Frequently asked questions about bankruptcy

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These are some of the questions that are frequently asked about bankruptcy

 

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The bankruptcy is a legal procedure to achieve the orderly satisfaction of the creditors of an insolvent debtor. It is a complex figure that generates numerous questions for the debtor.

In this post we collect the most frequent questions that clients ask us when they have a company in insolvency and need to find a legal solution, well to be able to continue with the business, ok to close it.

What is a bankruptcy?

A bankruptcy is a type of legal procedure, regulated in the Bankruptcy Law, that is born when a company is faced with the situation of not being able to meet its obligations.

The objectives of starting this type of procedure are: pay the credits to the creditors and that the company can get out of this insolvency situation without any type of responsibility.

The employer will be obliged to request the declaration of bankruptcy for insolvency, when you are aware that you cannot pay your creditors currently or imminently.

What is the bankruptcy process for??

The bankruptcy is focused on the solution of the effects produced by the insolvency state of the company, through the reorganization or refinancing of the credits that are pending payment. It consists of restructuring the debts of the company to be able to face the payment of the obligations.

What is the main purpose of a bankruptcy?

The main purpose of the bankruptcy is the orderly payment of the credits of the creditors that the company has, bajo el principio "match condition creditor" (“equal credit condition”), although it must be taken into account that different types of credits are recognized by law, granting more or less possibility of collection, depending on the type.

Is it mandatory to be represented by a solicitor and assisted by a lawyer?

Sí. The debtor will always act represented by attorney and assisted by a lawyer.

How many types of bankruptcy are there? What are the differences between them?

Legally, there are three recognized: the voluntary, the necessary and express (from which we will solve the frequently asked questions later).

The voluntary contest is the one started by the company. Although the administrators keep their position, are controlled by the Bankruptcy Administration appointed by the competent judge of the procedure.

The necessary contest is the one that urges any of the creditors of the company, complying with a legal obligation that the insolvent company has not fulfilled. Then, the company's administrative body loses its functions, replacing it the Insolvency Administration.

Those creditors who have requested the declaration of the bankruptcy to the competent judge, will have a privilege to collect 25% of your credit, namely, will collect more debt than other creditors, because by the Insolvency Law it is understood that the creditor who requests the declaration of the insolvency, make an effort, because it is initiating an expensive judicial process, which later, will benefit the rest of the creditors. For this reason, the Insolvency Law has decided to encourage the exercise of this action.

Both in the voluntary contest and in the necessary, the judge can seize the assets as a preventive measure, to guarantee credit to creditors. In the necessary contest, creditors do not need to prove that company managers have acted guilty, while, in the voluntary contest, yes.

What phases does it have?

Both the voluntary and necessary competition there are four phases:

  • COMMON PHASE. It divides, and the embroidery, in four sections:
  • first. REQUEST FOR THE COMPETITION DECLARATION.
  • Monday. JUDICIAL RESOLUTION DECLARING OR DISMISSING THE COMPETITION.
  • Third. DETERMINATION OF ACTIVE MASS OF THE COMPANY.
  • Cuarta. PASSIVE MASS DETERMINATION AND CLASSIFICATION OF COMPANY CREDITS: Special, general, ordinary or subordinate.
  • AGREEMENT PHASE. Reception of agreement proposals. Meeting of creditors and voting of the most favorable agreement for your interests.
  • SETTLEMENT PHASE. The appointed Bankruptcy Administration liquidates the assets of the company to pay the largest possible debt.
  • QUALIFICATION PHASE. The contest will be classified as fortuitous or as guilty.

What is the approximate estimate of the duration of a bankruptcy process?

The length of a bankruptcy can vary greatly from one procedure to another, because some last a few months, for example, in the case of the “express contest”, and other, in return, can last for several years. Everything will depend on the type of contest that is presented, and the workload of the court that processes it.

What is the approximate cost of a bankruptcy process?

It will depend on the type of contest. Normally, the current liabilities of the company are taken into account.

How to know if the company is insolvent?

Insolvency is the state in which a company is when it cannot meet the payments it must make,  as, for example, pay your workers wages, pay the Tax Agency, credit institutions, etc.. This required liability must be greater than the liquid assets of the company.

In order to know if the company is in a state of insolvency, we have to go to the accounting and its treasury. At the time that a company lacks liquidity, you will find yourself in that insolvency situation. At the moment when the company cannot fulfill its obligations, the company becomes insolvent, and, therefore, You must request the bankruptcy.

If the company has a lot of equity, Can it be insolvent?

