The new Insolvency Law and its novelties
The reform of the Insolvency Law, validated by the Spanish Parliament, has entered into force with the aim of speeding up and encouraging the insolvency procedure and offering alternatives to the liquidation of companies, as well as a greater use of second chance instruments and harmonizing requirements with the rest of the European Union, by transposing an EU directive. The simplification of the process for smaller companies and an early warning system are other key aspects of the reform. These are the main aspects of this new law:
The regulation focuses on three basic aspects: the early restructuring of viable companies, the possibility of debt exoneration for bona fide debtors - which has also been extended to consumers - and the need to increase the efficiency of insolvency restructuring procedures.
An early warning system has been established, for which indicators have been set to alert companies before they run into financial problems so that they can resort to preventive pre-insolvency proceedings.
The special procedure for SMEs has restricted its threshold to companies with a turnover of less than 700,000 euros, liabilities of 350,000 euros or less than ten employees. Likewise, the postulation of a solicitor and a lawyer has been recovered in view of the doubts that it raised regarding the right to defense and effective judicial protection, and the entry into force of this mechanism has been postponed.
In the case of micro-enterprises, they have a procedure specifically adapted to their needs and characteristics, guaranteeing legal assistance. This new procedure will enter into force on January 1, 2023, as will the provision referring to deferrals and installments of tax debts by the Tax Agency. Priority is thus given to a fast insolvency model, in which internal figures that were typically essential when managing an insolvency proceeding would be left in the background; in particular, the figure of the administrator loses its fundamental role within the insolvency process.
Improvement in the second chance procedure. The exonerations foreseen in the project of up to 1,000 euros against the Treasury and another 1,000 euros with the Social Security are increased to 10,000 euros for individuals. This level of exoneration will allow a full exoneration for more than 90% of debtors. The exoneration of unsatisfied liabilities, known as second chance, has been established at 20,000 euros, so that self-employed or individuals do not have to liquidate or sell assets when they are in difficulties.
The linking of public credit to restructuring, continuation or business start-up plans has also been terminated, limiting the execution on assets and rights necessary for the continuity of the professional and business activity due to debts with the Tax Authorities and Social Security. In this sense, the approval and homologation of the continuation plans will not require approval as long as the debt reductions with the Administration do not exceed 15%.
