The Insolvency Review: Spain

Insolvency law, policy and procedure

i Statutory framework and substantive law

Spanish insolvency law is currently regulated by Royal Legislative Decree 1/2020 of 5 May, which approves the Consolidated Text of the Insolvency Law. This Law carries out an important task of recasting the different regulations and reforms that have taken place in this area in recent years as a result of the continuous need to adapt the legislation on insolvency to the needs of the Spanish business community, especially after the financial crisis of 2008 and the crisis caused by the covid-19 pandemic.

However, despite the important work of reorganisation, clarification and harmonisation carried out by this Consolidated Text, the truth is that this is not the rule that will exhaust the regulation of insolvencies in Spanish law in a stable manner, and more so, given that the transposition process of Directive 2019/2023 of the European Parliament and of the Council, of 20 June 2019, has not yet been completed. The new amendment of the Insolvency Law is, therefore, expected for the first semester of 2022.

It is true that the Insolvency Law has been a pioneer in the treatment of pre-insolvency rules, if we compare it with other European insolvency legislation. This is not a trivial issue, insofar as the Restructuring Directive to be transposed fundamentally focuses on preventive restructuring mechanisms, and therefore, pre-insolvency. Although these will entail amendments to the legislation in force at present, these will not be as structural as in other legislation of neighbouring countries,

ii Policy

The leitmotif of the Spanish Insolvency Law, as indicated in the Explanatory Memorandum itself, is always the continuity of the company. The Law provides for several mechanisms to achieve this. These mechanisms are regulated both in the form of pre-insolvency rules and through the insolvency proceedings themselves.

Under Spanish law, the declaration of insolvency proceedings generally entails the legal impossibility of making payments for debts accrued prior to the insolvency proceedings (insolvency claims). The insolvent party is obliged to proceed to the payment of the claims accrued after the declaration of insolvency proceedings, or otherwise request the filing of the insolvency proceedings due to insufficient assets (thus avoiding the 'insolvency of the insolvency proceedings'). With this, the leveraged company is given a huge boost so that it can continue its activity during the common stage of the insolvency, without having a 'backpack' of debt that it carries on its shoulders, while suppliers, employees, landlords and other parties required for the smooth running of the company will continue to be paid for invoices generated by their services or delivery of goods to the insolvent company, once the insolvency has been declared,

Not only that, the insolvency receiver is also allowed to change the order of payments during the insolvency proceedings, with some exceptions, in order to pay for services or goods that are necessary for the continuity of the business activity

In addition, this continuity is enhanced to the point that distraints on the insolvent party's assets are lifted, and even administrative distraints are lifted in the event that they were placed in this case, on assets necessary to guarantee such continuity.

In this same line of protection of the continuity of the business activity of insolvent companies, enforcement proceedings initiated prior to the insolvency proceedings are generally suspended, and even in the case of enforcement of security interests such as a pledge or a mortgage, provided that the assets subject to the security interest are also necessary to guarantee the continuity of the business activity.

In this way, the liquidation of the companies should only be carried out in cases where it is not possible to achieve such continuity. In these cases, what the law proposes are faster ways to enable an orderly execution of the company's assets in order to pay, in the most efficient way possible, the debt of creditors in the legally established order.

iii Insolvency procedures

The Spanish Insolvency Law provides for different types of insolvency procedures. Thus, we can distinguish between the following types of insolvency procedures by virtue of the following criteria.

Ordinary and abridged insolvency proceedings due to the complexity of the insolvency proceeding

Ordinary insolvency proceedings are the procedure generally applied in insolvency cases. They have basic or standard deadlines and processing milestones, and are applied whenever the judge does not consider that there are reasons to believe that the insolvency is not particularly serious.

The abridged insolvency proceeding is a procedure that is applied as an exception in cases of insolvency. With a shorter and more agile procedure, it has reduced deadlines and processing milestones and is optionally applied by the judge, according to the following circumstances.

