such as those secured with mortgages and pledges, which grant their holder the right to enforce its in rem right separate from the estate outside of the insolvency proceeding, with priority in payment to the limit of the collateral proceeds;
  • general preferred claims named créditos con privilegio general, such as salaries, social security payments and payments to the tax authorities, with priority in payment over the whole estate, after deducting the amounts necessary to attend debts incumbent to the estate and not limited to the collateral;
  • ordinary claims or senior debt named créditos ordinarios, which are governed by the par conditio creditorum principle, which provides equal treatment to all ordinary creditors – ie, those not included in any other category; and
  • subordinated claims, or créditos subordinados, which basically deal with the special relationship between the debtor and the creditor or the bad faith of the latter.

The content of the CVA, once judicially approved, equally affects all aggregate liabilities, except for the possible special treatment as addressed in 6.4 Claims of Dissenting Creditors.

During the common phase, the debtor (in the intervention of rights) or the IP (in the suspension of rights) may request the resolution of any contract if it is in the interest of the insolvency estate. In that case, the court will decide on the resolution, agreeing, where appropriate, the compensation to be paid against the estate.

The CVA will only produce effects on the "non-debtor parties" of the creditors who have voted in favour of it. In no case will they be released from their entire obligation; they will only be released in the reductions and/or stays approved in the CVA.

As a general rule, once the insolvency proceeding has been declared, set-off is prohibited by the RIA. However, it is possible to offset credits under the following scenarios:

  • if the following requirements exist prior to the declaration of insolvency:
    1. each party is principally obliged, and is at the same time the main creditor of the counterparty;
    2. both debts to be offset consist of cash, fungible goods or the same quality or type of assets;
    3. both debts are due, liquid and claimable; and
    4. no retention or dispute over the debts and credits to be netted has been notified in a timely manner to the debtor;
  • if there is compliance with the requirements of Royal Decree 5/2005 that introduces in Spain the Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements. A financial collateral arrangement, as well as the provision of financial collateral under such arrangement, may not be declared invalid or void, nor be reversed on the sole basis that the court decrees the debtor's insolvency; and
  • if the credit to be offset is subject to foreign legislation allowing offsetting in insolvency situations, in which case the offsetting will be admitted in Spain.

There is no time limit to file a set-off claim if these requirements are met.

The breach of the conditions agreed in the CVA must be stated by the court in a ruling. The effects of the declaration of non-compliance are:

  • the loss of effectiveness of the agreements reached in the CVA;
  • secured creditors may file or resume the enforcement of their collateral;
  • the opening of the liquidation phase; and
  • the dissolution of the company.

Equity is classified as a subordinated claim, which are the last class to be paid. Equity claims holders do not vote on the CVA but are bound by its content.

For further information on the types of insolvency proceedings under Spanish law and their phases, please see 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership.

Initiation of Liquidation Proceedings

There are different ways to initiate the liquidation phase of a Spanish insolvency proceeding:

  • at the debtor's voluntary request, even in the initial application of the insolvency proceeding or once the debtor fails to gather majorities to approve a CVA;
  • at the request of creditors if the debtor breaches the CVA (see 3.2 Consensual Restructuring and Workout Processes);
  • at the request of the IP if the company ceases its main activity; or
  • ex officio by the court if a CVA is not submitted within the legal terms, or when the submitted CVA has not been admitted, when creditors have not accepted the CVA in the creditors’ meeting, when the CVA accepted by creditors has been refused by a judge or annulled by a later court decision, or when the judge declares a breach of the CVA.

It is also possible to initiate the liquidation phase directly through an abbreviated proceeding or in a consecutive insolvency proceeding.

Liquidation Timeline

Once the liquidation phase is opened, a liquidation plan must be elaborated by the IP to proceed with the sale of the rights and assets of the estate. This plan is submitted for court approval, and a sale as a whole is preferred to a sale of separate pieces. An auction is the preferred method of realisation, and direct sale through special entities is also allowed. For all matters not provided for in the liquidation plan, the supplementary rules set forth in the RIA shall apply.

The IP provides the insolvency judge with quarterly reports throughout the duration of the liquidation phase.

Pursuant to the RIA, the liquidation phase should not exceed one year, and will finish with the payment of creditors in accordance with insolvency law. IPs may be removed where this one-year term is exceeded, except where this is adequately justified.

Quantification of Claims

With the publication of the insolvency decree in the Official Gazette, the court calls creditors to communicate their claims within one month.

