Business assets insolvency in Spain

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Bankruptcies in Spain – Business assets insolvency-

Pericia lawyers and economists in Marbella are pleased to write a few lines about the Bankruptcies in Spain, and specifically about the liability of the administrator of Spanish companies with unpaid debts.

The administrator (sole, joint, several, or board of directors) is a “key” figure for a trading company in Spain. Anyone can know who the administrator of a company is, given that his position must be registered in the Mercantile Registry (public information).

On many occasions, the effective management of the Spanish partnership (third parties) is carried out “by persons other than the administrator, who act thanks to a power conferred on them by the administrator himself, including here certain tax advisors or lawyers“.

It is very important to point out that in certain cases, it will be the administrator, who can respond, before third parties, of unpaid debts by the partnership, a very important circumstance to be taken into account by the people who accept the position of administrator of a company.

A trading company in Spain, can find itself in a negative property status, either because there has been a “negligence” in the accountancy (negative net equity), or because the society is “insolvent”.

The patrimonial insolvency of a company in Spain could be defined as the situation in which a partnership finds itself when it is not able to pay its debts on a punctually time.

That insolvency can be punctual, because it is waiting to collect a customer invoice and use those resources to pay their suppliers, but in many occasions, it is not like that.

One of the major problems faced by the administrators of a partnership in Spain is the possibility of being declared responsible for the payment of the company debts.

In order to avoid this type of situation, we recommend that from time to time the administrators demand from their advisors a report on the patrimonial situation of the partnership, and that it be evaluated by an independent expert.

Pericia Abogados y Economistas is a professional office located in Marbella (Malaga) that has specialised in advising companies with economic or patrimonial insolvency problems.

PATRIMONIAL INSOLVENCY OF COMPANIES IN SPAIN.

There are two main laws that must be taken into consideration in order to establish the appropriate strategy in order to prevent an administrator of a trading company from becoming liable for the payment of a partnership’s debts (the Law on Capital Societies and the Bankruptcy Law).

Article 363 LSC of the Spanish law of capital societies, defines the reasons why a trading company must be dissolved. Among them, the most noteworthy would be the manifest impossibility of achieving the social purpose, and when the net assets of the partnership (own funds) is in a figure lower than 50% of the social capital (this second case could be regularized by other means other than the bankruptcy of creditors, such as the reduction of capital for compensation of losses).

Article 367 LSC provides that the administrators may be liable (in the event of a claim presented by third parties – creditors) for the payment of the social obligations subsequent to the legal cause of dissolution indicated in article 363 LSC, if they do not request BANKRUPTCY PROCEEDINGS in Spain within a period of 2 months following the date on which they would have known or should have known of their state of insolvency.

According to the Spanish Bankruptcy Law, this period must be calculated if the following requirements are met: 

1. º the general dismissal of the current payment of the debtor’s obligations, i.e. when it is “known” that the partnership is unable to pay all the debts it has to pay.

2. º the existence of embargoes for pending executions that generally affect the debtor’s patrimony.

3. º the hasty or ruinous stripping or liquidation of its assets by the debtor.

4. º general non-compliance with any of the following types of obligations: the payment of tax obligations due during the three months prior to the application for bankruptcy; the payment of Social Security contributions and other concepts of joint collection during the same period; the payment of salaries and indemnities and other remunerations derived from work relations corresponding to the last three months.

A Spanish bankruptcy procedure, presented in the corresponding deadlines, would avoid not only the possibility that the administrator could be held liable for debts generated by the partnership, but could also lead to part of that debt pending to be paid by the partnership being “forgiven”.

Example:

Imagine a partnership whose only asset is a bank account amounting to €10,000 and a customer balance of €60,000, and which has debts to third parties amounting to €70,000. At any given time, it is aware that €40,000 of the customer balance may not be collected, since the customer has closed the business.

Well, in this case, the administrator of the partnership should file a bankruptcy procedure, before the Commercial Court, in the term of two months from the moment in which it is aware of the impossibility of recovering this commented balance of €40,000, if not, the creditor could claim to him “judicially” the payment of that debt.

In certain situations, if the administrator had filed for bankruptcy proceedings, he could even be able not only to exempt himself from liability, but also to reduce part of the payment of the referred debt through the mechanisms of reductions in amount and extensions of time included in the bankruptcy Law. 

Do not hesitate to contact Pericia now, your law firm in Marbella specialised in advising companies with economic problems or patrimonial insolvency.

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