  1. in view of the information available, the judge understands that the case is not particularly complex, taking into account these criteria: (1) the list submitted by the debtor includes fewer than 50 creditors; (2) the initial estimate of the liabilities does not exceed €5 million; (3) the valuation of the assets and rights does not exceed €5 million;
  2. an agreement proposal be included with a structural amendment whereby the assets and liabilities are transferred in full; and
  3. compulsorily, and not optionally when (1) the debtor has completely ceased its activity and has no employment contracts in force; and (2) the debtor submits a liquidation plan with the insolvency application containing a binding written proposal for the acquisition of the productive unit in operation.

Proceedings due to the type of insolvent party

For insolvency proceedings of a legal person in which the insolvent party is a company, the regulation of the 'express insolvency' is introduced for the first time, in which the judge, understanding that there are insufficient funds to pay even the claims against the insolvency estate that could accrue in the insolvency proceedings together with the observance of additional requirements, issues an order for the opening of the insolvency proceeding ordering therein, and in a single act, the conclusion of the insolvency proceeding.

For insolvency proceedings of natural persons, whether or not the person is considered to be a businessman, there is the possibility of obtaining the benefit of exemption of unsatisfied liabilities, in virtue of which the natural person is able to cancel all his or her debts by fulfilling certain requirements, being exonerated from their payment once the insolvency proceedings are concluded.

Proceedings that depending on the applicable legislation in insolvency proceedings with assets or rights of the insolvent party abroad

Main proceedings are those are opened in the place where the centre of the debtor's main interests is located, in this case, in Spain.

Territorial proceedings are those that may be opened in a state where the centre of the debtor's main interests is not located if the debtor has a place of business in the debtor's territory. Establishment means any place of business where the debtor exercises a non-transitory economic activity with human means and goods.

iv Starting proceedings

An application for a declaration of insolvency may be made by the debtor and any of its creditors, except where the creditor has such status by virtue of having acquired the claim within the six months prior to the filing of the application, by inter vivos acts and on an individual basis, after its maturity.

In the case dealt with above, and for territorial proceedings, the opening of the insolvency proceedings may be requested by any person entitled to request the declaration of insolvency in accordance with this law, as well as by the representative of the main foreign proceeding.

v Control of insolvency proceedings

Insolvency proceedings in Spain are processed under the exclusive and excluding jurisdiction of the insolvency judge, with the exception of certain matters of labour and administrative importance, as well as actions relevant to the assets of the company that the insolvent party may bring against third parties. Therefore, it is the insolvency judges who are in control of the insolvency proceedings at all times, although they are assisted in this task by the figure of the insolvency receiver.

The insolvency receiver may have powers of intervention or suspension. In cases where the insolvency receiver has powers of intervention, it is the insolvent party itself that makes the company's management decisions, and the insolvency receiver shall intervene in the powers of the insolvent company's governing body in all acts of administration and disposal of the company's assets. On the other hand, when the insolvency receiver has powers of suspension, they substitute the company's governing body in the powers of disposal and administration of the company's assets. Thus, for example, it will be the obligation of the company's governing body to draw up the company's financial statements and to call a general meeting to approve them in the event of the intervention of powers, requiring the approval of the insolvency receivership. On the other hand, in the event of suspension of powers, it will be the insolvency receivership itself that will directly draw up these financial statements, as well as convene the aforementioned ordinary general meeting.

In any case, the company's governing body shall have the obligation to collaborate with and inform the insolvency receiver and the insolvency judge of all that they require for this purpose.

The dismissal of the governing body of the company in insolvency proceedings shall not take place until the opening of the liquidation stage of the proceedings.

vi Special regimes

The Spanish Insolvency Law regulates specialities of the insolvency proceedings due to the activity of the insolvent party or the nature of the insolvent party itself. This includes specialities:

  1. in inheritance insolvency proceedings, with specialties regarding the declaration, active legitimation, and in relation to their necessary or voluntary nature;
  2. of insolvency proceedings due to the debtor's person: Among these specialised insolvencies are those of companies that have securities or financial instruments traded on an official secondary market; of credit institutions or investment service companies; of insurance or reinsurance companies; and of mutual insurance companies that collaborate with the social security system of entities participating in securities clearing and settlement systems;
  3. of the insolvency proceedings of concessionary companies of public works and services or contractors of public administrations; and
  4. of the insolvency proceedings of sports entities.