Claims are quantified and recognised in the initial stage of the insolvency proceeding by the IP, who will make a list of claims classified according to law, after contrasting the proofs of claims submitted by creditors with the debtor's accounting books.

The special recognition regimes of contingent claims are as follows.

  • Claims depending on a resolution condition are recognised as conditional claims, and creditors will enjoy their rights to vote and collect until the event of resolution occurs.
  • Claims depending on a suspensive condition precedent will be ranked as contingent claims, with the corresponding classification and without a concrete amount. The voting and collection rights of such claims are suspended until the contingency is removed. Claims under dispute will be considered as contingent claims.
  • Public claims appealed before the public administration or a court will be recognised as claims depending on a resolution condition. Public claims that arise from an inspection procedure will be recognised as contingents until they are finally quantified.
  • Claims guaranteed by means of a personal guarantee will be recognised as having no limitation.

Continuation of Legal Proceedings and Enforcement Actions

As a general rule, declaratory lawsuits and arbitration proceedings that are pending at the time of the insolvency decree will continue until a final judgment or award is issued. Suspension will be decreed where proceedings refer to actions claiming corporate liabilities against the directors, or to workers' claims related to lump sum construction contracts filed against the final owner.

Pending enforcement proceedings can only be continued if seizures have already been ordered by the judge. However, all seizures affecting necessary business assets will be stopped. The suspension of enforcement actions affecting secured assets will be lifted where a CVA is approved or liquidation is decreed, or when the judge declares that collaterals are not necessary for the business activity.

Continuation of Management Group/Directors of the Company

Suspension of the debtor's powers of administration and the disposition of assets are the main effects of the opening of the liquidation phase.

Moreover, the opening of the liquidation phase means the dissolution of the business as well as the removal of the administrators or liquidators of the company and their replacement by the IP (see 9.2 Statutory Roles, Rights and Responsibilities of Officers for more information on the suspension regime).

Termination of Contracts in Benefit of the Insolvency Proceeding

The debtor or the IP (depending on the insolvency regime of the debtor's faculties) may request the termination of contracts by the court in the interest of the insolvency estate, in which case a procedure to settle the consequences of such resolution will be initiated before the Insolvency Court.

Rights of Set-Off

Please see 6.14 Rights of Set-Off.

Value Distribution Amongst Creditors and Conclusion of the Liquidation Proceeding

Claims are paid according to the order mentioned in 5.1 Differing Rights and Priorities. Debts incumbent on the estate will be paid with preference over the rest of the claims, and with the remaining insolvency estate secured credits are fully paid before paying in full preferred claims and then ordinary claims. Should there be any left over, subordinated claims will be covered.

In exceptional circumstances, the RIA allows debtors who, being in a situation of insolvency, lack sufficient assets and rights with which to satisfy creditors and meet certain requirements to apply for the “early” closing of insolvency proceedings. As a requirement, the court must clearly appreciate that the insolvency estate will not be sufficient to satisfy the foreseeable debts incumbent on the estate and that neither the exercise of claw-back actions nor the disqualification of directors or the liability of third parties is foreseeable.


The RIA does not regulate the pre-pack procedure, limiting itself to establishing an “express” sale procedure composed of two phases:

  • in the pre-bankruptcy stage, the debtor performs a search for a binding offer for the Productive Unit, then submits its application for insolvency including the binding offer; and
  • within the insolvency ruling, the court grants a ten-day term for the creditors and the IP to agree on the content of the bidding offer.

Due to the brevity of the terms provided and the lack of confidence on the impartiality of bidders and convenience of the offer, this express sale mechanism has not been frequently applied by Commercial Judges in Spain.

In addition, the differences between the applications made by courts in Madrid and Catalonia introduce uncertainty in the use of this mechanism. In Catalonia, pursuant to the Protocol adopted by the Commercial Judges of Barcelona, a “pre-insolvency administrator” may be appointed to supervise and guarantee publicity of the offers and bids for the Productive Unit, while in Madrid the “Guide to Good Procedural Practices” published by the Commercial Judges of Madrid rejects the appointment of a “pre-insolvency administrator” but assumes the compromise to accelerate the judicial terms to approve the sale.

Legal Standing for Asset Disposals

Asset disposals are carried out in accordance with the liquidation plan prepared by the IP and approved by the judge (see 7.1 Types of Voluntary/Involuntary Proceedings), with the sale of the company as a whole being the preferred choice. The judicial auction rules provided for by law must be used for all matters not considered in the liquidation plan.

