Effects of the state of alarm on insolvency proceedings

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With the declaration of the state of alarm due to the health emergency caused as a result of COVID-19, our economy has been greatly affected, since there are numerous self-employed and companies that have been forced to close their businesses in order to face the health crisis.

In an attempt to alleviate the economic consequences linked to the declaration of the state of alarm, the Government approved the Real Decreto-ley 8/2020, of March 17, of extraordinary urgent measures to address the economic and social impact of COVID-19. Measures aimed at regulating various labor, tax or financial aspects.

You may be interested in:”Legal advice on COVID-19”

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Insolvency proceedings

With regard to insolvency proceedings, although the Royal Decree of March 14 declaring the state of alarm already established the suspension of procedural deadlines, Royal Decree-Law 8/2020 has established specific measures (Article 43).

While it is true that the Insolvency Law establishes in its articles that the debtor must request the declaration of insolvency proceedings within two months from the date on which it would have known or should have known its state of insolvency. Insolvency is understood as the state of insolvency in which the debtor cannot regularly meet its due obligations, i.e., it cannot meet the payments it must make. Royal Decree-Law 8/2020 has established an exception to the debtor’s duty to file for insolvency proceedings, specifically while the state of alarm lasts, the debtor does not have the duty to file for insolvency proceedings, being able to file for insolvency proceedings up to two months after the state of alarm is lifted.

Applications for insolvency proceedings will not be admitted for processing either during the state of alarm or after the state of alarm has been lifted, i.e. applications filed by creditors will not be admitted for processing until two months after the state of alarm has been lifted. It also provides that applications for voluntary insolvency proceedings will be admitted with preference, even if such applications are of a later date than those filed by creditors.

You may be interested in:”Differences between voluntary insolvency proceedings and necessary insolvency proceedings”

“Differences between voluntary and necessary insolvency proceedings

Pre-bankruptcy mechanisms

As regards the pre-bankruptcy mechanisms provided for by the Insolvency Law, the debtor, within two months of learning of its insolvency status, may inform the Court with jurisdiction to hear the declaration of bankruptcy of the commencement of negotiations to carry out an out-of-court payment agreement or a refinancing agreement, or also to obtain the necessary adhesions for an early agreement proposal. It will have a period of three months to reach the agreements, if after this period it has not achieved them, it must request the declaration of insolvency proceedings in the following month.

In the state of alarm in which we find ourselves, even if the aforementioned deadlines had elapsed and the debtor had not reached an agreement with the creditors, it would not have the duty to request the declaration of insolvency proceedings. Therefore, the duty to file for insolvency proceedings would be suspended during the state of alarm.