Sí, because what guarantees the solvency of the company is not the patrimony, but liquid or easily liquidated resources, namely, that they can be sold and quickly converted into money.

At what point is it mandatory to start a bankruptcy?

It is the Bankruptcy Law that obliges the employer to request the declaration of the bankruptcy when he is in a situation of insolvency within two months after being in that situation. The Bankruptcy Law defines “state of insolvency" as "The moment in which the debtor cannot regularly fulfill his due obligations".

When the company administrators consider that the insolvency situation cannot be reversed, they must request the declaration of voluntary bankruptcy before the competent commercial court, within two months.

Can business continue while the bankruptcy is being processed?

Sí, because one of the objectives of the bankruptcy is to be able to get out of insolvency and be able to continue being active, unless you decide to make a proposal for early settlement.

What about workers?

The fact of requesting the declaration of bankruptcy, does not imply the obligation to paralyze business activity as previously stated, at least in principle. The wages of the workers will be accrued as credits against the mass.

During the contest, an ERE can be carried out?

Sí, but it will be processed by the competent judge for the processing of the contest, not the Labor Authority.

Who is competent to conduct the bankruptcy?

The competent court will be the commercial court of the judicial district where the company has its registered office. The procedure can also be initiated in the judicial district of the center of the main interests of the company.

What happens if the bankruptcy is not presented within the legally established period?

In case of no-show within two months from when the insolvency status of the company is known, there are two effects: the debtor is prevented from proposing an agreement in advance, and the administrators will be able to personally respond to the remaining liability when the contest ends in liquidation.

What happens if all the assets of the company are sold before entering bankruptcy?

All disposition acts that have been carried out to the detriment of creditors, in the two years prior to declaring the bankruptcy, will return to the assets of said company, through rescission action.

When the contest is declared, It is investigated whether certain acts were carried out to the detriment of the active mass, for creditors. It is called the "period of suspicion".

At what point can you apply for the necessary bankruptcy?

Creditors can go to court and request that a necessary bankruptcy be initiated when the company is in a situation of insolvency. Creditors do not require a specific term as in the voluntary bankruptcy. The judge will admit to processing the first request for the necessary contest that is presented, if you consider it appropriate. For the necessary contest to be admitted, the company must have stopped paying a plurality of creditors. The one who urges the necessary bankruptcy, which must prove that the requirement that there are several creditors who have not been paid is met..

Can the Voluntary Contest be inadmissible by the judge? What about the necessary contest?

Sí, since compliance with the contest budgets established in articles 1 a 7 of the Bankruptcy Law. The main issue is the existence of a situation of insolvency by the debtor.

Can you stop a necessary contest?

Sí. The stoppage will be carried out by paying the amount owed to the creditor who initiated the bankruptcy., justifying documentary before the competent court, payment of debt.

What happens if a Necessary Contest is urged if there is no insolvency?

The judge will not only not admit it, but it can condemn the creditor or creditors who urged it, the payment of the costs and the payment of compensation for the damages caused to the company, for damages that may have been caused.

What documentation must be provided to request the contest?

The documentation that must be provided along with the contest request is as follows:

  • Next to the minutes in favor of the Solicitor.
  • Explanatory report of the economic and legal situation of the company in the last three years.
  • List of work centers of the company.
  • Valuation of the assets that the company has in its heritage.
  • Feasibility proposal.
  • Identify partners, to administrators or liquidators, depending on the case, and the auditor.
  • Inventory of assets and rights, offering the estimated data of its real value.
  • List of creditors: creditor details, amount of credit and its maturity.
  • The annual accounts and audit reports for the three previous years.
  • Report that explains the situation of the company and the changes produced, if there has been, in the equity of the same after depositing the last accounts in the Mercantile Registry.

Once the bankruptcy is admitted by the judge, What are the early stages of the process?

Declared by the competent judge the bankruptcy of a company, will proceed to the appointment of the Bankruptcy Administration. If the contest was the volunteer, The regime of action that will be established for the Bankruptcy Administration will be that of intervention, while, if the necessary competition was called, the regime of suspension.

Behind this, order the publication of the declaration of the contest in the Official State Gazette (BOE).

When the bankruptcy is declared in the BOE, Creditors have the obligation to declare the amounts and concept of their credits, for the Bankruptcy Administration to prepare the “list of creditors”.

When the contest is declared and published in the BOE, the company will be prevented from performing acts of disposition on them to the detriment of creditors.

What is a Bankruptcy Administrator?