Consequences for the Buyer

As a general rule, the buyer acquires the assets and rights free of encumbrances and liens, except where the sale expressly contemplates the subsistence of the lien and the subrogation of the buyer to the debt.

Rules Applicable to Bids

The RIA allows for high flexibility in the provisions applicable to bids to be included in the liquidation plan, except when it comes to collateral.

For all matters not provided for in the liquidation plan, the legal provisions must be followed, differentiating between the legal auction proceedings for movable and immovable property.

  • Movable property may be sold by an electronic auction, which shall be announce in the Official Gazette. Participants must register in the auction portal through electronic signature, and only online electronic bids will be accepted for 20 days after the opening of the auction. The auction finishes when the highest bid is equal to or greater than 50% of the appraised value, and the goods will be awarded to the highest bid.
  • Immovable property can also be sold by electronic auction. Prior to the auction, it is necessary to issue a certificate stating the identity of the owner, the charges and the rights existing on the real estate. Participants must deposit 5% of the appraisal and the auction finishes when the highest bid reaches or exceeds 70% of the appraised value. If no one attends the auction, the creditor may request the award of the property, paying 50% of the appraisal value, or 70% if the property is the habitual residence.

Asset Sale Rules Applicable to the Insolvency Proceeding

As a general rule, asset sales in Spanish insolvency proceedings do not take place until either the CVA or the liquidation phase is approved. In both cases, the prior authorisation of the judge is mandatory.

Nevertheless, the following asset sales can be carried out by the IP, who must communicate them to the judge beforehand:

  • sales of assets that would be carried out in the normal course of the debtor's activity; and
  • sales of assets that are indispensable to meet cash flow requirements or to ensure the productive unit viability.

It is also possible to sell assets that are not necessary for business continuity if the highest offers made by potential buyers are substantially coincident with the inventory appraisal (up to 10% less for real estate and up to 20% less for movable assets). In these cases, in addition to communicating the offer to the judge, the IP must justify that the asset to be sold is not necessary for business continuity.

Special rules apply for collaterals of secured claims, which can be sold directly at any stage of the insolvency proceeding with the previous authorisation of the judge. Deeds in lieu are also possible.

There are also special rules that apply to the sale of production units.

  • Subrogation ipso iure of the acquirer in contracts, the termination of which has not been sought, and unless the acquirer refuses to be subrogated thereto.
  • The automatic assignment of existing administrative licences or authorisations to the acquirer, provided that the business activity continues in the same facilities.
  • The exoneration from payment of unsatisfied claims, whether insolvency claims or post-insolvency claims, unless the acquirer chooses to pay them or an express legal provision imposes the payment thereof; in this regard, the RIA now expressly provides for the subrogation of the acquirer to the salary and social security liabilities of those employment contracts maintained by the buyer.
  • The possibility of including the assignment of assets and rights in or for payment in the liquidation plan, provided that they are not necessary for the pursuit of the activity and their fair value is less than the claim extinguished thereby.
  • The sale of the whole or, as the case may be, of each productive unit shall be made as a general rule by auction but if there are no successful bidders or if the IP's report states that this is the most favourable option for the insolvency proceedings, the direct sale or sale by a specialist is an available option. Additionally, at any time during proceedings and at the request of the IP or the secured creditor, the court may authorise the direct sale of collaterals or assignment in payment or for payment to the secured creditor.
  • The possibility of transferring a production unit that includes collaterals of secured claims that meet with the approval of at least 75% of the preferred claims of the class affected by the transfer, when the price obtained does not cover the collateral's value.
  • No consent of the secured creditor is required if the sale of collaterals takes place with subsistence of the lien and with subrogation of the acquirer in the debtor's liability, which will be accordingly removed from the list of liabilities.
  • In general terms, assets are sold within the insolvency proceeding free of liens and encumbrances, unless the buyer decides to subrogate in said charge.

All creditors of the insolvency proceeding may gather as a body called the creditors’ meeting. The creditors' meeting will meet in order to debate and vote on the different proposals for a CVA proposed by the debtor or by creditors and for its valid constitution a quorum of not less than 50% of the liabilities affected by the CVA is required, excluding subordinate creditors (see 6.1 Statutory Process for a Financial Restructuring/Reorganisation and 6.3 Roles of Creditors).

Subordinated and contingent claims are excluded. If ordinary or secured creditors who have not attended the meeting subsequently adhere to the approved proposals, they will be counted as attendees for quorum purposes.

