One of the fundamental principles governing insolvency proceedings is set out in Articles 142 and 143 of the Consolidated Insolvency Act (TRLC) (formerly Article 55 of the Insolvency Act). The first of these prohibits the commencement of enforcement actions and compulsory collection proceedings, providing that:
"From the date of the insolvency declaration, no individual enforcement proceedings, whether judicial or extrajudicial, nor any administrative compulsory collection measures, including tax-related ones, may be initiated against the assets or rights forming part of the insolvency estate." The second provision imposes a stay on enforcement proceedings already under way, stating: "Any actions and enforcement proceedings against the assets or rights of the insolvency estate that are in progress shall be stayed as of the date of the insolvency declaration, without prejudice to the treatment to be afforded to the respective claims under insolvency law. Any steps taken from that point onwards shall be null and void."
The rationale behind these provisions is that the insolvency judge has exclusive jurisdiction over the universal enforcement of the assets and rights comprising the insolvency estate of the debtor, so as to safeguard the par conditio creditorum (the equal treatment of creditors). In other words, once insolvency proceedings are declared, any enforcement actions already in progress will be stayed, and new ones will be inadmissible before administrative and judicial bodies — and, should they nonetheless be pursued, all steps taken up to that point will be null and void.
That said, this general rule is subject to a number of exceptions, which are exhaustively defined by law (Articles 144 to 146 of the TRLC).
- First, there are administrative and employment enforcement proceedings, which may continue under the terms and conditions set out in Article 144 of the TRLC. Specifically, they may continue provided that:
- the assets in question are not necessary for the continuation of the debtor's business or professional activity — a determination that falls to the insolvency judge. However, for a separate enforcement action to proceed, it is not sufficient that the compulsory collection order was issued prior to the insolvency declaration; it is also required that
- a distraint order must also have been issued before that date. There is also a time limit: under Article 149 of the TRLC, separate enforcement proceedings cease upon the opening of the liquidation phase.
- Separately, there are enforcement proceedings relating to real guarantees, governed by Articles 145 et seq. of the TRLC (formerly Article 56 of the Insolvency Act), whereby a creditor may recover its claims through separate mortgage enforcement proceedings.
However, this right to separate enforcement is subject to an important limitation: a creditor holding a special privilege may not commence new mortgage enforcement proceedings, and any proceedings already under way will be stayed, if the insolvency judge declares that the assets securing the privileged claim are necessary for the debtor's business or professional activity. Such a stay would be granted for a period of one year until a creditors' arrangement is approved, or from the date of the insolvency declaration provided that the liquidation phase has not been opened. The purpose is to promote the viability of the company or to enable the debtor to reach an arrangement with its creditors.
Under Articles 142 and 143 of the TRLC, all distraint orders levied against the insolvent debtor's assets after the date of the insolvency declaration are null and void, as they encroach upon the jurisdiction of the insolvency judge, who has exclusive competence over the universal enforcement of the debtor's assets. For example, an attachment of future receivables not yet in existence at the time of the insolvency declaration will be treated as a new distraint order.
Accordingly, any sums held in the account of a court other than the Commercial Court handling the insolvency proceedings, where those sums relate to measures taken after the insolvency declaration, must be transferred to the bank account designated for that purpose by the insolvency administrator. The court must also declare those distraint orders null and void and refrain from issuing new distraint orders in the future, for as long as the insolvency proceedings remain open.
If, on the other hand, the amounts held were the result of attachments levied prior to the declaration of insolvency proceedings, the relevant court would equally be required to transfer those amounts to the bank account designated by the insolvency administrator, as they form part of the active estate of the proceedings. The rationale is that once insolvency proceedings are declared, all enforcement actions that may have been taken beforehand must be "automatically stayed", with all assets being incorporated into the active estate of the proceedings, regardless of whether they are necessary for the debtor company's business activities. This is so because, as a matter of statutory obligation, the declaration of insolvency proceedings entails the automatic "stay" of all civil enforcement proceedings then in progress. Within the context of insolvency law, however, "stay" does not mean that those civil enforcement proceedings may be resumed — rather, they are extinguished by the declaration of insolvency, and all attached assets and rights must be incorporated into the active estate free of charges and encumbrances. This necessarily entails the lifting and cancellation of any attachments previously placed on those assets. To hold otherwise would be to afford the enforcing creditors a payment priority not recognised under insolvency legislation. This position has been adopted by Section 15 of the Barcelona Provincial Court (Audiencia Provincial), which, in its order of 2 February 2017, stated the following:
"As the appealed decision notes, even though the provision refers to a stay of enforcement proceedings in progress, what we are dealing with is not, strictly speaking, a stay in the conventional sense — that is, a temporary suspension of a process that is expected to resume. The provision refers, alongside the stay of proceedings, to the need to afford the enforcing creditor's claim the appropriate treatment under insolvency law. This entails the incorporation, free of charges, of assets subject to prior enforcement proceedings (Article 76 of the Insolvency Act) and the loss of any right or priority the enforcing creditor may have held over the attached assets, given that insolvency legislation does not permit any privileges or priorities other than those expressly recognised therein (Art. 89.2 of the Insolvency Act). Assets and rights are incorporated into the active estate
the insolvency proceedings free of encumbrances, and they leave them in the same way — free of encumbrances. That is to say, anyone who acquires an asset or right from the insolvent party does so free of any burden, since the enforcing creditor whose enforcement proceedings have been stayed cannot invoke any preferential rights other than those recognised within the insolvency proceedings."
Consequently, the judicial determination as to whether or not the assets are necessary for the insolvent company's business activity is only relevant in respect of those enforcement proceedings that may continue separately from the insolvency proceedings — namely, administrative enforcement, labour enforcement, and enforcement over real property — but not in respect of ordinary civil enforcement proceedings, in which any attachments must automatically cease to have effect by virtue of the sole declaration of insolvency, with the relevant assets being incorporated into the insolvency estate free of charges and encumbrances.
