Restructuring and insolvency in Spain

• Preferential creditors (créditos privilegiados). These creditors are divided into two subcategories:

  • Creditors with special privileges (créditos con privilegio especial). This subcategory includes:

    • construction or repair creditors (créditos refaccionarios). For example, employees may be able to recover wages owed to them by the sale of assets they have manufactured which are owned by the debtor (employer) or are in the debtor's possession;

    • creditors with rights in property (limited to the secured amount);

    • creditors under financial lease agreements or sale and purchase agreements where the debtor repays the debt in instalments;

    • creditors with interests in book-entry securities;

    • creditors to whom property has been transferred.

  • Creditors with general privileges (créditos con privilegio general). This subcategory includes:

    • employees owed wages who do not have special privileges;

    • employees with indemnities arising from the termination of employment contracts, workplace accidents and professional illnesses, as well as debts owed for breaches of occupational health and safety obligations (if accrued before the declaration of insolvency);

    • employees owed amounts relating to tax and social security withholdings;

    • contractors and authors of intellectual property works who have assigned exploitation rights in their work in return for payment, if accrued in the six months before declaration of insolvency;

    • employees with up to 50% of the amounts owing on tax and social security claims as well as any other public debts, if they do not enjoy any other preferential treatment;

    • claims for non-contractual civil liability;

    • creditors with up to 50% of the debt owed who petitioned for the insolvency of the debtor, provided the relevant debt owed is not subordinated.

• Ordinary creditors (créditos ordinarios). These are creditors with debts that cannot be classed as privileged or subordinated (see below) are ordinary debts.

• Subordinated creditors (créditos subordinados). These are creditors with debts which are considered subordinated debts. Subordinated debts are those:

  • reported late or inappropriately (that is, where there is a failure to report them within the statutory period);

  • treated as subordinated as a result of a contractual agreement, such as participative or subordinated loans;

  • relating to an interest of any kind, except those arising from rights in property, up to the limit stated in the guarantee;

  • owed to shareholders holding at least 5% (for companies listed on a recognised stock exchange) or 10% (for unlisted companies) of the company's share capital, or by any person related to the creditor (as defined in Article 93 of the Insolvency Act);

  • relating to any claim made in bad faith.

• Credits against the insolvency estate (créditos contra la masa). These are arise after the declaration of insolvency and must be paid on maturity. Credits against the insolvency state include:

  • credits for salaries for the last 30 days worked before the declaration of insolvency on amount not exceeding twice the minimum wage (EUR648.60 per month);

  • legal costs and necessary expenses for the application and declaration of insolvency, and the assistance and representation of the insolvent and the administrator throughout the proceeding;

  • alimony of the debtor and the people to whom he had a legal duty to provide it;

  • credits generated by the practice of professional or business activity of the debtor after the declaration of insolvency, including wage debts, severance pay and termination of employment contacts;

  • 50% of the credits involving new cash revenue granted under a refinancing agreement (fresh money).

Although not covered by the Insolvency Act, there are other privileged debts, including:

• Legal tacit mortgages (hipoteca legal tácita). These relate to real estate taxes payable on immovable property for the previous financial year.

• Super privileges granted to employees. The last 30 days' wages owed to employees have priority over any other debt owed, including those relating to mortgages or any other creditors with rights in property.

• Bail (fianza). A third-party guarantor (fiador) undertakes to pay or perform on the debtor's behalf, if the debtor is unable to do so. Joint and several guarantees (fianza solidaria) are common. These allow the creditor to enforce its credit right against the debtor or the guarantor, or against both at the same time.

• Credit risk insurance (seguro de caución). Under a credit risk insurance contract, the insurer pays the creditor if the debtor (who is the policyholder) defaults. If this occurs, the insurance company ranks the creditor's position in front of the debtor.

• Lien (derecho de retención). This mechanism allows the creditor to retain possession and control of property until the debtor repays its debt. It differs from a pledge because the creditor does not have the right to sell the property on default, but is entitled to hold the property until the debt is repaid.

• Penalty clause (cláusula penal). A penalty clause is frequently included in a contract. If the debtor defaults, a fixed sum must usually be paid as liquidated damages. The Insolvency Court can declare these clauses void.

• Ordinary proceedings. These are used to obtain an order to make the debtor comply with a particular ruling or to seize the debtor's assets for an amount sufficient to let the creditor recover the debt owed and claim for damages. Court resolutions can be enforced immediately.

• Monetary process (proceso monitorio). These are brief proceedings that allow the creditor to recover an unlimited amount, provided the debt is stated in a document.

• Special proceedings for bills of exchange (juicio cambiario). This is an action used to recover debts that are covered by bills of exchange, cheques or promissory notes.

• Special proceedings to execute unpaid pledges and mortgages (procedimiento de ejecución sobre bienes hipotecados o pignorados). This is a procedure used to enforce mortgages or pledges over assets. It can be started even if the debtor is involved in insolvency proceedings, but receivers may ask for a stay of a year if the affected property is used to carry on the activity of the company.

• Rescue (convenio). The objective is to restructure the debt to allow the debtor to continue operating. The debtor makes an arrangement with creditors to reduce its debt over a certain period of time, up to the limitations set by the Insolvency Act (a debt reduction of not more than 50% and/or a stay of proceedings of not more than five years).

• Liquidation (liquidación). The objective is to sell the assets of the debtor company to repay as much of the debt owed to the creditors as possible.