The debtor and the IP must attend the creditors' meeting. If the latter does not attend the meeting, he or she may lose their remuneration. No remuneration at all is foreseen for creditors who attend the meeting.

Resolutions declaring the opening of the insolvency proceeding are recognised through the exequatur proceeding. Resolutions issued after the opening of the insolvency proceeding would be automatically recognised once the exequatur proceeding rules for the recognition of the foreign insolvency decree. However, to be able to enforce any subsequent ruling issued within the same foreign insolvency proceeding, it will be necessary to initiate another exequatur proceeding.

The requirements for the recognition of the opening resolution are as follows:

  • it must be a resolution issued within a proceeding comparable to the Spanish insolvency proceeding (a collective proceeding that is based upon the insolvency of the debtor and is agreed to be subjected to the control of a foreign authority);
  • the resolution must be final;
  • it must have been issued by an equivalent court to that which would judge the insolvency proceeding in Spain; the debtor must be aware of the existence of the proceeding; and
  • there must be reciprocity with the Spanish public order.

Precautionary measures can be requested and approved until recognition is obtained.

In accordance with EU Regulations, Spanish regulations provide for a duty of reciprocal co-operation between Member State jurisdictions in which parallel insolvency proceedings are being carried out.

Rules foreseen under the RIA refer to co-ordination amongst the IPs of the two proceedings, consisting of information exchanges, co-ordination in the administration of the debtor’s estate, and approval and implementation of co-operation agreements by the courts and public authorities.

The legal framework applicable in Spain is Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings, transposed into the RIA. Therefore, the RIA provides for the following matters:

  • relationships between jurisdictions;
  • the law applicable to each case;
  • recognition of foreign insolvency proceedings; and
  • co-ordination between jurisdictions.

Outside the EU, and in the absence of multilateral or bilateral treatments (usually based on reciprocity), Act 29/2015, of 30 July, on International Judicial Cooperation will be applicable.

Foreign creditors are dealt with in the same manner as nationals.

In the coexistence of national and foreign insolvency proceedings (as principal and secondary ones), and if the foreign law allows it, it is possible for the IP to communicate in Spain the claims already recognised in the foreign insolvency proceeding and to be part of the Spanish insolvency proceeding as a representative of the foreign creditors. However, such co-ordination is only possible if there is reciprocity between States.

Please see 8.1 Recognition or Relief in Connection with Overseas Proceedings.

Spanish legislation does not foresee a transfer of the directors’ fiduciary duties to creditors, but does provide for the intervention of a single officer called the Administrador concursal, or the Insolvency Practitioner. In proceedings related to insurance companies and financial entities, a second IP will be appointed.

Both natural individuals and corporations can be appointed as IPs, but companies shall appoint an individual as their representative.

The court may authorise the IP to delegate certain duties to assistants when the complexity of the insolvency proceedings so requires.

This IP acts as a delegate of the court in the interest of the insolvency estate and is submitted to a severe regime of liabilities and incompatibilities.

Roles under the Suspension Regime

In involuntary insolvency proceedings, or upon a liquidation decree, the debtor is deprived of his or her managerial faculties, which are assumed by the IP; this is the so-called régimen de sustitución. Under this system, the main functions of the IP are as follows.

  • Replacing the previous administration and disposing of the debtor’s assets. The IP shall adopt the necessary measures to ensure the continuation of the business activity.
  • Requesting the competent court to terminate pending contracts with reciprocal obligations when doing so can be considered beneficial for the bankrupt’s estate.
  • Formulating the debtor’s annual accounts and filing tax returns and declarations.
  • Under a liquidation scenario, drafting the liquidation plan and monetising the rights and assets to repay creditors.

Roles under the Intervention Regime

In most voluntary insolvency proceedings, debtors remain in possession of their faculties and the IP will just supervise the debtor's acts. Under this regime, known as régimen de intervención, the IP’s main functions are:

  • supervising the administration of the company and disposing of the debtor's assets where previous authorisation is not required;
  • authorising or confirming the directors' acts, when required; and
  • authorising of the filing of lawsuits by the debtor.

Supervision and Liability

IPs are subject to supervision by the competent court, and must report on the adequacy of the CVA, submit a Liquidation Plan or a quarterly report on the status of the liquidation operations. They shall also be held liable to the debtor and creditors if any damages or losses are caused to the debtor’s estate due to unlawful or negligent acts.


In general terms, IPs must meet the professional requirements (a lawyer or an economist) and must have the specific training and experience required by the law, although the specific requirements have been pending a legislative development since 2014. They must also be registered in the list of IPs and prove that they have a civil liability insurance policy.