vii Cross-border issues

In accordance with the provisions of the Explanatory Memorandum of the Preliminary Draft, the amendments introduced in the Fourth Book of the consolidated text of the Insolvency Law are based on two types of reasons. On the one hand, there is the need to adapt this text to Regulation (EU) 2015/848 of 20 May on insolvency proceedings; and, on the other hand, the need to introduce certain special rules in order to adjust the general regime provided for in this Book to the particular nature of the rules or pre-insolvency proceedings regulated in the Second Book.

Thus, among other relevant provisions in these cross-border issues, we extract the following.

First, overall or available assets shall comprise all the debtor's assets and rights, whether they are located inside or outside Spanish territory, regardless of whether or not a territorial insolvency proceeding is opened abroad.

Second, there is a commitment to avoid secondary proceedings. Pursuant to Article 36 of Regulation (EU) 2015/848, in order to avoid the opening of secondary proceedings, the IR may enter into a unilateral undertaking (the Undertaking) in respect of assets located in the Member State in which secondary insolvency proceedings may be opened whereby, when distributing such assets or the amounts received as a result of their realisation, it will comply with the priorities under national law to which creditors would be entitled in the event that secondary insolvency proceedings were opened in that Member State.

Third, employment contracts under Spanish law shall be governed exclusively by Spanish insolvency law. In the event that a main insolvency proceeding has been opened abroad and its effects are recognised in Spain, under this law or any other applicable European Union or conventional law, the effects of the insolvency proceeding on employment contracts and labour relations subject to Spanish law shall be governed exclusively by Spanish insolvency law.

If, under this law, jurisdiction in labour matters would have been vested in the insolvency judge, the judge of the commercial court who would have been competent to open territorial insolvency proceedings will be competent to approve the termination or amendment of such contracts, even if no insolvency proceedings have been opened in Spain.

Fourth, regarding specialities of Pre-Insolvency Law, the rules of private international law set out in this Law apply, with appropriate adaptations, to the notification of the opening of negotiations with creditors and to restructuring plans. Without prejudice to the provisions of the following article, the third and fourth Titles of this Book shall apply to foreign preventive restructuring proceedings provided that these proceedings are functionally equivalent to those regulated in Spanish insolvency law. Functional equivalence shall be presumed to exist in the case of collective proceedings, based on insolvency law, aimed at the restructuring of the debtor or its business to ensure its viability and avoid insolvency.

Fifth, regarding specialities in the field of applicable law, the effects of the communication of the opening of negotiations with creditors and the approval of the restructuring plan regulated in the Second Book of this Law shall be subject to the provisions of that Book and shall have a universal scope.

Finally, regarding international jurisdiction over foreign subsidiaries, when the Spanish courts have jurisdiction to hear the proceedings regulated in Book Two of this Law in relation to the parent company of a group of companies, they may extend their jurisdiction to subsidiary companies whose centre of main interests is located outside Spain. The following requirements must be met: (1) the parent company has requested the notification regulated in Book Two of this Law or is going to be subject to the restructuring plan; (2) the notification or approval of the restructuring plan has been requested as reserved in relation to the subsidiaries, in which case neither the notification nor the resolution on the approval of the plan shall be published in the public insolvency Register; and (3) The extension of jurisdiction over the subsidiaries is necessary to ensure the successful completion of the negotiations of a restructuring plan or the adoption and implementation of the plan. In any event, jurisdiction shall only extend to contractual creditors common to the parent company and its subsidiaries.

Insolvency metrics

The number of companies that filed for insolvency proceedings – formerly suspension of payments – at the end of 2020 was 4,097, which was 14.4 per cent less than a year earlier, a negative rate that reflects the government's moratorium on these proceedings, which could increase throughout 2022, given that 2021 follows the same line as the previous year with the extension of the obligation to request the declaration of insolvency until 31 December 2021. Thus, the Registry of Forensic Economists (REFOR) of the General Council of Economists, points out that 'it is not a real decrease that reflects a better health of our business fabric, but an artificial one, as the insolvency moratorium allows that insolvency proceedings need not be filed until 14 March 2021, which could be causing a containment effect'.

