The laws and statutory regimes applicable to insolvencies in Andorra are the following.

• Decree on insolvencies and bankruptcies of 4 October 1969, Decret en relació a la cessació de pagaments i fallides, del 4 d’octubre de 1969 (the “Insolvency Decree”), which establishes the statutory regime applicable to judicial insolvencies and bankruptcy proceedings in Andorra.
• Act 7/2021, of 29 April 2021 on recovery and resolution of banking entities and investment firms, Llei 7/2021, del 29 d’abril, de recuperació i de resolució d’entitats bancàries i d’empreses d’inversió (the “Banking Recovery Act”), based on Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms.
• Act 7/2024, of 27 May 2024, which covers the organisation and operating conditions of operating entities in the Andorran financial system and market abuse, Llei 7/2024, del 27 de maig, sobre organització i funcionament de les entitats operatives del sistema financer i l’abús de mercat (the “Financial Act”), sets the effects of insolvency or bankruptcy proceedings in respect of netting agreements or collateral arrangements.
• Act 12/2017, of 22 June 2017 on the organisation and supervision of insurance and reinsurance of the Principality of Andorra, Llei 12/2017, del 22 de juny, d’ordenació i supervisió d’assegurances i reassegurances del Principat d’Andorra (the “Insurance Act”), provides specific control measures that could be adopted by the Andorran Financial Authority in case of financial hardship.
• Act 20/2007, of 18 October 2007, on limited liability companies, Llei 20/2007, del 18 d’octubre, de societats anònimes i de responsabilitat limitada (the “Companies Act”), on the liquidation of companies as well as the duties of officers and directors.

• Act 9/2005, of 21 February 2005 of the Criminal Code, Llei 9/2005, del 21 de febrer, qualificada del Codi penal (the “Criminal Code”), establishes the actions carried out by any debtor leading to a bankruptcy situation to the detriment of third parties as a criminal offence.

• Act 22/2021, of 17 September 2021 of the Civil Procedure Code, Llei 22/2021, del 17 de setembre, del Codi de procediment civil (the “Civil Procedure Code”), amends the procedural provisions stated in the Insolvency Decree to align them with the new civil judicial proceedings.

One of the main priorities of the Andorran government is to introduce an effective insolvency regime, by updating and improving the current insolvency regulations, specifically the Insolvency Decree. To do this, a new bill is being drafted with the aim of modernising and adapting the existing regulations to international insolvency law standards. It is expected that the new bill will be drafted to strike a balance between the debtor’s financial difficulties, the interests of the creditors and public policy concerns. The bill will specifically take the exponential increase of international trade into account, by effectively co-ordinating insolvency proceedings involving multiple jurisdictions.

Andorran law does not expressly distinguish between voluntary and involuntary insolvency proceedings.

Nonetheless, any debtor unable to comply with its payment liabilities must file for insolvency before the Andorran courts. Additionally, creditors may request the pursuit of these proceedings and the Andorran court, of its own initiative, may also open an insolvency judicial proceeding.

An insolvency proceeding may be qualified either as a judicial restructuring or settlement proceeding (arranjament judicial) or a bankruptcy proceeding (fallida), depending on whether the financial distress of the company can be reversed.

The statutory officers in insolvency or restructuring proceedings are the following:

• the competent supervisory judge, who supervises and decides on the operations and management of the procedure;
• the administrators appointed by the court (one to three administrators can be appointed); and
• the controllers (one to three controllers can be appointed), who are accounting experts and are chosen from the creditors. Their role is voluntary and non-remunerated.

In all cases, the relatives of the debtor, up to the fourth degree of consanguinity or affinity, cannot be appointed as administrators or controllers.

A judge (ponent del Tribunal de Batlles) will be appointed as the person responsible for monitoring and deciding on the operations and management of the insolvency proceeding. The judge may freely appoint the administrators or controllers and may also remove them should they not accomplish their task.

The insolvency administrator(s) will have the obligation to inform the judge every three months on the development of the viability of the debtor subject to judicial settlement or bankruptcy.

