Voluntary bankruptcy

The health crisis situation caused as a result of Covid-19, accompanied by the paralysis of a large part of the economy, has led many companies to find themselves unable to face the their debts, being able to use, to face their insolvency situation, a legal tool, such as bankruptcy.

What is a voluntary bankruptcy

Specifically, voluntary bankruptcy is the one that is urged by the debtor himself, which originates when a natural or legal person faces a insolvency situation in which it cannot meet its enforceable obligations. The request for voluntary bankruptcy is a legal protection against actions that creditors may bring, either in order to achieve a restructuring of the business or due to the duty of request established by the Bankruptcy Law to the debtor himself.

Although the Royal Decree 16/2020 establishes in its articles that until December 31, 2020, the debtor who is in a state of insolvency does not have the duty to request the declaration of bankruptcy creditors, as well as that the judges will not admit for processing the applications that have been submitted by the creditors since the declaration of the state of alarm, it is convenient not to delay in your application.

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Who should apply for voluntary bankruptcy and when?

In the case of a natural person, the debtor himself or through a representative may request the bankruptcy.

If, on the contrary, the debtor is a legal person, he must request it through his representatives, that is, by the administrator or the board of directors.

The debtor must apply for bankruptcy within two months from the date on which he knew or should have known of the state of insolvency. In the case of an uncertain date, it is presumed, unless proven otherwise, that the debtor has learned of his insolvency status when any of the events that serve as the basis for the necessary bankruptcy request by the creditors occurs. Among these facts we can highlight the general non-compliance with the payments to the Tax Agency or the payments of Social Security contributions or the wages of workers for the three months prior to the application for bankruptcy.

How is the procedure started?

The debtor will start the procedure with the application document, in which he will express his state of insolvency and with which the legally determined documents will be attached, such as the memory of the economic or legal history of the debtor, or the inventory of assets or rights. In the event that the debtor has an obligation to keep accounts, all accounting documentation will also be attached.

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Which court is competent to hear the matter?

In the event that the debtor is a legal person, it will be the commercial court of the place where he has within his main interests, presumably at his registered office .

In the case of natural person debtors, the court of first instance of their domicile will be competent.

Main advantages of voluntary bankruptcy

The main advantage of anticipating and presenting the voluntary bankruptcy is that the debtor can freeze the payment of the credits with the creditors and can also proceed to negotiate with banks and suppliers in order to reach agreements that provide the company with future viability, specifically, the company can renegotiate the debt with haircuts and waiting.

Another advantage is that the administrators of the company can continue to take the reins of it, thus conserving the powers of business administration.< /p>

On the other hand, the request for declaration of voluntary bankruptcy by the debtor is important when the judge classifies the bankruptcy as fortuitous or not as culpable. In the event that it can be shown that the administrator of the company or the board of directors of the same were aware of the insolvency situation and did nothing within the legal term of two months, that is, in the event that it did not start voluntary bankruptcy, they may have to face considerable legal and financial responsibilities.

It is essential to recognize the insolvency situation and declare the voluntary bankruptcy within the legally established term for it. The decision to request the voluntary bankruptcy can be decisive both for changing the direction of the company and for its administrators. Without forgetting that the figure of voluntary bankruptcy is a fundamental tool to be able to fight for the viability of a company.

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