Express Insolvency Proceedings in Spain

Requirements for an Express Insolvency Procedure

Article 470 of the Consolidated Insolvency Act (TRLC) provides that a judge may order the conclusion of the insolvency proceedings in the same order declaring insolvency where it is evident that:

the assets available are likely to be insufficient to cover the costs of the proceedings, and furthermore,
there is no reasonable prospect of bringing clawback actions or third-party liability claims, and
there is no reasonable prospect of the insolvency being classified as culpable.

The Judges' Seminar on the Special Processing of Asset-Free Consecutive Insolvency Proceedings – Judges' Assembly of 9 June 2021 also sets out the conditions under which a direct conclusion — commonly known as an "express insolvency procedure" — may be pursued.

Josep Conesa. employment lawyer (Barcelona)

Written by Josep Conesa

Employment and insolvency lawyer

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Application for Conclusion Without Realisation of a Specially Secured Asset

Agreement No. 9/2021 of the Commercial Court of Seville sets out the conditions under which an asset-free insolvency procedure may be processed without realising the asset subject to special security. In other words, it is possible to process an insolvency case without appointing an insolvency director and without liquidating the asset — for example, a property encumbered by a mortgage.

Filing for Insolvency and Conclusion Simultaneously

The fact that a debtor owns only a single asset or right (typically their primary residence) which is encumbered by a security interest securing a debt whose amount exceeds the value of that asset or right may constitute an obstacle to obtaining discharge of unsatisfied liabilities in a swift and straightforward manner — and may therefore frustrate one of the principal objectives of Directive 2019/1023, as reflected in Article 20.1, which provides that "insolvent or over-indebted entrepreneurs acting in good faith should be able to benefit from a full discharge of their debts after a reasonable period of time".

PROCEDURE FOR OBTAINING AN EXPEDITED INSOLVENCY PROCESS

First

Asset-less insolvency proceedings are not limited to cases where the debtor holds no assets or rights whatsoever, but also encompass cases where the conditions for closing the proceedings are met under the terms of Article 468.3 of the Consolidated Insolvency Act (TRLC).

Accordingly, the existence of assets or rights encumbered in favour of a creditor that would be recognised as a specially privileged creditor in the proceedings does not prevent their closure, provided that the enforcement of those assets or rights would yield no surplus for creditors other than the holder of the security interest — since that creditor retains its right to pursue separate enforcement proceedings by virtue of the security granted.

It should be borne in mind that the legislature permits the closure of insolvency proceedings without first enforcing, within those proceedings, the assets or rights encumbered in favour of a secured creditor where such assets or rights are enforced separately before the competent Court of First Instance, and that this option depends, among other factors, on the willingness of the secured creditor to proceed accordingly.

It is therefore entirely conceivable that, where insolvency proceedings are opened and the only asset in the insolvency estate is a mortgaged property, that asset could be removed from the proceedings and enforced separately — and that the insolvency proceedings could then be concluded without waiting for the separate enforcement to be completed. In practice, this could even result in the secured creditor, acting as enforcement claimant, withdrawing from the enforcement proceedings having reached a private agreement with the debtor, meaning that the insolvency would have been concluded without the encumbered asset ever being realised.

Second

The second point is that the enforcement rights of the secured creditor are not prejudiced in two distinct scenarios:

The first, where the debt is current and up to date with payments, since in that case the creditor does not hold the right to initiate forced enforcement of the asset;
The second, where, notwithstanding that the debt is not current, the secured creditor expressly or tacitly consents to the asset or right not being enforced in satisfaction of their claim.

THIRD

The third point is that the realisation of an asset or right subject to a security interest should be deemed not to generate any surplus for the remaining creditors where it is established that its market value does not exceed the amount of the secured debt.

This circumstance may be evidenced in two ways:

The first, by providing a technical valuation of the asset or right; and,
the second, by going to market — that is, opening a period during which, with sufficient publicity, any interested party may submit acquisition offers, with the possibility of those offers being improved upon.

FOURTH

And the fourth, that the first paragraph of Article 472 of the TRLC (Consolidated Insolvency Act) links the appointment of the insolvency director to the existence of assets or rights capable of being liquidated — meaning that where no such assets or rights exist, their appointment will not be required.

Accordingly, the second paragraph of that provision must be interpreted as meaning that the processing of the application for the debt discharge benefit will only require the involvement of the insolvency administration where one has been appointed.

HOW THE PROCEDURE CAN BE CONCLUDED ON AN "EXPRESS" BASIS

The procedural route will vary depending on a number of concurrent factors, which means that several different scenarios must be anticipated.

