The out-of-court settlement of payments in cases of insolvency
Out of court settlement of payments
The extrajudicial payment agreement is a mechanism included in the Bankruptcy Law that tends to resolve insolvency situations of natural or legal persons outside the courts. It was created with the aim of facilitating a third party, called bankruptcy mediator, the possibility of reaching an agreement with creditors in order to overcome the insolvency situation.
The Bankruptcy Law establishes which subjects can attend mediation:
- Insolvent natural persons whose debts do not exceed five million euros.
- Entrepreneurs, that is, both people who have said status in accordance with commercial law, as well as those who carry out professional activities and also self-employed workers.
- Legal persons provided that they meet certain conditions, such as that they are insolvent, that in the event of bankruptcy being declared, the procedures of the abbreviated procedure are followed and that they have sufficient assets to satisfy the expenses originated with the agreement .
On the contrary, they will not be able to make such a request:
- Those who have been sentenced in the ten years prior to the declaration of bankruptcy, in a final judgment for crimes against property, socioeconomic, forgery, against the Public Treasury and Social Security, as well as against the rights of workers.
- Those who in the last five years have reached an out-of-court payment agreement with their creditors, or have obtained judicial approval of a refinancing agreement or have been declared bankrupt.
- Those who are negotiating a refinancing agreement or whose bankruptcy application has been accepted for processing.
- Insurance and reinsurance entities.
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How to accept the request for an out-of-court payment agreement
In order to benefit from the request for an out-of-court payment agreement, it is the debtor’s duty to prove his insolvency situation. In the event that the debtor is a natural person, he may also avail himself of said request when he anticipates that he will not be able to regularly comply with his enforceable obligations.
Once the debtor has met the requirement of proving his current or imminent insolvency situation, he will request the appointment of a bankruptcy mediator. If the debtor is a legal person, the administrative body or the liquidator is competent to decide on the request.
In any case, the request must be made using a standard form signed by the debtor, which must include an inventory of the cash and liquid assets available to the debtor, as well as their assets and rights and regular income, as well as a list of current contracts and expected monthly expenses. The application must also be accompanied by a list of creditors, specifying their identity, address and email address, and the amount and maturities of the credits.
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Individual married under community property regime
We must emphasize that, if the debtor is a natural person married under the community property regime, he must include the identity of his spouse. In addition, if the spouses own the family home and it may be affected by the out-of-court payment agreement, the request must be made by both spouses.
Legal person or entrepreneur
If the debtor is a legal person or businessman, the appointment of the mediator will be requested from the Mercantile Registry, it can also be requested from the Official Chambers of Commerce, Industry, Services and Navigation, when they have assumed mediation functions. In all other cases, the designation will be requested from the notary.
Appoint an insolvency mediator
Once the agreement request phase has been passed, the next step is to proceed to appoint the bankruptcy mediator, who may be a natural or legal person. He will be appointed from the list of candidates prepared by the Registry of Mediators and Mediation Institutions of the Ministry of Justice. The mediator must be in possession of a university degree or higher professional training, and must also have specific training to practice mediation. When the bankruptcy mediator accepts the appointment, he must provide the commercial registrar or notary an email address where creditors can make communications and notifications.
In the course of ten days from the acceptance of the position, the bankruptcy mediator will verify the data and documentation provided by the debtor, he will also verify the passive estate. In addition, it will summon the creditors and the debtor to a meeting that will be held within the two months following the acceptance of the position, in the town where the debtor has his domicile. The call will be made by notary or any other means of written communication that ensures its reception, said call must include the place of the meeting, as well as the day and time of the meeting and its purpose of arriving to an out-of-court payment agreement.
The bankruptcy mediator must send the creditors the resolution proposal as soon as possible or at least 20 calendar days in advance. The proposal may include waiting for a period not exceeding 10 years, as well as removals, or assignments of assets or rights to creditors as payment of their credits. In the event that the debtors are commercial companies, the debts may be converted into shares or shares of the company or into participatory loans or into any other financial instrument for a term not exceeding 10 years.
The proposal must also attach a payment plan detailing the resources allocated to its fulfillment, as well as a feasibility plan with a compliance schedule . The creditors will have a period of ten days to present alternative proposals.
If the proposal is accepted by the creditors, the agreement will be made public, with the bankruptcy mediator in charge of supervising its compliance. While if the proposal is not accepted and the debtor’s insolvency situation persists, the bankruptcy mediator must request the competent judge to declare bankruptcy.
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