The appointment of the IP should be made by the competent court from amongst those included in a public list, although in large and complex proceedings the court has the choice to appoint a specific practitioner. The designated practitioner shall appear before the court and accept the appointment within five days.


The following professionals are prevented by law from assuming the role of statutory practitioner with the premise of impartiality and irreproachability of the conduct required to perform the aforementioned duties.

  • Those who may not hold the position of director of a public or private limited corporation.
  • Those who have provided any kind of professional services to the debtor or anyone specially related to the debtor, within the last three years. Also, those who have shared the exercise of professional activities of any nature during those three years.
  • Those who are to be found in any of the incompatibility situations foreseen in the auditing legislation, in relation to the debtor, its directors, administrators or a creditor that holds more than 10% of the aggregate liabilities.

Resignation and Objection

Once the office is accepted, the IP may only resign due to major reasons.

An IP may be rejected by those entitled to apply for the declaration of the opening of insolvency proceedings.

The duties of the directors of companies in financial difficulties or in a situation of insolvency remain unchanged, maintaining the obligations of diligence, good faith and loyalty to the interest of the company.

Once the insolvency proceedings have been declared, these duties or obligations may be intervened or suspended. In the case of intervention, the IP's authorisation to validate directors' acts shall be met except for daily normal business decisions. In the suspension of faculties, the director's duties are carried out by the IP.

The duties of appearance, collaboration and the provision of information with respect to the insolvent party and its corporate administrators for the benefit of the insolvency administration must be added to these obligations.

The directors of the companies may be obliged to cover all or part of the outstanding amounts that exceed the value of the insolvency estate when they have been de facto or de jure administrators or directors within a period of two years prior to the declaration of the insolvency proceeding and negligence is evidenced in the fulfilment of their corporate or bankruptcy duties, such as the defective formulation and deposit of accounts or the breach of the duty to request the bankruptcy or to collaborate with the judge of the bankruptcy or the bankruptcy administration.

In addition to these liabilities, in the civil area, the administrators and accomplices may be disqualified from administering the assets of others or representing third parties, and may lose the credit rights recognised in the insolvency proceeding and return those obtained during the proceeding.

In the criminal area, the administrators may be punished with prison sentences or fines when they negligently or fraudulently fail to comply with the duties of loyalty, good faith and accounting in a criminally relevant manner.

From the date of the declaration of the insolvency proceeding, the insolvency administration will be exclusively responsible for the exercise of the liability actions that the insolvent company has against its directors and administrators, whatever their denomination may be, without prejudice to the actions that the latter may exercise against the administration in the event of neglect of duties.

On the other hand, the proceedings derived from liability actions brought against the administrators or directors that were in process at the time of the declaration of the insolvency proceeding will be accumulated to the insolvency proceeding, and their processing will continue therein, except in the case of liability actions derived from the breach of legal duties in the event of the concurrence of a cause of dissolution, which will be suspended.

Historical transactions preceding an insolvency proceeding may be set aside when it is understood that they are detrimental to the insolvency estate, with it being understood that they will always concur when they are disposals of assets free of charge or extinction of obligations not due and payable, unless they were guaranteed.

The acts of disposition carried out with specially related persons, the constitution of in rem guarantees on pre-existing debts and the payments or extinction of non-outstanding secured obligations may also be set aside.

Acts prejudicial to the estate entered into two years prior to the insolvency decree might be rescinded through an avoidance action.

The standing for the exercise of the claw-back actions lies with the IP, although it may rest subsidiarily with the creditors if, upon request to the IP for their exercise, such actions are not initiated within two months after said request.

These actions, as exceptional, can only be exercised by the IP, without prejudice to the actions that correspond to the corporate administrators and, subsidiarily, to the creditors under the corporate regulations to request from the courts the nullity of the transaction or the liability of those responsible for the company, respectively.


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Trends and Developments


KPMG ABOGADOS, S.L.P. has a sizeable team handling dispute resolution and insolvency matters in Spain, from offices in Madrid, Barcelona and Valencia, among others. The firm is a market leader in insolvency proceedings and has handled some of the most high-profile matters in recent times, including the Martinsa-Fadesa and Eurona Wireless bankruptcies. It also has extensive experience in the full range of commercial, company and civil law litigation, arbitration and mediation matters. The size and depth of the dispute resolution team enables the firm to handle a great number of cases and complex judicial proceedings, as illustrated by its recent work on behalf of Bankia, Banco Santander, Caixa, Unicaja and Cajamar in cases related to banking products. Beyond its focus on financial institutions, the firm also acts for clients in the energy, manufacturing, hospitality, technology, advertising, food and drink and automotive sectors.

