How Much Does Insolvency Proceedings Cost

COST OF INSOLVENCY MEDIATION

The cost of insolvency mediation shall not exceed the fee received by the insolvency mediator, as set out in the Consolidated Insolvency Act (TRLC):

709.3 Insolvency administration in the case of consecutive insolvency proceedings: The insolvency mediator appointed as insolvency director in the consecutive insolvency proceedings may not receive, for the exercise of that role, any remuneration greater than that fixed during the out-of-court mediation proceedings.

WHAT IS THE REMUNERATION OF AN INSOLVENCY director?

The remuneration of an insolvency director is set by a fixed scale, and the calculation method is established by law.

Download an Excel calculator for insolvency director remuneration here:

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Josep Conesa. employment lawyer (Barcelona)

Written by Josep Conesa

Employment and insolvency lawyer

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Remuneration of the insolvency director in consecutive insolvency proceedings, previously appointed as insolvency mediator

An insolvency mediator WHO HAS BEEN APPOINTED during mediation CANNOT issue two separate fee invoices — one for the mediation and another for their role as insolvency director.

"Article 242.2.2.ª of the Insolvency Act: Unless there is just cause, the judge shall appoint the insolvency mediator as director of the insolvency proceedings in the order declaring insolvency, and that person may not receive any remuneration for this role beyond what was fixed during the out-of-court mediation process. In consecutive insolvency proceedings, the principle of confidentiality shall cease to apply to the insolvency mediator who continues in the role of insolvency director."

In legal ground 9 of the Order of 30 October 2018 issued by the Provincial Court of Barcelona, referring to Article 242.2, second paragraph, of the Insolvency Act, the court also held that where the same mediator is appointed as insolvency director, they CANNOT ADD to their remuneration as insolvency director the fees already received as mediator.

This interpretation is shared by the Provincial Court of Valencia, Section 9, in its Order 73/2021 of 11 May 2021, Appeal No. 507/2021, which establishes that where the insolvency administrator was NOT previously appointed as mediator, the mediation tasks must be carried out afresh — in addition to conducting the liquidation — and this justifies treating the work as a separate chargeable activity, since it constitutes personal work performed; moreover, the liability of an insolvency mediator is considerably lower than that of an insolvency director.

Fees of the insolvency director previously appointed as insolvency mediator:

It is therefore NOT possible to issue separate fee notes — one for the mediation and another for the insolvency administration.

Given that the insolvency administration will issue a single fee note covering the mediation and common phase together, where the insolvency director was previously appointed as mediator, a second fee note may be issued for the liquidation phase (this is the unanimous position set out in the conclusions of the Commercial Court Judges' Seminar held in Madrid on 11 October 2013), which states that:

The general rule under Article 242.2.1º of the Insolvency Act cannot be set aside on the grounds that the liquidation phase will never have been remunerated in the out-of-court settlement proceedings (mediation), nor will any amount have been fixed for it, since by definition there is no liquidation stage in such mediation proceedings.
However, where the insolvency liquidation phase involves particularly complex or demanding work, taking into account its complexity, level of effort and scale, exceptional remuneration may be fixed for that reason, in accordance with the applicable fee schedule.

Remuneration of the insolvency director NOT previously appointed as mediator:

The aforementioned Order dated 30 October 2018 of the Provincial Court of Barcelona established that the remuneration cap under Article 242.2, second paragraph, of the Insolvency Act does NOT apply where the insolvency director was NOT previously appointed as mediator.

There is a legal gap in the legislature's intention to account for the specific features of consecutive insolvency proceedings (for individuals or small business owners). The aim was to reduce costs and limit the remuneration of both the mediator and the insolvency director. However, where the insolvency administrator was NOT appointed during the mediation phase, they will need to carry out the full scope of work from the outset — and may therefore issue fee notes covering both the common phase and the liquidation phase.

For this reason, it is irrelevant whether the mediation was carried out by someone other than the insolvency director (the notary or another mediator): IF THE INSOLVENCY ADMINISTRATOR was NOT the MEDIATOR, they may issue fees for both the common phase and the liquidation phase.

70% FEE CAP ON INSOLVENCY ADMINISTRATOR FEES IN CONSECUTIVE INSOLVENCY PROCEEDINGS

The Provincial Court of Valencia, Section 9, in its Order 73/2021 of 11 May 2021, Appeal 507/2021 held that the remuneration of the insolvency director in consecutive insolvency proceedings, where that administrator has not previously acted as insolvency mediator, shall be determined by applying Royal Decree 1860/2004 of 6 September, establishing the fee schedule for insolvency administrators, and that the second additional provision of Law 25/2015 shall not apply.

In other words, the purported 70% reduction does not apply.

ARE THE INSOLVENCY director'S FEES CONSIDERED ESSENTIAL COSTS OF THE PROCEEDINGS?