According to provisional data from the National Statistics Institute (INE), only companies in the hotel and catering sector recorded an increase of 35.6 per cent in the number of insolvencies.

During the year, the total number of insolvent debtors, which includes companies and individuals with and without business activity, was 6,718, which was13.6 per cent lower than in 2019 and the lowest figure since 2017.

By type of insolvency proceedings, 6,447 were voluntary (12.1 per cent less than in 2019), and 271 were necessary (38.4 per cent less); by type of proceeding, ordinary proceedings decreased by 31.7 per cent and abridged proceedings by 11.9 per cent.

79.2 per cent of the insolvent companies in 2020 were limited liability companies, and 40.9 per cent were in the lowest turnover bracket (up to €250,000), and were mainly limited liability companies.

61.0 per cent of the insolvent debtors in 2020 were companies (natural persons with an economic activity and legal persons).

By sector of activity, hotels and catering recorded the highest increase at 35.6 per cent, and commerce and industry and energy accounted for 32.6 per cent of the total; in agriculture and fishing they fell by 32.3 per cent; in commerce, by 27.6 per cent, and in industry and energy, by 23.1 per cent. Of the total number of insolvent companies in 2020 20.8 per cent were 20 years old or more, and 24.1 per cent were four years old or less.

The economic activity with the highest percentage of insolvent companies that were 20 years old or more was commerce (25.8 per cent).

Broken down by Autonomous Community, the Autonomous Communities with the highest number of insolvent debtors in 2020 were Catalonia (2,003), the Community of Madrid (1,099), and the Community of Valencia (947), which accounted for 60.3 per cent of the total.

The community with the lowest number of insolvent debtors was Navarre, with 33.

Plenary insolvency proceedings

Among the most significant ordinary insolvency proceedings this year, we must highlight the following.

i Abengoa SA

This is a Spanish multinational company specialising in the infrastructure, energy and water sectors; and so far the most important insolvency proceeding in Spain since the insolvency of Martinsa-Fadesa.

It is being processed as a voluntary insolvency proceeding,2 in which the insolvent company retains its powers of administration and disposal, but the powers of administration of its directors, who have not been dismissed from their positions, have been subject to intervention.

Abengoa SA is the parent company of a large group of companies dedicated to the implementation and operation of engineering projects and energy designs, including electricity generating plants: nuclear, hydraulic, thermal, solar and wind; electricity distribution networks; water treatment plants; river management, desalination plants, energy and electrical installations in civil works.

The subsidiaries created - following the approval of its previous refinancing - to provide guarantees to creditors - Abenewco 2 and Abenewco 2 Bis - and Abenewco 1, the operating subsidiary in which the sub-subsidiaries that carry out the business, patents and projects have been concentrated, are excluded from the insolvency proceedings. To date, they have remained outside the insolvency proceedings.

The group's total debt is around €6 billion, of which in principle just over €1 billion corresponds to the parent company, most of them being debt with banks based on syndicated loans.

This insolvency proceeding has its origin in a previous situation of negotiation and refinancing of the company's high levels of financial debt; which led to the approval of a refinancing agreement in April 2016 by the Commercial Court No. 2 of Seville. This initial agreement has subsequently been subject to successive amendments and failed attempts at novation; the failure of the last of these has led the parent company to file for voluntary insolvency proceedings

Abengoa's interest in this insolvency proceeding is to obtain an agreement that mainly reduces and postpones its high levels of indebtedness.

ii Grupo Dentix

This is an ordinary insolvency proceeding3 in which the debtor retains the powers of administration and disposal of its assets, but subject to the intervention of the insolvency administration. Dentix filed for voluntary insolvency on 5 October 2020 after the initial negotiations for its sale were not successful and the clinics closed their doors in November.

In Dentix's insolvency proceedings a debt has emerged, which currently amounts to €235 million.