Transposition in Spain of Directive (EU) 2019/1023

The Spanish government is in the process of transposing, Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt (the Directive) into Spanish law.

Increasing the efficiency of preventative restructuring frameworks becomes essential for the following:

  • to avoid statutory insolvency proceedings, which end with the liquidation of viable enterprises in 95% of cases;
  • to enable debtors to confront insolvency at an early stage and help to prevent job losses and the loss of know-how and skills;
  • to increase the recovery rate for creditors; and
  • to prevent the artificial maintenance of non-performing loans and allow credit to finance performing activities.

With this purpose in mind, the Spanish government has prepared a Preliminary Draft Bill (the Preliminary Draft) to amend the recently restated insolvency law, enacted by Royal Legislative Decree 1/2020, of 5 May: the Recast Spanish Insolvency Act (the RIA).

Of the regulatory amendments envisaged in the Preliminary Draft, this article will analyse the proposed changes to the pre-insolvency law.

The Preliminary Draft amends each and every one of the provisions of Book II of the RIA (which is the basic insolvency law in Spain), which regulates pre-insolvency law, seeking to make the rules that apply to out-of-court solutions more flexible and to foster this mechanism as the clear choice to avoid companies and individuals entering into insolvency situations, as far as possible.

Some of the main changes envisaged in the Preliminary Draft regarding pre-insolvency law are summarised below.

Probable insolvency

The Preliminary Draft provides for bringing forward the time from which companies and individuals can make use of the pre-insolvency law. Indeed, although the current legislation only provides for a debtor's imminent or current insolvency, the Preliminary Draft also introduces the situation of “probable insolvency”, which entitles a debtor to make use of the same pre-insolvency mechanisms. Such “probable insolvency” is defined as the situation in which it is objectively foreseeable that, if an out-of-court solution is not reached, the debtor will not be able to comply regularly with its obligation on the due date.

The Restructuring Plan

The Preliminary Draft unifies under the term “Restructuring Plan” any formerly available out-of-court solutions (early voluntary composition agreements, refinancing or collective agreements, and individual out-of-court agreements) adopted during the pre-insolvency stage. Specifically, Restructuring Plans are defined as “agreements whose purpose is to modify the composition, condition or structure of the debtor's assets and liabilities, or its equity, including transfers of assets, productive units or the entire company, as well as any necessary operational changes, or combination of any of these elements.”

The breadth and flexibility of the content of the new Restructuring Plans envisaged by the Preliminary Draft are notable with respect to the provisions on the regulations in force to date, and are aimed at encouraging the use of this mechanism.

Communication of the commencement of negotiations

With the same purpose of avoiding future insolvency proceedings, the Preliminary Draft brings forward many of the effects of the insolvency declaration to this pre-insolvency stage, in the best interest of the negotiation of the Restructuring Plan.

In order to achieve these effects, the debtor must send a communication informing the court of the opening of negotiations with the creditors, and must provide detailed information on:

  • the grounds of the probable insolvency;
  • the creditors;
  • the assets and agreements necessary to continue its activity; and
  • the main company figures and intercompany guarantees.

A mere allegation without documentary support from the debtor will no longer be sufficient to benefit from the effects of the umbrella protection period.

Of the effects now associated with this communication of the commencement of negotiations, the following stand out, as they were formerly only available under a statutory insolvency proceeding.

  • Effects of communication on contracts: the Preliminary Draft introduces the possibility of paralysing the contractual termination of those contracts that are deemed necessary for the continuation of the debtor's business or professional activity, including supply contracts whose suspension could affect the continuity of the debtor's activities as an ongoing concern. But the most relevant amendment is the possibility for debtors to include in the Restructuring Plan the novation or termination of any agreement in the interest of the Restructuring Plan or to avoid insolvency, with the subsequent compensation submitted to the debt reductions or stays foreseen in the Restructuring Plan to be paid to the affected party. Those affected may challenge the Restructuring Plan to oppose the imposed resolution or amendment.
  • Effects of the communication on third parties' guarantees: the Preliminary Draft foresees the possibility of suspending the enforcement of personal or in rem guarantees provided by any other group company when it is proven that the enforcement of such guarantees may cause the insolvency of the guarantor and the debtor itself. This is a significant change that will help groups of companies to reach a Restructuring Plan.
  • Effects of communication on enforcement actions and proceedings: the legal prohibition on foreclosures and enforcement procedures and the legal suspension of those already in process are broadened in scope and extend to a more general prohibition than that contemplated by the Recast Spanish Insolvency Act.

