Can entrepreneurs get a second chance in the face of business failure?

The second chance of the entrepreneur strong> consists of an out-of-court negotiation procedure between the debtor businessman and his creditors, in order to reach an understanding on the form of payment that can benefit both parties without impoverishing the debtor. This understanding will be carried out with the help of a bankruptcy mediator who will build bridges between both parties. Basically, this second opportunity consists of a bankruptcy adapted to the current situation of the self-employed in which the debtor has the possibility of renegotiating his debts and even partially or totally eliminating them due to his serious debt situation. . This mechanism was introduced into the Spanish legal system through the Law 25/2015, of July 28, on the second chance mechanism, reduction of the financial burden and other social measures.

As stated in the Explanatory Memorandum of the aforementioned Law, the main objective of this mechanism is none other than to allow what it literally announces, namely,

“that a natural person, despite a business or personal economic failure, has the possibility of putting his life back on track and even risking new initiatives, without having to drag a slab of debt indefinitely that you can never satisfy.”

This law consists of a second chance for those entrepreneurs who have not been successful in their first business initiative and who want this second chance to start another business or if they prefer to continue with the that they had already started. In addition, this alternative allows those people who doubt whether to undertake or not, since they are supported in the face of possible failure.

However, it should be said that this law is an exception to the principle of universal patrimonial responsibility found in article 1911 of the Civil Code:

“the debtor is liable for the fulfillment of the obligations with all his assets, present and future”.

This system is carried out through out-of-court agreements between the debtor and his creditors to find the best way to solve the problem without reaching the total impoverishment of the frustrating debtor.

It may interest you: “ Cancellation of debts through the Second Chance Law“

Who can take advantage of the second chance law

Any natural person who carries out professional activities and self-employed workers can benefit from the Second Chance Law, provided that they are in a situation of real or imminent insolvency and consider that they are not they will be able to meet their obligations. In these cases, the entrepreneur or self-employed worker may initiate a procedure to reach an out-of-court agreement on the payment of their debts.

Legal persons may also take advantage of this second opportunity when they are insolvent, when their bankruptcy has been declared, when they have sufficient liquidity to meet the expenses of the agreement , and when the assets they have and the foreseeable income are sufficient to be able to reach a satisfactory agreement.

Another requirement to take into account to be able to benefit from this law is that the interested party cannot have a debt greater than 5 million euros, and also, the debtor must demonstrate that it is in good faith. This is so since the credit history of the insolvent subject is taken into account, and to demonstrate that he has acted in good faith, it is taken into account that the bankruptcy has not been found guilty, that the debtor has not been convicted of crimes against property , Social Security or against the rights of workers in the previous ten years, and that has not benefited from a payment exemption in the last ten years.

Finally, another essential requirement is that the debtor proves that he has satisfied all the credits against the estate and the general privilege credits.

However, it is important to emphasize that not all debts will be eligible for this agreement. Public law credits cannot be included in the negotiations, nor is it the case with guarantee credits, being only incorporated if the creditors allow it.

Puede interesarte: “Dissolve a company with debts“

Benefit of exoneration of unsatisfied liabilities

Once the parties have sat down to negotiate, taking place the extrajudicial agreements, and without having reached an agreement or being insufficient, it is when the BEPI (Benefit of Exoneration of the Unsatisfied Liability). Thanks to this mechanism provided for in the Second Chance Law, debtors may be partially, or even fully, released from their debts. This decision will fall on the judge in charge of handling the matter, who will estimate the percentage in which he will exonerate the debts of the insolvent subject.

However, it should be added that creditors have the possibility of asking the judge to revoke the BEPI in case the debtor abuses this mechanism. This abuse occurs when:

• Throughout the process, the debtor improves his financial situation, being able to deal with his creditors.
• the debtor is discovered hiding payments or any type of asset that he did not state.
• the debtor breaches the commitments made in the out-of-court agreement.

This Second Chance Law, and specifically, the benefit of exoneration of unsatisfied liabilities, has recently been applied in Seville. The Mercantile Court number 2 of Seville, in its recent order no. 74/2022, of February 9, has granted the Benefit of Exoneration to a pharmacist who, being immersed in a bankruptcy, could not meet his debts, exonerating him from payment for 5 million euros. The Court has considered that the pharmacist complied with all the requirements demanded for the granting of the BEPI, such as the condition of a debtor in good faith and having fully satisfied the credits against the mass, the privileged credits and 25% of the ordinary credits.

However, it should be added that the pharmacist did not reach an out-of-court agreement with his creditors, he did not even try, as required by article 491.2 of the Consolidated Text of the Bankruptcy Law. That is why the Court of Seville has explained that a historical interpretation of this article must be made by referring to 178 bis of the Bankruptcy Law of 2003, where it was required as an added requirement to access this benefit, when the debtor had not tried to reach to a prior agreement, which would have paid at least 25% of the ordinary credits, a circumstance that occurs in this case.

It may interest you: “Insolvency in individuals and self-employed. The second chance law“