INSOLVENCY LAWYERS AND THE NEW LEGISLATIVE MEASURES IN RESPONSE TO COVID-19
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On 29 April 2020, the Royal Decree-Law 16/2020, of 28 April, on procedural and organisational measures to address COVID-19 in the administration of justice was published in the Spanish Official Gazette (BOE).
Written by Josep Conesa
Employment and insolvency lawyer
With a view to managing the anticipated rise in insolvency proceedings resulting from the economic crisis that has followed the public health emergency, the Decree-Law announces a series of measures designed to prevent the expected surge in litigation connected with the handling of such proceedings. It also seeks to accelerate the liquidation phase through specific rules governing the conduct of auctions.
Article 15 provides as follows:
- In insolvency proceedings declared within one year of the declaration of the state of alarm, and in proceedings already under way at that date, the auction of assets and rights forming part of the active insolvency estate must be conducted out of court, even where the liquidation plan provided otherwise.
- The foregoing shall not apply to the disposal, at any stage of the proceedings, of the company as a whole or of one or more productive units, which may be carried out either by auction — whether judicial or extrajudicial — or by any other method of disposal authorised by the judge from among those provided for in Law 22/2003, of 9 July,
In order to clarify the impact of this statutory provision on approved liquidation plans that are currently being implemented, the following rules are hereby issued. Once approved, these rules amend the content of any liquidation plans, including those previously approved.
PLANS WHERE ALL PRE-AUCTION DISPOSAL STAGES HAVE BEEN EXHAUSTED.
2.1.- These rules apply to already-approved liquidation plans in which all prescribed disposal methods have been exhausted and the judicial auction stage remains pending.
2.2.- For these purposes, the judicial auction stage shall be deemed to have commenced — and no amendment to the liquidation plan shall be permissible — once the order convening the auction has been issued.
Assets subject to repayment of claims with special priority.
2.3.- Where the liquidation plan includes assets subject to the repayment of claims with special priority, the default rule shall be the transfer in satisfaction or in part satisfaction of those priority claims, provided that the creditor holding the special priority charge gives its consent (Art. 211.2 TRLC).
2.4.- The transfer shall be made at the valuation set out in the loan deed, unless the creditor provides an updated valuation at a lower figure, in which case the transfer shall be made at that lower value.
2.5.- For these purposes, the insolvency administrator shall put the transfer in satisfaction or in part satisfaction of claims to the creditor holding the special priority claim for a period of fifteen working days. The deadline for completing the transaction may be extended by the insolvency administrator directly where there is good cause to do so.
2.6.- The transfer shall be documented by means of a public deed, at the expense of the insolvency estate. Should it not be possible to meet those costs due to insufficiency of the estate, the corresponding judicial order shall be issued instead.
2.7.- By this order, the insolvency administrator is expressly authorised to carry out or execute any acts or agreements necessary to effect the transfer of ownership.
2.8.- Once the public deed has been executed, the insolvency administration shall submit a copy thereof to this court in order to proceed with the cancellation of the encumbrances affecting the transferred asset, in accordance with the terms set out in Art. 149.5 of the Insolvency Act, except for those that have been extinguished by merger or whose cancellation has already been carried out in the deed itself.
2.9.- Taxes shall be borne by the taxable person in accordance with the applicable rules.
2.10.- Exceptionally, the insolvency administration may proceed to an out-of-court auction, under the conditions set out in the following section, if it considers that the auction may achieve a minimum price of 50% of the appraised value of the asset subject to payment of a specially privileged claim, except in cases where the creditor holding the special privilege accepts a lower price, which must be communicated by email to the insolvency director.
2.11.- Should the above methods yield no result, the asset shall be considered to have no market value for the purposes of Art. 152.2 of the Insolvency Act, and its continued inclusion in the active insolvency estate shall not prevent the conclusion of the proceedings where any of the grounds set out in Art. 176.1 of the Insolvency Act apply.
Assets not subject to payment of specially privileged claims.
2.12.- Where the liquidation plan includes assets not subject to payment of specially privileged claims, the general rule shall be an out-of-court auction. The sale shall be carried out subject to a minimum price, corresponding to 50% of the appraised value in the case of immovable property, and 30% of the inventory value in the case of movable assets.