In any event, it is advisable that the case management order acknowledging receipt of the insolvency petition should also direct that the debtor's assets be investigated through the judicial neutral point (punto neutro judicial) system.

3.1. Finding of no insolvency estate from the outset

Where the insolvency estate contains no assets or rights (which will also be the case where the debtor's patrimony consists solely of assets or rights capable of triggering closure of the proceedings under the terms of Article 468.3), the insolvency proceedings may be declared and concluded in a single ruling without the need to appoint an insolvency director, and this may be requested in the insolvency claim.

For these purposes, the existence of assets or rights encumbered in favour of a creditor that would rank as a specially privileged creditor in the proceedings shall not prevent the closure of the insolvency:

where a technical valuation of the relevant asset or right is submitted together with the insolvency petition, and that valuation is sufficient for the insolvency judge to conclude that realisation of the asset or right will yield no surplus available for creditors other than the holder of the special privilege.

3.1.1. Insolvency petition accompanied by an application for discharge of unsatisfied liabilities.

Where, together with the insolvency petition, the debtor submits a document evidencing that they are seeking discharge of unsatisfied liabilities, the order declaring and closing the insolvency proceedings shall direct that creditors be given the notification provided for under Articles 489.3 or 496.1 of the Consolidated Insolvency Act (TRLC), depending on whether the debtor is availing themselves of the general or special discharge regime (Art. 487 or 493).

3.1.2. Insolvency petition filed without an application for discharge of unsatisfied liabilities.

If no application for discharge of unsatisfied liabilities is submitted together with the insolvency petition, the order declaring and concluding the insolvency proceedings shall provide for the debtor to be heard so that, within fifteen days, the debtor may apply for such discharge.

3.2. Subsequent determination that no insolvency estate exists.

If the petitioner considers that the value of the asset or right subject to a preferential charge does not exceed the value of the secured claim and expressly states this in the petition, but does not provide a technical valuation or the valuation provided is deemed insufficient by the insolvency judge, it will be necessary to determine the market value of the asset or right in order to conclude the insolvency proceedings.

In such cases, the following steps shall be followed:

First. The order declaring insolvency shall provide for: the suspension, pending resolution of whether or not an insolvency estate exists, of

- the opening of other sections of the proceedings; and
- the insolvency administrator's obligation to submit the report provided for in Title VI of Book I of the Consolidated Insolvency Act (TRLC) (whilst maintaining the insolvency administrator's obligations set out in Articles 252 to 254 of that Act and the burden on creditors to submit their claims in accordance with Article 255 of the same legislation);
- and that a one-month period be opened, running from the date of publication of the court order in the Spanish Official Gazette (BOE), for the submission of acquisition offers to the insolvency administrator in respect of the asset or right in question.

In addition to the publication of the court order, the insolvency administrator must publicise the opportunity to submit offers through at least three different channels, such as estate agencies or online auction platforms.

Second. Once the above period has expired, the insolvency administrator shall notify the court of any offers received, or confirm that none were received (providing documentary evidence of the publicity given), and this information shall be made available to the parties by means of a procedural order.

Third. If none of the offers exceeds the amount of the secured claim, a court order shall be issued requiring the insolvency administrator, pursuant to Article 82 of the TRLC, to report within ten days on whether the conditions for requesting the closure of the insolvency proceedings set out in Article 473 of the TRLC are met, and, if so, to make that request.
Fourth. If any of the offers exceeds the amount of the secured claim, the insolvency administrator shall apply for judicial authorisation for the disposal of the asset or right, which shall be processed in accordance with the procedure set out in Article 518 of the TRLC, with Article 210.4 of the same legislation also applying.
Fifth. Within five days of payment of the price by the successful bidder, the insolvency administrator must submit a report stating whether, once the preferential credit has been paid, the surplus obtained exceeds the amount of claims against the insolvency estate

If it does not exceed it, the insolvency administrator must: in that same report, declare the insufficiency of the active insolvency estate, in accordance with Article 249 of the TRLC; then pay the claims against the estate in the order set out in Article 250 of that legislation; and, having made such payment, apply for the closure of the insolvency proceedings.

If the surplus exceeds the amount of the claims against the estate, the insolvency proceedings must follow the standard procedure. A court order will then be issued lifting the suspension of the opening of the relevant sections and of the insolvency administrator's obligation to submit the report provided for in Title VI of Book I of the TRLC, with the deadline for its submission beginning to run from the date of notification of that order.