Opening of negotiations with Creditors: if you are a debtor, natural or legal person, and you are in a current or imminent insolvency situation, and if the bankruptcy has not yet been declared, then you have the possibility of contacting the Court that is competent to declare the bankruptcy and notify it the opening of negotiations with creditors to obtain adhesions to an anticipated agreement proposal, or to reach a refinancing agreement that meets the requirements established by the Spanish Bankruptcy Law.

You can even appoint a Bankruptcy Mediator to reach an out-of-court settlement of payments. In this case, the Notary (if you are a natural person), Commercial Registrar (case of a legal person registered in it) or the Chamber of Commerce before whom the request for the appointment of Insolvency Mediator has been submitted, and once the position has been accepted by this, they will notify the competent Court for the declaration of the bankruptcy of the opening of negotiations with the creditors to reach an extrajudicial agreement of payments, indicating the identity of the mediator.

The purpose of this extrajudicial procedure is to provide a solution for the continuity of business or professional activity, in the meantime trying to solve the insolvency situation quickly and easily.

However, and in practice, what usually happens is that no Bankruptcy Mediator accepts the position and, therefore, that this pre-bankruptcy procedure seldom becomes effective, and no negotiations are initiated with the creditors in that case.

The opening of negotiations with Creditors is an option before declaring the Bankruptcy. If you are a debtor, natural or legal person, and you are in a current or imminent insolvency situation, and if the bankruptcy has not yet been declared, then you have the possibility of contacting the Court that is competent to declare the bankruptcy and notify it the opening of negotiations with creditors to obtain adhesions to an anticipated agreement proposal.

The new Spanish Bankruptcy Law further simplifies the necessary requirements to access the processing of the extrajudicial payment agreement, for natural or legal persons, who are in a situation of current or imminent insolvency, and that:

1) In the case of individuals, they have an estimated liability of no more than 5 million euros.

2) In the case of legal persons, the estimated asset or liability does not exceed 5 million euros, or they have a number of creditors of less than 50 and they can prove that they have sufficient assets to pay the expenses of processing the file.

Both in the case of communication of the beginning of negotiations to obtain an adhesion to an anticipated agreement proposal as in the case of reaching a refinancing agreement or to reach an out-of-court payment agreement, the executions that are followed against the debtor’s assets must be conveyed to Court, and which of them fall on assets or rights that are considered necessary for the continuity of professional or business activity.

It should be taken into account that the debtor will not be able to submit another communication to Court within a year, once it has been formulated. However, Royal Decree Law 16/2020 allowed the debtor who had a refinancing agreement approved for a period of one year from the declaration of the state of alarm, to submit a new application or the modification of one already submitted, without the need for a period of one year to elapse from the submission of the previous one. That is, in practice, debtors can adhere to this measure until March 14, 2021.

If you are considering the possibility of carrying out refinancing agreements for your company, to improve your viability in times of crisis, do not hesitate to contact Pérez Parras Economists & Lawyers. We are experts in Bankruptcy and Commercial Law.