The controllers will verify the accounts and assist the judge in the supervision of the operations of the insolvency administrators. The controllers may also verify the status of the proceeding as well as the revenues obtained and the payments transferred.

According to the insolvency rules and Andorran case law, a distinction is made between special privileges (privilegis especials) and general privileges (privilegis generals) over movable assets (béns mobles) and real estate assets (béns immobles).

Consequently, creditors are to be paid in the following order.

• Creditors granted a special privilege over movable assets (pledges along with bonds and certain specific privileges, such as those afforded to the sellers of movable assets).
• Creditors granted a special privilege over real estate assets (mortgages and concrete privileges, such as those in favour of architects, real estate asset sellers and real estate asset acquirers to recover the price paid plus legal interests on the termination of the sale agreement).
• Creditors granted a general privilege (such as the privilege provided to workers for their salary amounts).
• The rest of the creditors, pro rata of their respective credits upon verification and admission by the insolvency administration.

Concerning special privileges (claims secured by means of mortgages, pledges, bonds or any other special privilege over movable or real estate assets), creditors are favoured with a segregated enforcement right, which allows the enforcement of the specific guarantee on the creditor’s own benefit regardless of the development of the insolvency proceeding(s).

Priority claims are generally classified considering whether their privilege is qualified as special or general (see 2.1 Types of Creditors). Employees’ salaries and social security claims benefit from a general privilege over unsecured credits. However, secured creditors holding mortgages or pledges over the debtor’s assets have priority over those general privileges.

In the event of a bankruptcy or restructuring procedure of an entity provided for in the Banking Recovery Act, the following are considered credits with special privilege:

• credits of the beneficiaries of the Andorran deposit guarantee fund (the “Fagadi”) and the Andorran investment guarantee system (the “SAGI)” and of the Fagadi and SAGI itself; and
• the part of the eligible deposits of natural persons and any natural or legal person, regardless of its legal form, that carries out an economic activity, employs fewer than five people and has an annual activity volume or an annual balance not exceeding EUR300,000 that exceeds the level of coverage provided for in Law 20/2018, of 13 September 2018, regulating the Andorran Deposit Guarantee Fund and the Andorran Investment Guarantee System.

Ordinary preferential credits are considered, with priority in the order of precedence over the rest of the ordinary credits and behind credits with special privilege, those resulting from debt instruments that do not meet the following conditions:

• that have been issued or created with an effective maturity term equal to or greater than one year;
• that are not derivative financial instruments or implicit derivative financial instruments; and
• that the terms and conditions and, where applicable, the brochure relating to the issue, include a clause establishing that they have a lower bankruptcy priority compared to the rest of the ordinary credits and that, therefore, the credits derived from these debt instruments must be satisfied after the rest of the ordinary credits.

Ordinary preferential credits that meet these conditions have the same rank among themselves with a higher priority than the other ordinary credits and subordinated credits and must be paid prior to them.

Secured creditors are entitled to take mortgages over real estate. They may also take pledges over accounts, equity shares, movable property, credit rights and intangible and intellectual property.

The Insolvency Decree establishes a special privileged regime applicable to secured creditors holding mortgages or pledges over the debtor’s assets. These assets are therefore excluded from the insolvency estate and will be sold to the exclusive benefit of the secured creditors.

In an informal consensual restructuring proceeding, secured creditors may enforce their liens/security through an agreed specific enforcement procedure. Outside of the insolvency proceedings, these rights and remedies may therefore be subject to contractual intercreditor covenants and to the terms freely agreed by the parties.

The Insolvency Decree establishes that unsecured creditors must respect the principle of par conditio creditorum.

However, secured creditors who benefit from special privileges are not bound by the par conditio creditorum principle, as these creditors are not part of the insolvency estate, except when the security or guarantee is not sufficient to cover all the credit.

Concerning the possibility of creditors disrupting or blocking judicial proceedings, under the judicial settlement proceeding, dissenting creditors and those who have not participated in the approval of the agreement may, within eight days of the approval, object to the judicial approval of the agreement.

