Voluntary insolvency in Spain (concurso voluntario) is the legal process that allows a debtor to declare itself insolvent before a Judge in order to halt any executive action and proceed to liquidation, or to renegotiate its debt with the aim of keeping the debtor’s activities running.
Voluntary insolvency in Spain includes the following phases:
1. Filing for voluntary insolvency in Spain
The debtor who is –or expects to be in the near future- in a state of insolvency has the legal duty to file for voluntary insolvency within two months before a Judge (this is why it is called voluntary).
2. Preliminary report
The Judge appoints an insolvency receiver (administrador concursal) who must prepare and submit a preliminary report with a list of the debtor’s assets and liabilities.
3. Definitive report and inventory
After the period during which creditors may challenge the preliminary report, the receiver publishes the definitive report to determine the exact legal and equity status of the debtor (inventory of property, assets, liabilities, description of events that led up to the insolvency and the voluntary filing, etc.).
4. Proposal of agreement and vote
If the debtor is interested in keeping its activities open, a restructuring plan (convenio de acreedores) must be proposed to cover the debtor’s outstanding liabilities with payments spread out.
If the restructuring plan not accepted, or the debtor prefers to discontinue its activities, the process automatically proceeds to the liquidation the debtor’s assets.
5. Management liability proceedings
If the voluntary insolvency in Spain concludes with the liquidation of the debtor’s assets, or if the debtor doesn’t stick to the payment agreements established in the restructuring plan, another procedure begins to determine whether the debtor’s management may be held personally liable for the insolvency.
There is well-established legal precedence in Spain that management is only held liable in the case of actions, acts, omissions or negligence of considerable severity, such as not submitting annual accounts, embezzlement of debtor funds, unfair competition, etc.
The management of a debtor in Spain may file for voluntary insolvency in Spain in order to halt executive actions, reorganize business activity or liquidate the debtor’s assets.
Voluntary insolvency in Spain is a delicate and complex tool that must be properly understood, planned and scheduled. But, above all, it must be handled in conjunction with a specialized law firm.
There is a similar institution, the necessary insolvency filing (concurso necesario), which is a similar procedure but initiated by a creditor. The advantage lies in the fact that 50% of the claim of the creditor filing for necessary insolvency is considered privileged credit in the insolvency proceedings.
If you have any doubts, please contact our firm for more information on voluntary insolvency in Spain.