The privilege of public credit in bankruptcy and pre-bankruptcy

El privilegio del crédito público en el concurso y preconcurso de acreedores
The privilege of public credit in bankruptcy and pre-bankruptcy

Public credit, the benefit of exoneration of unsatisfied liabilities (Second Chance Law) and the suspension of singular executions in the pre-bankruptcy: current regulation in the Bankruptcy Law.

Already before the approval of the Royal Legislative Decree 1/2020, of May 5, which approves the consolidated text of the Bankruptcy Law (hereinafter, TRLC) there was controversy in regarding the possible extension of the benefit of unsatisfied liabilities (BEPI or second chance) to credit of a public nature. Specifically, the already repealed art. 178 bis, section 6, Law 22/2003, Bankruptcy indicated at the end of said section that:

Regarding public law credits, the processing of requests for deferment or installment will be governed by the provisions of its specific regulations.”

Case law

It was the Plenary Judgment of the 1st Chamber of the Supreme Court 381/2019, of July 2, which introduced a novel interpretation in relation to the exoneration of debts and “second opportunity” in matters of public credits interpreting the aforementioned art. 178 bis, section 6, Law 22/2003, Bankruptcy in the sense of affirming that the benefit of exoneration of unsatisfied liabilities or second chance was extensible to public credits given that “it is not possible leave its effectiveness to a subsequent ratification of one of the creditors, in this case the public creditor”, that is, the non-inclusion of public credits within such possibility of exoneration would be meaningless from a public point of view teleological or legislative purpose, so it would not be applicable to the procedures regulated in the Bankruptcy Law.

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However, with the publication of the current TRLC, the legislator wanted to impose a completely different criterion and protect public credit by stating exhaustively in its art. 497.1.1º TRLC that the benefit of exoneration of unsatisfied liabilities would be extensible to ordinary and subordinated credits except for public law debts (debts with AEAT, TGSS, local and regional tax agency, etc.)

Prohibition of starting executions

For its part, articles 586 et seq. TRLC establishes the prohibition of initiating single executions against the assets of the debtor who has communicated his pre-bankruptcy as well as the suspension of those already initiated for as long as the effects of the itself, thus allowing debtors who are trying to reach out-of-court payment agreements with their debtors or refinancing agreements to avoid their bankruptcy and final closing with a “oxygen balloon”.

However, said prohibition of initiation and suspension of executions would not, in principle, be extensible to those originating from public law credits, as the current art. 592 TRLC, a provision that comes to extend to the pre-bankruptcy phase the privileges that public law credits have in bankruptcy previously mentioned, that is, the non-submission of the same to the benefit of exoneration of unsatisfied liabilities or second opportunity (art. 497.1.1º TRLC).

Lights and shadows of the privilege of public credit in bankruptcy and pre-bankruptcy proceedings.

Although there is no specific jurisprudential pronouncement that discusses the legality of art. 592 TRLC we do have jurisprudence that, in relation to art. 497.1.1º TRLC (previously, art. 178 bis, section 6, Law 22/2003, Bankruptcy) comes to question the legality of said precept and exclude the privilege that said article grants to public law credits in bankruptcy proceedings.

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On the one hand, the Plenary Judgment of the 1st Chamber of the Supreme Court 381/2019, of July 2, issued under the validity of the previous Law 22/2003, Bankruptcy and The one that we have previously referred to affirms that the benefit of exoneration of the unsatisfied liability or second opportunity was extensible to public credits.

To reach this conclusion, the Supreme Court referred to EU Directive 2019/1023 of the European Parliament and of the Council on framework agreements for preventive restructuring and exoneration of debts, in article 20 of which access to the exemption benefit is regulated by providing that:

Member States shall ensure that insolvent entrepreneurs have access to at least one procedure that can lead to full discharge of debts in accordance with this Directive”.

For its part, the already famous Order of the Mercantile Court No. 7 of Barcelona of September 8, 2020 (issued under the validity of the TRLC) chose not to apply art. 491 TRLC, understanding that the legislator had exceeded the powers of recasting granted to issue the TRCL, thereby incurring an excess ultra vires with respect to the delegation granted and that, under the previously valid art. 178 bis.3.4º Law 22/2003, Bankruptcy, debtors who did not accept a payment plan could be exempted from ordinary and subordinated public credit.

To this end, the aforementioned Order affirms that with the new regulation:

completely alters a clear and indisputable norm of the system called to recast, regulates in a manner contrary to the current norm the effects of the exoneration, thereby altering the difficult balance of rights that regulates said system and therefore equal treatment of creditors, without this alteration being, in a very clear way, considered a clarification, regularization or systematization of the current norm”.


We understand that this same conclusion regarding the submission of public credits to the second chance benefit, for the same reasons and reasoning, could be extended to the exemption provided for in article 592 TRLC in favor of public credits, and the prohibition of initiation and suspension of foreclosures on the debtor’s assets for public credits should be extended, otherwise all the effort made by the legislator to try to protect the viability of companies will have resulted in vain.

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