The main creditor is KKR, a North American fund with which Dentix has had a legal dispute for months and which has been blamed for its insolvency, with recognised claims worth about €160–170 million. This fund reached an agreement with Dentix in 2016 to finance the expansion of the business. Specifically, a €200 million loan was granted, divided into two tranches: €140 million and €60 million.

The insolvency proceedings had the following objectives:

  1. to seek funding for an orderly process of reopening as many Dentix clinics as possible;
  2. to restore the treatment of Dentix patients to normal conditions and to maintain as many of the company's jobs as possible; and
  3. to initiate a process of searching for investors interested in injecting funds into the company in order to guarantee its long-term viability and sustainability by acquiring its production units.

In this process of searching for investors, part of the clinics (i.e., 80) were sold to Advent International for approximately €60 million (including the assumption of labour and social security liabilities) and an agreement was reached with the representation of the company's workers in order to terminate, by mutual agreement, and cancel those contracts in which the acquirer was not subrogated. As a result of the above facts, it has been possible to reopen part of the Dentix clinics throughout the national territory and continue the contracted treatments, maintaining a large part of the workforce.

iii Pullmantur Cruises SL

The company's purpose is to provide travel and tourism services, such as cruises, excursions, holidays, tours and city tours.

It is a subsidiary of Royal Caribbean Ltd (49 per cent of its shareholdings); its other majority shareholder is the Springwater fund (51 per cent). There is no record of its declaration of insolvency.

This is an ordinary insolvency proceeding4 in which the debtor initially retained the powers of administration and disposal of its assets; however, now that the liquidation has been opened, the previous directors been dismissed to be replaced by the insolvency receivers.

The insolvency proceedings were motivated by the health crisis of covid-19, due to which cruise operations were suspended on 13 March 2020 and since then has not returned to operation due to the impossibility of doing so in the scenario put forward. In June 2020, its shareholders announced their decision to undertake a reorganisation process of the company, relying on the measures provided by the Spanish insolvency regulations.

The main objective was focused on achieving a viability plan that would allow a creditors' agreement to be signed in order to avoid insolvency proceedings; once this possibility failed, the termination of the insolvent company's activity, the collective termination of the current employment contracts (350) and the liquidation of the insolvent company as a means of meeting the insolvency claims were considered.

iv Byco SA

Its corporate purpose was focused on the Construction Industry, being centred on the construction of subsidised housing or any other type of housing, business premises and buildings, works and constructions of all kinds and the purchase and sale, management, leasing and exploitation of land, plots, constructions, buildings, housing and industrial, agricultural, fishing, livestock and forestry exploitations.

The shareholders of Byco, SA are the following: Inbisa Grupo Empresarial, SL. which holds 0.01 per cent of the share capital and inberalia corporación empresarial, SL which holds 99.09 per cent of the share capital. There is no record of its declaration of insolvency.

This request5 is motivated by the difficulties foreseen in meeting future maturities, given the increase in the costs of the construction process and the lack of cash to meet them.

The amount of recognised insolvency claims totals slightly over slightly over €93.2 million (€93,118,685.81), of which more than €90 million (€90,605,288 ) are ordinary and €593,011.78 privileged (90 per cent in favour of public creditors). Most of the ordinary claims are held by commercial suppliers and financial institutions.

A large part of its assets (more than €63 million) are loans owed to it, of which more than €7 million are owed by group companies such as Inbisa.

Initially, the possibility of reaching a proposal for a creditors' agreement was considered; however, the difficulties of the sector – aggravated by the paralysis of the market after the covid-19 pandemic – have led to the liquidation of the company, with the consequent cessation of business activity.

v Eme Compañía de Seguridad Ingeniería y Mantenimiento

Its corporate purpose was focused on the provision of private security services and the maintenance, installation and marketing of electronic security systems.

The causes of insolvency were due to (1) reduced operating and activity margins; (2) delays in payment by the contracting public administrations; (3) a fall in turnover as a result of competition in the sector not accompanied by a reduction in structural costs; and (4) a high level of bank debt in the medium and short term.