Outside of a restructuring or insolvency context, unsecured creditors may request the adoption of several remedies such as pre-judgment attachments, which allow the debtor to secure their property, set offs, and reducing or extinguishing obligations between the parties, as well as seizing the assets or property of the debtor.

These remedies must be requested before a judge and therefore involve a judicial procedure filed by the creditor against the debtor.

No formal requirements exist for out-of-court restructurings and it is not mandatory to enter consensual restructuring negotiations before a formal statutory process.

In these circumstances, companies experiencing financial distress will be supported by financial lenders, provided that a debt repayment schedule is agreed between the debtor and these lenders, increasing guarantees to support the repayment of the principal debt.

Since the Andorran laws do not provide specific regulation of out-of-court workouts and restructurings, these agreements may be voided by the claw back regime established by the Insolvency Decree.

It is common practice for creditors to enter into “standstills” with the debtor, which are intended to enable both parties to negotiate a credit agreement in good faith and to prevent creditors from bringing individual actions to enforce the debtor’s assets.

The debtor, during the informal and consensual workout/restructuring process, may adopt certain undertakings and obligations such as, inter alia:

• not to distribute dividends or other items of remuneration on the capital of the company;
• not to incur additional financial indebtedness other than that incurred in the ordinary course of business;
• not to make any transfer of assets; or
• not to modify the working conditions of its key employees.

Accordingly, the information that is generally provided to creditors, committees and other stakeholders during the restructuring process is related, inter alia, to:

• balance sheets;
• accounting information; and
• payment forecasts over the next few years.

The changes of contractual priorities, security/lien priorities, equity holder and intercompany priority rights, as well as the relative positions of competing creditor classes, are therefore subject to the principle of autonomy of will. Consequently, they are freely negotiated by the contractual parties.

Out-of-court restructuring procedures are contractual in nature. While no specific procedure is set in Andorran law the agreement resulting from the negotiations between the parties may be enforced through an enforcement procedure brought before the Andorran courts.

According to the Insolvency Decree, any merchant who is generally unable to meet commercial payments must file for insolvency within eight business days. This procedure may involve individuals, corporate entities or even a group of entities.

Additionally, any creditor or even the Andorran court may commence an insolvency proceeding. No specific obligations or deadlines are provided for creditors or the court.

The process is formally initiated with a request filed before the Andorran courts. The judge in charge of the insolvency procedure will consider all the elements that concur, in particular, the amount of claims as well as the use of fraudulent procedures to artificially maintain commercial credit.

The judge in charge of the judicial procedure will declare a restructuring procedure when the debtor is entitled to propose a serious agreement, because the economic situation of the business or company may be restored, provided that serious misconduct has not been committed. If these conditions are not met, the judge will declare a bankruptcy procedure.

The decree by which the judicial arrangement is declared entails, from the day it is issued, that the debtor must be assisted by the administrator to perform any activities concerning the administration and disposal of their assets. If the debtor refuses to execute a decision that is necessary to safeguard their assets, the administrator may proceed as they deem most appropriate, after being authorised to do so by the judge in charge of the proceeding. They may also request the judge’s authorisation to adopt precautionary measures aimed at collecting receivables or carrying out acts necessary to protect the debtor’s assets.

The debtor’s activities and, in particular, the operation of the business or company, may continue if authorised by the judge in charge of the procedure, as long as they deem it appropriate. They may also revoke this authorisation if necessary. The administrator must notify the judge of the results of the debtor’s activities and the development of the business or company at least every three months, on the last business day.

An automatic stay is imposed against individual creditors’ claims, excluding those with a special privilege, security or mortgage.

The involvement of judicial authorities is necessary to confirm the restructuring plan. Once all creditors have been accepted, the debtor in a rehabilitation and reorganisation procedure must propose an agreement which must be accepted by all creditors. The proposed restructuring plan must detail the specific measures that are considered appropriate to restore the liabilities, identifying the proposed amount, the term as well as the guarantees. If the debtor fails to present an agreement, the procedure will automatically become a bankruptcy procedure.

The proposed restructuring plan will be considered accepted, when it obtains the favourable vote of creditors, whose credits add up to three-fifths of the debtor’s liabilities, deducting the credits of those who had exercised their right of abstention, ie, those privileged by real guarantee, bail or personal work.