The legislation governing the remuneration of insolvency administrators is as follows:

Debtor's legal counsel fees: ruling Supreme Court 18-07-14 The insolvency administration must decide which professional legal assistance services provided to the debtor merit payment as a claim against the insolvency estate
Consecutive insolvency proceedings: Agreements on the fees of the insolvency mediator and the insolvency administrator in consecutive insolvency proceedings
Insolvency administrator fees where the active estate is insufficient:

The First Chamber of the Supreme Court, in its ruling No. 390/2016 of 8 June 2016, resolved the controversy surrounding whether the insolvency administrator's fees were essential costs of the proceedings, or whether they instead constituted court costs and expenses payable under Article 176.bis.2.4º of the Insolvency Act. The Court established that the insolvency director must specify which actions are essential to generating funds within the proceedings, which actions are essential to managing the liquidation and payment process, and the amount of fees attributable to those actions. On that basis, the insolvency judge, having first heard the other creditors with claims against the estate, will assess the circumstances justifying the deduction of fees deemed essential, with the remainder of the fees falling within the scope of Article 176.bis.2 of the Insolvency Act.

Thus, the Insolvency Administrator will determine which actions they consider strictly necessary for the liquidation and conclusion of the insolvency proceedings, along with the corresponding fees for those actions — always subject to notification to the remaining creditors so that the Insolvency Judge can rule on whether the actions are essential or not, their duration, and the amount of the fees involved.

COST OF THE INSOLVENCY director UNDER THE NEW INSOLVENCY ACT:

New Article 86. Rules for determining remuneration.

1. The fee schedule governing the remuneration of the insolvency administration shall be subject to the following rules:

1st Rule of Exclusivity. Insolvency administrators may only receive, in respect of their involvement in the proceedings, the amounts resulting from the application of the fee schedule. Accordingly, no additional amounts beyond those initially fixed may be charged against the insolvency estate in favour of the insolvency director or any person closely connected to them, whether for any technical or legal assistance or for the lodging of any type of appeal within the framework of the proceedings.

2nd Rule of Limitation. The maximum total amount that the insolvency administration may receive for its involvement in the proceedings shall be the lower of one million euros and the amount resulting from multiplying the valuation of the debtor's assets by four per cent.

The judge, having heard the parties, may approve on reasoned grounds a remuneration exceeding the above limit where, owing to the complexity of the proceedings, the costs borne by the insolvency administration justify it, provided that in no case may it exceed fifty per cent of that limit.

3rd Rule of Duration of Proceedings.

a) Where the common phase exceeds six months, the remuneration of the insolvency administration approved for that phase shall be reduced by fifty per cent, unless the judge, by reasoned decision issued within three days of the request, considers that objective circumstances exist justifying such delay, or that the director acted diligently in the performance of their other duties.

b) Where the arrangement phase exceeds six months, the insolvency administrator's remuneration approved for that phase shall be reduced by fifty per cent, unless the judge, giving reasons, within three days of the request, considers that there are objective circumstances justifying the delay or that the director's conduct has been diligent in the performance of their other functions.

c) Where the liquidation phase exceeds eight months, the director's remuneration shall be reduced by at least fifty per cent, unless the judge, giving reasons, within three days of the request, considers that there are objective circumstances justifying the delay or that the director's conduct has been diligent in the performance of their other functions.

4th Rule — Efficiency. The insolvency administrator's remuneration shall accrue as the functions assigned by this Act and the insolvency judge are progressively discharged.

In determining remuneration, account shall be taken of incentives designed to ensure the efficiency of the insolvency administration, aimed at achieving greater speed and agility. These may relate, among other things, to the prompt execution of the liquidation plan, the transfer of business units, or the realisation of assets and rights in liquidation at a value exceeding the regulatory percentage of their definitive value as set out in the administrator's report.

The remuneration initially set shall be reduced by the judge, with reasons given, on account of the insolvency administrator's failure to comply with their obligations, any delay attributable to the insolvency administrator in the performance of their obligations, or the poor quality of their work.

Where the delay consists of exceeding by more than half the statutory time limit applicable to the insolvency administrator, or where the insolvency proceedings extend beyond sixteen months from the date of the insolvency declaration, or where the duty to inform creditors is breached, the judge must reduce the remuneration, unless the insolvency director demonstrates that the delay is not attributable to them, that there are objective circumstances justifying the delay, or that the director's conduct has been diligent in the performance of their other functions.

The quality of work shall be considered deficient when challenges to the inventory or the list of creditors are resolved in favour of the claimants in a proportion equal to or greater than fifteen per cent of the value of the provisional inventory or the amount of the provisional list of creditors submitted by the insolvency administration. In the latter case, the judge must reduce the remuneration by at least the same proportion as the amendment, unless there are objective circumstances that justify that valuation or that amount, or unless the director's conduct has been diligent in the performance of their other duties.

2. In those insolvency proceedings that conclude due to the insufficiency of the active estate to satisfy claims against the estate, a minimum remuneration shall be guaranteed to the insolvency administration through a tariff guarantee account.

Mediation fees in insolvency proceedings are added to the tariff for the common phase of the insolvency director:

See the court order at the link below, which explains why mediation fees must be of the same amount as the tariffs for the common phase of the insolvency proceedings — they do not replace those tariffs but are instead accumulated alongside them: both the mediator's remuneration and that of the insolvency director are payable: Link to the court order on mediator fees and the common phase cap.