This is an ordinary insolvency proceeding6 in which the debtor initially retained the powers of administration and disposal of its assets; however, immediately after the liquidation was opened, the previous directors were dismissed and were replaced by the insolvency receivers.

This is a typical insolvency proceeding to examine the consequences derived from the late declaration of the insolvency proceeding and the impossibility of reverting the situation as a consequence of distraints issued and enforced against the collection rights of the insolvent company that have ended up blocking its operations and cash, with the consequent non-payment of labour claims and termination of customer contracts due to the incorrect rendering of services.

The total insolvency debt amounts to almost €12 million, of which more than €5 million are creditors with general privilege (mainly labour claims and claims against the Public Treasury) and more than €4.5 million are ordinary claims.

One of the main problems of the insolvency proceedings has been conditioned by the very high level of litigation in social matters, with hundreds of labour proceedings brought by former workers before different courts spread throughout the country.

Ancillary insolvency proceedings

The common problems that arise when dealing with ancillary insolvency proceedings are mainly related to the recognition and coordination between them (inter alia, obligations of cooperation between insolvency receivers and the need to respect the rights of creditors abroad).

There were two the main secondary proceedings initiated in Spain in the past year.

i Airberlin Technik GMBH

The Spanish branch of Airberlin Technik GmbH, which is part of the Air Berlin Group, has been declared in ancillary insolvency proceedings in Spain by the Commercial Court No. 3 of Palma, with the opening of the liquidation phase.

The main insolvency proceedings were opened by the District Court of Berlin-Charlottenburg (Germany) on 1 November 2017 in Berlin, where 'the centre of the debtor's main interests' is located.

The airline left €5 billion of liabilities, and in order to seek resources to meet the debt, the insolvency receiver appointed in the main proceedings in Germany, Lucas F Flöther, ordered the transfer of assets and rights from the branch in Spain – with the same name and brand, but with its own VAT number - to Germany.

ii Club La Costa (UK) plc branch in Spain

Club La Costa (UK) plc is the Spanish subsidiary specialising in timeshare resorts of the British company CLC World Resorts & Hotels.

The insolvency proceedings affect a total of eight companies with more than 500 employees, engaged in the sale of timeshare holidays or closely related activities. This insolvency proceeding was declared by order of 3 December 2020 by the Commercial Court No. 2 of Malaga.

Trends

An increase in insolvency activity is expected to be seen in the coming year, given that currently the obligation to file for insolvency proceedings, the duty to file for liquidation, the possibility of filing an amendment to the composition or refinancing agreement or even to file a new one, has been extended until 31 December 2021, by virtue of the provisions of Royal Decree-Law 5/2021, of 12 March, on extraordinary measures to support business solvency in response to the covid-19 pandemic (RDL 5/2021, in section four of Final Provision seven), which extends the deadlines regulated in Law 3/2020, of 18 September.

The companies to which we should pay special attention due to their economic activity are those whose main activity is retail and catering and hospitality, which are the ones that have been most affected by limitations in capacity and restrictions in their opening hours, among other measures, imposed by the State and the Autonomous Communities during the covid-19 pandemic that we are going through.

An interesting practice to solve the business crisis is the sale of the productive unit, through the transfer of the company in crisis or a part of it. The new Revised Text of the Insolvency Law, coming into force on 1 September 2021, deals with the sale of the productive unit – a set of means organised for the exercise of an essential or accessory economic activity – fundamentally in Articles 214 to 225.

A first scenario of sale of production units could be considered while the company continues to undertake its activity and until the approval of the liquidation plan, for which authorisation from the judge is needed. The acquirer must assume 'a commitment to continue that activity for the minimum period of time established in the proposal, and the obligation to pay, in whole or in part, all or some of the insolvency claims'.