If the proposed restructuring plan is not approved by the creditors, another proposal can be submitted for discussion and approval by any creditor. If this proposal is approved by at least three-fifths of the creditors, the debtor must accept it. The debtor can request the court grant them a term not exceeding eight working days to state whether or not they accept the proposal of arrangement or agreement. If none or the proposals are accepted, the procedure becomes a bankruptcy.

After approving the proposed restructuring plan, the debtor can freely administer and dispose of its assets.

Failing to observe the terms of an approved restructuring plan will result in its annulment. The plan will also be cancelled if:

• fraud was committed by the debtor by hiding assets or increasing liabilities; and
• if the debtor is condemned for fraudulent bankruptcy.

In a restructuring process, the debtor must be assisted by the administrator to perform any activities concerning the administration and disposal of their assets. If the debtor refuses to execute a decision that is necessary to safeguard their assets, the administrator may proceed as they deem most appropriate, after having been authorised to do so by the judge in charge of the proceeding. They may also request the judge’s authorisation to adopt precautionary measures aimed at collecting receivables or carrying out acts necessary to protect the debtor’s assets.

The debtor’s activities and, in particular, the operation of the business or company, may continue if authorised by the judge in charge of the procedure, as long as they deem it appropriate. They may also revoke this authorisation if necessary. The administrator must notify the judge of the results of the debtor’s activities and the development of the business or company at least every three months, on the last business day.

The bankruptcy administrator must liquidate the debtor’s assets under the best possible conditions, acting with the utmost diligence. They therefore have the broadest powers to collect credits and sell the debtor’s goods and movable effects. The sales must be made by public auction.

The administrator may exercise the judicial actions that are necessary to achieve the appropriate liquidation of the debtor’s assets and may also agree or compromise on assets and rights belonging to the debtor, with the authorisation of the judge in charge of the bankruptcy process.

Controllers must be experts in accounting and may be chosen from among the creditors of the bankruptcy process. Their tasks consist of verifying the accounting and assisting the judge in monitoring the work of the administrators. They may at any time request that they be given accounts of the state of the procedure, the income obtained and the deliveries that have been made. Their role is not remunerated.

From the moment the bankruptcy is declared, the debtor is deprived of the administration and disposal of their assets. The debtor’s rights and actions, concerning their assets, are exercised during the time of bankruptcy, by the administrators.

The involvement and position of shareholders in a restructuring procedure is not provided for in the law.

Creditors actively participate in the procedure, as the proposed restructuring agreement will be deemed accepted when it obtains the favourable vote of creditors, whose credits add up to three-fifths of the debtor’s liabilities, after the credits of those who had exercised their right to abstain (those privileged by real guarantee or surety or personal work) have been deducted.

In the event of a restructuring procedure of an entity foreseen in the Banking Recovery Act, the shareholders must bear the losses, debts and costs in the first place.

The initiation of the liquidation procedure is specifically applicable to corporate entities and it is primarily triggered by:

• the dissolution of the company, whether by legal grounds or under its articles of association (among others, when the company’s inability to meet its financial obligations or when the duration period for which the company was incorporated expires), or
• the termination of an insolvency procedure. The insolvency procedure is identical to the restructuring procedure (see 4 Statutory Restructuring, Rehabilitation and Reorganisation Proceedings) although in insolvency the company cannot be rehabilitated, either because an agreement with creditors has not been reached or because serious faults have been committed.

The company’s directors, unless otherwise stipulated in the articles of association, become the liquidators upon the opening of the liquidation process. There does not appear to be an explicit obligation for any party to initiate the procedure, but it is an essential step once dissolution occurs or the insolvency procedure ends.

Upon the initiation of the liquidation procedure, the company continues to retain its legal personality, but it must include the term “in liquidation” (“en liquidació”) in its corporate name.

The company’s directors cease their usual duties and, unless otherwise stipulated by the articles of association, become liquidators, assuming responsibility for the liquidation process and becoming the primary actors in the liquidation. Their tasks include preparing the inventory and balance sheet, overseeing the liquidation of assets and distributing the remaining assets among shareholders.