A Bankruptcy Administrator will be the person in charge of carrying out the bankruptcy, ensuring the interest of both the bankrupt and the creditors. The Bankruptcy Administration will be appointed by the judge, and will be present throughout the procedure, until the end of the contest.

In order to be a Bankruptcy Administrator, You not only have to be an economist or lawyer who can prove 5 years of effective professional experience in the exercise of said profession, Instead, specialized training in bankruptcy law must be accredited..

The Insolvency Administration of a procedure can also be carried out by a specialized professional society.

How much does the Bankruptcy Administration charge?

The fees that correspond to this bankruptcy procedure are governed by the legally established fees, function, both the inventory of goods and rights and the company's liabilities. These fees will be paid by the company in bankruptcy., being considered as "credit against the mass".

Once the contest has been declared, What should the company do?

The steps to take after the declaration of the contest, it will depend on whether or not the company wants to continue with the business activity.

If so, the company must make an agreement, to try to reach an agreement with the creditors, in which you settle down (debt reductions) and you wait (lengthening of payment terms).

In the event that the bankrupt company does not want to continue with the business activity or does not reach an agreement with the creditors, proceeding to the closing of the same, will proceed to its liquidation, selling the assets to pay off creditors.

What effects does the declaration of a bankruptcy have on the creditors?

Once the bankruptcy has been filed and declared, They must communicate their credits and the accrual of interest is paralyzed. Executive processes are paralyzed and new lawsuits against the bankrupt company may not be filed.

How many types of creditors are recognized?

Not all creditors are the same, but there are several types:

  • Special privileged creditors: those with a real guarantee (a bank that granted the company a mortgage loan on an asset).
  • General privileged creditors: They are both Tax Agency, as General Treasury of Social Security and workers.
  • Ordinary creditors: for example, Providers.
  • Subordinate creditors: are the credits that the partners themselves have against the company, penalties or accrued interest.

What is the classification of bankruptcy credits?

Sí, since the order of the credits establishes the effect that an agreement has on them.

  • Ordinary credits: will be subject to the removals and hopes that are established in the agreement.
  • Privileged credits: will be subject to the agreement if the creditors vote in favor of it.
  • Subordinated credits: the satisfaction of this type of bankruptcy credits will begin when the ordinary and privileged credits have been paid.

How are creditors paid?

In case of liquidation of the bankrupt company, the order of the credits will be as follows:

  • Credits against the mass: will be credited upon maturity.
  • Credits with special privilege: will be paid out of the asset to which said credit is linked.
  • General privileged credits, ordinary and subordinate: will be paid by liquidating the assets of the bankrupt company, because they are paid with metallic money.

How are the debts of the company determined?

Once the Bankruptcy Administration has been appointed, You must prepare a report that includes the creditors with their credits and amounts and if they are recognized or not by the bankrupt company.

Creditors must prove the amount, through the contribution of the following documentation: contracts, bills, proformas, valid payment instruments, albaranes, bank receipts, etc..

What is the active mass?, What about the passive?, And the credits against the mass?

The active mass of a bankruptcy is the set of assets that make up the assets of the company and with which you have to pay the credits to creditors. In return, the passive mass is the set of credits that were born before the declaration of the bankruptcy.

For his part, the credits against the mass, are those credits that are born after the declaration of the contest. These credits are those that allow the processing of the contest. They must be satisfied before any other credit.

What is the difference between bankruptcy credits and credits against the estate?

The bankruptcy credits are those born before the declaration of the bankruptcy, while the credits against the estate with which they arise after the declaration of the same.

Credits against the estate will be paid upon maturity. Bankruptcy credits must wait for the agreement or the liquidation of the company, after deducting from the assets of the company the assets and rights necessary to satisfy the credits against the estate.

What if you want to continue with the company because it develops a viable business activity?

In this case, what will be sought will be to make an agreement, namely, reach an agreement with creditors, by removing or waiting. This agreement must be approved by the majority of the company's liabilities. If approved, Not only ordinary creditors will be subject to the agreement, but also subordinates. In return, privileged creditors, They will only be linked to the agreement if they vote in favor of it.

What is the liquidation phase of the contest??

Once this phase is reached, the objective is to sell the assets that the bankrupt company has in its patrimony, to be able to pay the creditors with the money obtained. The entire business can also be transferred to a viable company.

Is it possible to request the contest, and simultaneously, the agreement or the liquidation?

Sí, possible. It can be requested by both the Bankruptcy Administration and the creditors themselves. Together with the request for declaration of the bankruptcy, you can propose an agreement or request settlement. This means a streamlining of the bankruptcy procedure..