• A creditor, provided the company is deemed to be currently insolvent (see below, Substantive tests).

• Shareholders who are personally liable for the company's debts, provided the company is currently, rather than imminently, insolvent (see below, Substantive tests).

• The company has failed to pay debts when they became due.

• The creditor cannot exercise its security rights because the company's assets have been seized.

• The company has disposed of or liquidated assets to put them beyond creditors' reach.

• The company has defaulted on one of the following in the three months before the insolvency petition is filed:

  • tax liabilities;

  • social security contributions;

  • salaries and indemnities related to employees.

• The agreement provides for ordinary debts to be repaid in full within three years.

• The agreement provides for ordinary debts to be repaid immediately with a write-off of less than 20%.

• Statutory requirements are met.

• No creditor objects to the arrangement or, if an objection is made, it is rejected by the court.

• In a voluntary insolvency, directors remain in their positions and the company continues managing its assets, subject to the supervision of the receivers (administradores concursales), unless the court forces it to be treated in the same way as a compulsory insolvency (see below).

• In a compulsory insolvency, receivers take over the administration of the company's assets, unless the court orders it to be treated in the same way as a voluntary insolvency, and therefore the directors remain in their positions (see above).

• Unless the company asks for liquidation, its business does not usually cease on insolvency (see Question 9). If the receivers are merely supervising, they determine the activities and transactions that the company can continue to manage in the ordinary course of business. If the receivers take over the management of the business, they must take the necessary steps to ensure that its commercial activities continue.

• During insolvency proceedings, shareholders continue to function as usual, but receivers can attend and have the right to be heard at their meetings. The same applies for the board of directors' meetings.

• Once a company has been declared insolvent, a list of creditors is prepared and creditors are ranked according to the priority of their debts (see Question 2).

• Debts of ordinary creditors and subordinated creditors are not paid until the agreement is approved and ordinary and privileged creditors are fully repaid, or until the company is wound up.

• Any proceedings that a creditor may wish to bring against the insolvent company (see Question 4) that could affect its assets must be dealt with by the insolvency judge.

• Once an insolvency order has been made, no arbitration proceedings can be started.

• If court and/or arbitration proceedings have already begun, they continue until the judgment or award becomes final and binding.

• No individual judicial or extra-judicial enforcement actions can be brought against the company's assets, and actions that have already begun are stayed from the date of the declaration of insolvency. However, there is an exception for creditors with a security interest in property over assets of the company that are used in its commercial activities. These creditors can bring enforcement proceedings from the date on which the composition agreement is approved or after one year of the insolvency order if the liquidation has not begun.

• The company's debts cannot be set off against monies owed to it.

• No interest accrues, other than interest on debts that have a legal guarantee.

• The limitation period for actions relating to debts that pre-date the insolvency is postponed during insolvency proceedings.

• Contracts with mutual obligations that have not yet been performed remain in force, although the creditor can terminate them if the company defaults.

• Clauses allowing a contract to be terminated if an insolvency is declared are void.

• During the liquidation, the company cannot administer or dispose of its assets.

• Creditors must submit proof of their claims within one month of the court's decision to start insolvency proceedings.

• The court declares that the conditions of the debtor's arrangement with the creditor have been fully met.

• The Court of Appeal (Audiencia Provincial) revokes the insolvency declaration.

• Actions for breach of the agreement have been declared lapsed or rejected by the court.

• All recognised debts are repaid or the creditors are satisfied in full by other means.

• It is proved that the company has no assets to repay its debts and no party is liable for this lack of assets.

• Directors, liquidators or anyone performing the same functions as directors or liquidators in the two years before the insolvency order is made, if it is probable that they were responsible for causing the insolvency.

• Shareholders who were liable for the company and its debts before the insolvency.

• Damaged the company's assets (for example, the transaction was at an undervalue).

• Occurred in the previous two years.

• Increase the insolvent company's available capital.

• Modify the insolvent company's obligations by extending maturity or by replacing the company obligations with new obligations (for example, a new mortgage over property).

• Insolvency has been declared by a foreign court.

• Foreign court's decision is final and binding.

• Decision is adopted by the court where the debtor's COMI is located.

• Decision is not illegal under Spanish law.

• Receivers must notify foreign creditors of the insolvency.

• The court, on its own initiative or at the request of the receivers or of any interested party, can order decisions made during insolvency proceedings to be published in a foreign jurisdiction (in recognition of the fact that certain laws, provisions and acts in Spain must be published in the Official Gazette, the official state journal).

• Foreign creditors must submit proof of their debts to the receivers in Spanish.

• Foreign creditors can submit proof of their debts in Spanish proceedings, regardless of whether they have also submitted proof of them in a foreign procedure. If there is a reciprocal arrangement between Spain and the foreign jurisdiction, foreign creditors can submit proof of fiscal and social security debts. These rank as ordinary debts in Spain.

• If insolvency proceedings have begun in Spain and a creditor is fully or partially paid with assets located in a foreign jurisdiction, the creditor must repay the money to the company's estate.

• If a creditor is partially paid during foreign proceedings, the creditor cannot demand any other payment in the Spanish proceedings until other creditors of the same rank have been proportionally paid.

• In the Spanish proceedings, foreign receivers can submit proof of debts that have been recognised during the foreign procedure (to the extent that this is allowed under foreign law). Foreign receivers can also participate in Spanish proceedings on behalf of creditors for whom they have submitted proof of debts.