Liquidators must act in the best interests of the company’s creditors and shareholders. Their faculties include representing the company, undertaking necessary legal and financial actions to conclude the liquidation and ensuring creditors are paid before any distribution to shareholders. They must ensure that the rights of creditors are protected, and if needed, can be removed or replaced if they fail to perform their duties adequately.

During the liquidation procedure, existing contracts and obligations of the company remain in effect, subject to the liquidation framework. The company is required to fulfill its accounting obligations, providing reports on the operations and outcomes of the liquidation. Liquidation does not automatically release the company from its liabilities under preexisting agreements, and contracts may need to be reviewed or terminated as part of the liquidation process, ensuring the proper satisfaction of creditors before distributing the remaining assets to shareholders.

The liquidation procedure ends when the final liquidation balance is approved by a meeting of the company’s shareholders and the liquidation of the company’s assets is complete.

Once the liquidators have settled the creditors’ claims, distributed the remaining assets, and ensured that all obligations have been met, they must carry out a public deed confirming the liquidation of the company. Following registration of the public deed with the Company Register, the company ceases to exist as a legal entity.

Should any assets or liabilities emerge after the company’s dissolution, the former liquidators will be responsible for managing them. In certain instances, the court may appoint new liquidators to carry out these duties.

In the event of liquidation, pre-insolvency attachments continue to be effective, even though the liquidation procedure may require a review of their validity and priority. Retention of title clauses and set-off rights may be maintained, provided that they are consistent with the liquidation process.

Provided that secured creditors intend to enforce their security interest, they must act within the framework of the liquidation procedure. The liquidators are responsible for overseeing the liquidation of the company’s assets and settling outstanding debts with creditors, ensuring that secured creditors are paid in the proper order of priority. With regards to unsecured creditors, they are entitled to seek recovery from the company’s remaining assets once the secured creditors have been fully satisfied.

Neither secured nor unsecured creditors can frustrate the liquidation process unless, for instance, unsecured creditors challenge the final liquidation balance if they believe their claims have not been appropriately considered or that the distribution is unfair.

The rights of both secured and unsecured creditors are subject to automatic stays in liquidation proceedings. This is designed to maintain order and prevent individual creditors from taking independent action that could disrupt the collective process. The stay allows the liquidators to manage the process and prioritise the payment of creditors according to their respective legal rights.

There are no specific sources of international restructuring and insolvency law in Andorra. In fact, as Andorra is a non-EU country, the provisions established by Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings are not applicable.

Nonetheless, the Andorran legal framework provides for the recognition or other relief in connection with restructuring or insolvency proceedings in other countries, but a distinction is made between judgments (sentències) and other rulings (see 6.4 Recognition and Enforceability).

Foreign judgments can be recognised in Andorra by means of the exequatur proceeding. The foreign judgment is subject to confirmation by the High Court of Justice of Andorra (the “Tribunal Superior de Justícia d’Andorra”) and the approval of the exequatur proceeding involves verification by the Civil Chamber of the High Court of Justice of Andorra of the following requirements pursuant to the foreign judgment:

• the competence of the court that has delivered the ruling;
• the nature of the foreign procedure, including the right to jurisdiction (under the Andorran Constitution);
• the application of the competent law in compliance with Andorran conflict of law rules;
• the conformity with national and international public order; and
• the absence of fraud from an Andorran legal standpoint.

Other rulings must meet the condition of reciprocity in all cases.

The country where the debtor’s main interests are centred has jurisdiction to open a restructuring or insolvency procedure. This is normally the jurisdiction where the company has its registered office.

If the debtor has a place of operation in a jurisdiction other than the one where their main interests are centred, that State may also open insolvency proceedings against the debtor. However, these secondary proceedings are limited to the assets held in that jurisdiction.

The applicable law is the law of the jurisdiction in which the proceedings take place.