If the agreement is requested, the contest is entered with a negotiation already established. This negotiation has to be approved by the judge.

Only the debtor company can request the settlement in advance. The early settlement facilitates the exit of the assets that the company has in its assets, getting more for them.

What if the company has a mortgaged asset?

The mortgage is considered by the Bankruptcy Law as a privileged credit. In the event that the mortgage loan falls on a property of the company's assets, that is essential for you to carry out your professional activity, creditors may not request that said asset be liquidated to pay debts. An agreement must be approved or a year elapses from the declaration of the bankruptcy without the opening of the liquidation phase of the bankruptcy.

All the executions that are intended to be made of the real guarantees, as, for example, a mortgage, will be suspended from the time the contest is declared, Unless the auction of the property has already been announced or the execution does not fall on goods or rights necessary for the bankrupt company to continue with its business activity.

How does the contest end?, What does the qualification phase mean?

The judge must declare the conclusion of the contest. The bankruptcy ends with the qualification of the same by the judge, may be guilty or fortuitous.

The end of the contest is produced by compliance with the agreement, namely, that the credits of each creditor are paid, due to non-existence of assets to be able to satisfy the credits of creditors, or by resignation of all creditors to collect the credits.

The qualification of the contest can be fortuitous or guilty, in the first case the administrators are exonerated of all responsibility for the state of insolvency. If the administrators produced or aggravated the insolvency situation, the rating will be guilty.

Can the Bankruptcy Administration rate the contest?

the Insolvency Administration issues a report proposing a qualification of the insolvency. But the rating is made by the bankruptcy judge and the bankruptcy administrator's report is not binding.

What are the consequences of the declaration of the contest as guilty?

One of the possibilities of declaring a contest, is that he pleads guilty. This is how the judge will qualify it when it considers that there is intent or gross negligence, when the administrators or liquidators have breached their legal duties, as, for example, the duty to request the declaration of insolvency within the legally stipulated period, or the duty to collaborate with the court that processes the contest.

In case the contest pleads guilty, administrators:

  • They will be disqualified from managing other people's assets for a period of between 2 a 15 years old.
  • They will lose the rights they may have as creditors.
  • They will be able to respond with their personal assets of the credits not attended after the liquidation of the bankrupt company.

Can a new contest be launched after the previous one has been archived?

Sí, as long as they have passed a minimum 3 years since the last contest, although it is also possible to reopen the contest that was archived at the time.

What is an express creditors' contest?

The express bankruptcy is one of the modalities recognized by the Bankruptcy Law. It is the fast track to be able to close a company. The company is liquidated, dies, there is no agreement with the creditors.

It is designed for those companies that are in a situation of insolvency and do not have assets in their patrimony to be able to settle debts, o teniéndolos, its value is insufficient to cover the costs involved in filing an ordinary bankruptcy.

With this contest, once urged before the judge, and verified by him that the legally established requirements are met, the judicial procedure is closed by means of the conclusion of the contest and without its processing. With the conclusion of the contest, the extinction of the company is declared immediately, without liquidation of the goods, since he no longer has them.

What are the requirements of the express contest?

The requirements to be able to request this type of contest are the following:

  • That the company is insolvent and is forced to close.
  • That the company lacks assets or that it has insufficient value to be able to pay creditors.

What are its advantages?

With the express contest declaration, it is avoided that the debts are derived to the administrator of the bankrupt company, so you will not be personally responsible for them. Simply, the company will be exonerated and there will be no referral, except in cases where a public entity has opened a file.

When a company is in a state of insolvency, and does not have assets to be able to settle and pay debts to creditors, Going to this type of bankruptcy will prevent the company from initiating a long and expensive procedure.

What are the effects of the express contest?

After setting up the express contest and being admitted by the judge, the effects are as follows:

  • The bankruptcy administration is not appointed by the judge. Along with the express contest declaration request, the supporting documentation that justifies the processing of the contest as express must be presented, to be reviewed by the court, and the conclusion of the contest is issued.
  • There will be no qualification phase of the contest. No liability is derived from the debtor for the insolvency situation of the company.
  • When the contest is concluded, the same car will terminate the company and close the registration form in the corresponding public records.
  • The declaration and conclusion of the express contest will be published in the BOE, in the Public Bankruptcy Registry and on the notice board of the court that is processing the procedure.
  • An order will be sent to the corresponding Mercantile Registry to register the conclusion of the contest.

There are many issues that are planned around the bankruptcy. Contact us now and your lawyer specialized in bankruptcy will solve them.

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