Another possible scenario for the transfer of the production unit would be in the liquidation phase. Together with the application for insolvency proceedings, a Liquidation Plan may be submitted with a binding written offer to purchase the production unit, which must be complied with. 'The approval of the liquidation plan shall have the value of authorisation to dispose of the productive units when this is expressly stated in the approved plan itself.' There must be a prior agreement between the businessman and the third party acquirer. This possibility offers the debtor a series of incentives such as full autonomy to negotiate, the debtor's desire to try to maximise the price of the productive unit, pursuing a price higher than that which would be obtained in insolvency. On the other hand, for the acquirer of the production unit, this option could be very interesting because it would allow them to carry out a due diligence, if they deem it convenient, and to configure the perimeter of the production unit with the maximum precision and at their discretion.

The labour and social security obligations to which the acquirer will be subrogated will be established by the insolvency judge, thus achieving greater legal certainty, not only in the interests of the insolvency proceedings, but also in order to promote the continuity of the debtor's business or professional activity and to maintain jobs. The acquirer of a production unit must only assume the labour and social security debt incurred by the insolvent party in relation only to the contracts in which it is subrogated and not in others.

As a general rule, such transfer shall not entail any obligation to pay the claims not paid by the insolvent party prior to the transfer, whether they are insolvency claims or claims against the estate. In this way, in the decision of the Commercial Court authorising the transfer of the production unit, the scope of the transfer and the labour and social security obligations to be assumed by the acquirer shall be perfectly delimited.

Next year, a Law on the Reform of the Insolvency Law is expected for the incorporation into Spanish law of Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 (Restructuring and Insolvency Directive).

The application of mechanisms for remission or the establishment of certain write-offs on debts owed to the AEAT (Spanish Tax Agency) and the TGSS (General Treasury of the Social Security) is noteworthy. It also affects the Second Chance Law and the implementation of mechanisms for the early detection of insolvency.

On 26 June 2019, Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, debt waivers and disqualifications, and on measures to increase the efficiency of restructuring, insolvency and debt waiver proceedings, and amending Directive (EU) 2017/1132 (Restructuring and Insolvency Directive) was published in the Official Journal of the European Union. This is an intra-Community Directive that obliges the different Member States, including Spain, to implement a series of mechanisms in the field of corporate insolvency, to prevent insolvency but also to protect the debtor 'in good faith'.

The document states that States have up to two years to adopt it and publish it in their legal system from the Directive's date of publication. This is until 17 July 2021. However, it also enables the possibility that those who 'experience particular difficulties in implementing this Directive may benefit from a maximum extension of one year of the deadline . . . Member States shall notify the Commission of the need to make use of this possibility to extend the implementation period no later than 17 January 2021', according to its wording.

Spain has requested a one-year extension of the European transposition, which extends the government's margin until July 2022 to adapt to this European Directive.

According to the Directive, the objective is to:

remove obstacles to exercise fundamental freedoms . . . resulting from differences in national laws and procedures relating to preventive restructuring, insolvency, debt discharge and debarment. This Directive aims to remove such obstacles . . . by ensuring that: viable companies and businessmen in financial difficulties have access to effective national preventive restructuring frameworks that allow them to continue their business; that bona fide insolvent or over-indebted businessmen can enjoy full discharge of their debts after a reasonable period of time, which would provide them with a second chance; and that the effectiveness of restructuring, insolvency and debt discharge proceedings is improved, in particular with a view to reducing their duration.

Footnotes

1 Manuela Serrano is a partner in the restructuring and insolvency area of PwC in Spain.

2 Insolvency Proceedings 160/2021, Commercial Court of First Instance of Seville (3rd Section).

3 Ordinary insolvency proceedings 1305/2020, Commercial Court No. 2 of Madrid, comprising the following companies of the group: DENTIX HEALTH CORPORATION SLU, DENTOESTETIC CENTRO DE SALUD Y ESTÉTICA DENTAL, SLU, DENTIX HEALTH INTERNATIONAL, SLU AND NEOTECH CLINICAL, SLU.

4 Ordinary insolvency proceedings 896/2020, Commercial Court No. 1. Of Madrid.

5 Ordinary insolvency proceedings 229/2020 of Commercial Court No. 2 of Bilbao.

6 Insolvency proceedings 1516/2019 of Commercial Court No. 6 of Madrid.

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