Final foreign judgments can be recognised and enforced against the debtor by means of the exequatur procedure. Foreign judgements are subject to confirmation by the High Court of Justice of Andorra which requires the prior verification of the following requirements by the Civil Chamber of the High Court of Justice of Andorra:

• the competence of the court that has delivered the ruling;
• the adequacy of the foreign procedure, including the right to jurisdiction (under the Andorran Constitution);
• the application of the competent law in compliance with national conflict of law rules;
• the conformity with national and international public order; and
• the absence of fraud from an Andorran legal standpoint.

In cross-border cases, Andorran courts are willing to co-operate and co-ordinate with foreign courts in insolvency proceedings. Nonetheless, the provisions set by EU Regulation 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings are not applicable.

In line with the principle of equality of treatment of creditors, foreign creditors are not dealt with in a different way in proceedings in Andorra.

Directors must exercise their duties with the diligence of an orderly businessman and the loyalty of a good representative. The duty of diligence obliges the director to dedicate time, effort and knowledge and, in particular, to be aware of the progress of the company, to participate actively in its administration and to investigate any irregularities in the management of the company. The duty of loyalty requires the director to act with the honesty that can be expected of a representative who administers other people’s resources and, in particular, to refrain from competing with the company, from taking advantage of its business opportunities and from using the company’s assets for private purposes.

In a scenario of dissolution of the company, provided that its financial situation does not require the company to file for bankruptcy, the administrators must call for a general meeting to adopt a dissolution agreement or, where appropriate, the appropriate measures to avoid dissolution, within two months of the moment they became aware of the existence of the cause of dissolution or in which they could not have been unaware of it.

To effectively comply with their duties, in a financially distressed company scenario, directors have the obligation to request the initiation of an insolvency procedure to either redress the situation or liquidate the company, after a bankruptcy procedure.

Directors, whether de facto or de jure or apparent or hidden, can be declared personally bankrupt, in the following scenarios:

• falsification of the accounts, changing or concealing numbers or recognition of non-existing debts;
• carrying out a personal commercial activity, either through an intermediary or under the cover of a legal entity that conceals its actions;
• using the company’s assets for personal purposes;
• obtaining, by fraud, a judicial settlement, which resulted in its annulment; or
• committing acts in bad faith or inexcusable recklessness or seriously infringing the rules or customs of trade.

The following acts of bad faith, inexcusable recklessness or serious breaches of the rules and customs of trade are presumed:

• the absence of accounting in line with the customs of the profession;
• purchases made with the aim of reselling at a lower price, with the intention of delaying the confirmation of the bankruptcy;
• excessive personal or family expenses;
• the investment of large amounts on risky operations; or
• the abusive maintenance of a loss-making operation, which cannot lead the business to a situation other than bankruptcy.

All officers that have participated in the carrying out of the harmful act or omission will be jointly and severally liable. Administrators who, for reasons not attributable to them, are unaware of the existence of the harmful act or omission are exempt from liability. Administrators who have done everything possible to avoid or reduce the damage are not liable.

A director of a legal entity may be personally punished for committing criminal bankruptcy when, knowing that they are unable to liquidate its debts, they:

• falsify the balance sheet in order to complicate the verification of the assets;
• divert assets intended for the creditors, for their own benefit;
• give away, destroy or deteriorate assets that could have been for the creditors;
• dispose of assets or securities of the company or its own at a price lower than that established at the time in the market; or
• destroy, damage, conceal or falsify the commercial books in order to make it impossible or difficult to verify the outstanding credits.

Under the claw back regime established in the Insolvency Decree, the judge is entitled to set aside any transactions entered into by the debtor within the 18 months prior to the initiation of the insolvency procedure that are considered to be prejudicial to the borrower’s insolvency estate, and that fulfil any of the following requirements:

• acts of disposal for free and agreements where the debtor’s obligations significantly exceed those of the other party;
• all payments for debts not due on the date of insolvency; or
• any mortgage or security over the debtor’s assets constituted after the date of insolvency for prior debts.

Additionally, the judge may order the setting aside of gratuitous acts, carried out during the six months preceding the date of insolvency.

The judicial administration as well as all individual creditors can directly assert their claims to set aside or annul transactions by means of a civil proceeding substantiated before the same judge in charge of the insolvency procedure.