In addition, the following effects already provided for by the RIA are maintained in the Preliminary Draft and are essential to gaining the approval of a Restructuring Plan.

  • Suspension of creditors' application for insolvency decree: as is already the case under the current RIA, the communication of negotiations will paralyse the admission of insolvency proceeding requests filed by parties other than the debtor (generally, creditors).
  • Suspension of the debtor's legal duty to file for insolvency proceedings within the umbrella protection period: where the negotiations with creditors to approve a Restructuring Plan within the period granted for this purpose fail, the debtor must apply for an insolvency statement within one month of the lifting of the effects of the notice of commencement of negotiations to avoid incurring liability.
  • Effects of the communication on the debtor's legal duty to file for the dissolution of the company: under Spanish Corporate Law, the directors have the legal duty to dissolve the company when there are losses that reduce the net equity to half of the share capital. In the event of non-compliance with this obligation, the director may be liable for certain corporate debts with his or her own assets. The Preliminary Draft provides for the suspension of this cause for dissolution due to “qualified losses” while the effects of communication of the opening of negotiations to reach a Restructuring Plan are in force.

In sum, all the effects that have been typically linked to the insolvency declaration are now being anticipated at the pre-insolvency stage, aimed at facilitating a negotiation process that should culminate in the Restructuring Plan and the avoidance of insolvency proceedings.

Extension of validity period of communications related to the commencement of negotiations

A significant change included in the Preliminary Draft is the extension of the umbrella protection period associated with the communication of the commencement of negotiations, from three months to a maximum of 12 months.

Creditors must support such extensions to prevent the negotiation period from being contrivedly extended in favour of the debtor and damaging creditors' rights without an expected positive outcome (such as the approval of a Restructuring Plan).

Expanded possibilities of extending the effects of the Restructuring Plan to creditors and dissenting shareholders

The Restructuring Plan must be submitted for the sanction of the court in two scenarios:

  • to cram down dissenting creditors, creditors who did not vote in favour, or shareholders that did not support it; and
  • to protect the operations and contents of the Restructuring Plan from avoidance actions, and specifically to protect fresh money that makes the Restructuring Plan viable in case of a subsequent insolvency decree.

As a really outstanding innovation, the Preliminary Draft significantly broadens the scope of the classes of liabilities that may be affected by the Restructuring Plan to almost all kinds of claims and dissenting creditors, which allows for greater flexibility in the contents of those plans and increases the possibilities of success.

Therefore, if the proposed draft is maintained, the Restructuring Plan approved by the relevant quorums and sanctioned by the court may be imposed on almost every class of creditors (except for Public Law Creditors, future liabilities, alimony, certain employment liabilities and extracontractual compensations), even dissenters or those who did not vote in favour of it. Formerly, such cram-down effects were limited to financial creditors.

Cross-class cram-down is foreseen in the Preliminary Draft to ensure that dissenting creditors, included equity, cannot unreasonably prevent the adoption of a Restructuring Plan that would bring the debtor back to viability. Attending to the sacrifice imposed, and in line with the Directive, the Preliminary Draft ensures that, in a cross-class cram-down, dissenting classes of creditors are not unfairly prejudiced and are entitled to challenge the Restructuring Plan, without those challenges having  suspensive effect.

The insolvency expert

Lastly, one of the novelties included in the Provisional Draft is the possibility of appointing an insolvency expert to assist the debtor and creditors in negotiations, and to draft the reports required or deemed necessary or convenient by the judge.

This new insolvency expert shall be independent and impartial, and his or her expertise in restructuring business might be in line with the specific peculiarities of the restructuring, such as:

  • the dimensions and complexity of the assets and liabilities;
  • the sector in which the debtor is operating; or
  • the existence of cross-border elements.

The appointment of the insolvency expert shall proceed in the following cases:

  • at the debtor's request;
  • when requested by creditors holding the foreseen majorities in the new act;
  • when the debtor applies for the general suspension of the enforcements and the judge considers that the appointment of an insolvency expert is necessary to preserve the interest of those potentially affected by the suspension; and
  • when the debtor or any legitimate party asks for judiciary homologation of a Restructuring Plan whose effects are extended to a class of creditors or to shareholders who did not vote in favour of the plan.

The insolvency expert shall be proposed by the debtor or by those creditors who requested the appointment, and should be approved by the judge. If the judge considers that the proposed expert does not fulfil the requirements foreseen in the Preliminary Draft, he or she will ask to consult a list of potential experts.

The functions and appointment of this new professional substantially differ from those foreseen in the actual regulation for insolvency practitioners, allowing for greater flexibility and minor expertise requirements but lacking adequate regulation in detriment of the insolvency practitioners. It could be suggested that the same requirements and legal regime as apply to insolvency practitioners should be met by pre-insolvency experts.

Privileges for the public creditor

Following the traditional reluctancy of the Spanish legislator to yield when it comes to dealing with public creditors, the Preliminary Draft explicitly excludes these credits from those who may be affected by the Restructuring Plan.

Likewise, the possibility of suspending enforcements related to public law creditors is also excluded during the pre-insolvency stages.

The measure is considered to be lacking in sense and is opposed to the spirit of the Directive, as it might frustrate many restructuring transactions, especially those dealing with small and medium-sized enterprises, which form the bulk of the Spanish economy and whose main creditors are usually public bodies.

As the possibility to affect public law credits exists in the context of a company's voluntary arrangement, this same measure should also be extended to the pre-insolvency stages with the adequate judicial control. At the end of the day, this situation entails bankruptcy for those enterprises that may not be viable without extending the Restructuring Plan to this type of public law creditor.

Besides, the negative effect on the public purse in the long term through the loss of economic activity, entailing employment losses and less tax income, seems to be worse than the immediate damage arising out of the partial reduction of credit or the deferment of payments of public law credits under a Restructuring Plan that will enable the company to continue its activity as an ongoing concern.


In general terms, this amendment as it relates to the pre-insolvency regulation can be considered a positive change as the Provisional Draft reinforces the legal basis to foster out-of-court restructuring solutions.

In fact, taking into account the bad outcome of companies entering into statutory insolvency procedures, a progressive increase in the use of Restructuring Plan solutions can be anticipated, to the detriment of statutory insolvency solutions. In the future, if Restructuring Plans are properly and timely used, the negative impact associated with statutory insolvency can be significantly reduced for both enterprises and individuals, and applications for statutory insolvency proceedings would be limited to those companies that are not viable from an economic perspective, for which liquidation is the best possible outcome.

However, to reach that scenario, it would be convenient to move forward in the regulation of pre-insolvency law, extending to this stage all the effects and possibilities that are currently foreseen for the settlement of creditors – namely the possibility to affect public law credits in a Restructuring Plan with the adequate guarantees to avoid unfair sacrifice. In this way, viable enterprises will have no reason not to use Restructuring Plans, and statutory insolvency proceedings will remain the last resort for companies that have failed to reach agreement with their creditors during the pre-insolvency stages.


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Law and Practice


KPMG ABOGADOS, S.L.P. has a sizeable team handling dispute resolution and insolvency matters in Spain, from offices in Madrid, Barcelona and Valencia, among others. The firm is a market leader in insolvency proceedings and has handled some of the most high-profile matters in recent times, including the Martinsa-Fadesa and Eurona Wireless bankruptcies. It also has extensive experience in the full range of commercial, company and civil law litigation, arbitration and mediation matters. The size and depth of the dispute resolution team enables the firm to handle a great number of cases and complex judicial proceedings, as illustrated by its recent work on behalf of Bankia, Banco Santander, Caixa, Unicaja and Cajamar in cases related to banking products. Beyond its focus on financial institutions, the firm also acts for clients in the energy, manufacturing, hospitality, technology, advertising, food and drink and automotive sectors.

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KPMG ABOGADOS, S.L.P. has a sizeable team handling dispute resolution and insolvency matters in Spain, from offices in Madrid, Barcelona and Valencia, among others. The firm is a market leader in insolvency proceedings and has handled some of the most high-profile matters in recent times, including the Martinsa-Fadesa and Eurona Wireless bankruptcies. It also has extensive experience in the full range of commercial, company and civil law litigation, arbitration and mediation matters. The size and depth of the dispute resolution team enables the firm to handle a great number of cases and complex judicial proceedings, as illustrated by its recent work on behalf of Bankia, Banco Santander, Caixa, Unicaja and Cajamar in cases related to banking products. Beyond its focus on financial institutions, the firm also acts for clients in the energy, manufacturing, hospitality, technology, advertising, food and drink and automotive sectors.

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