2.13.- The foregoing shall not prevent direct sale by the insolvency administration upon receipt of an offer that is beneficial to the interests of the insolvency proceedings, subject to prior notification to creditors for a period of between three and ten days, where the administration considers it to be in the best interests of the proceedings.
2.14.- Should the above methods yield no result, the asset shall be considered to have no market value for the purposes of Art. 152.2 of the Insolvency Act, and its continued inclusion in the active insolvency estate shall not prevent the conclusion of the proceedings where any of the grounds set out in Art. 176.1 of the Insolvency Act apply.
CONDITIONS OF THE OUT-OF-COURT AUCTION.
3.1.- Concept of a competitive out-of-court auction.
A competitive auction shall be understood as one conducted through a system that guarantees competing bids, within an appropriate framework of publicity and transparency (order of Section 15 of the Barcelona Provincial Court, dated 2 May 2017), and may be carried out through a specialised entity, including an electronic platform, or through a bidding process before a notary, in a public, transparent and competitive sale procedure.
3.2.- Selection and conditions for extrajudicial auction. Specialist entity, notarial bidding system, or notarial auction
The selection of the specialist entity falls within the competence of the insolvency administrator, as responsibility for the insolvency liquidation lies with that office, guided by the principles of the insolvency's best interests and the objective of satisfying creditors' claims. Where the interests of the insolvency proceedings so require, it shall exceptionally be permissible to resort to a public, transparent, and competitive bidding system before a notary, or to a notarial auction.
3.2.1.- Absence of conflicts of interest.
The insolvency administrator shall require specialist entities to provide a sworn declaration confirming that:
1st.- They have not provided any kind of professional services to the debtor or to persons with a special relationship with the debtor in the last three years. For these purposes, prior appointment as a specialist entity by a judicial or administrative body is excluded.
2nd.- Neither the entity itself, nor any of its partners, directors, authorised representatives, members or participants, are specially related to any person who has provided any kind of professional services to the debtor or to persons with a special relationship with the debtor in the last three years.
3rd.- Likewise, the insolvency director shall, at the time of communicating their selection in the first quarterly report, declare that they have no personal or professional connection with the specialist entity or with any of its partners, directors, authorised representatives, members or participants. If the specialist entity is "Subastas Procuradores", any connection that may have existed between the insolvency administrator and a court representative (procurador) or Bar Association of Court Representatives shall not be considered a professional connection.
4th.- The rules set out in Article 93 of the Insolvency Act shall apply when assessing personal connections.
5th.- Persons shall be deemed to be professionally connected where there exist, or have existed within the two years prior to the insolvency application, whether in fact or in law, relationships involving the provision of services, collaboration, or dependency, regardless of the legal basis that may be attributed to such relationships. For these purposes, appointment as a specialist entity by a judicial or administrative body is excluded.
3.2.2.- Offers collection process.
The insolvency administrator must obtain, within fifteen working days following notification of this resolution amending the liquidation plan, offers from three specialist entities, whether public or private.
Offers must be submitted to the email address designated by the insolvency administration, and each specialised entity must:
1.- Declare that it is familiar with the condition and composition of the assets to be liquidated.
2.- Indicate the method and timeframe for their disposal, enclosing, where applicable, the rules and practices of the house or entity referred to in Art. 641.1.II of the Civil Procedure Act.
3.- Express an irrevocable commitment to carry out all necessary steps to procure the realisation of the assets, should it be selected.
4.- Indicate the amount of the fee (VAT included).
5.- Have, in advance, a fully operational website that guarantees the security and confidentiality of transactions.
3.2.3.- Notification of the selected specialised entity.
Once the deadline has passed, the insolvency administration will notify the Court of its reasoned selection of the specialised entity, setting out in detail the terms of the disposal process — in particular the timeframes for completing the sale and the fee structure (the amount payable to the specialised entity and the party responsible for payment).
3.2.4.- Payment of the specialised entity's costs.
The fee payable to the specialised entity shall be borne by the purchaser or successful bidder, regardless of whether that party holds a specially privileged credit.
3.2.5.- Rules governing realisation.
3.2.5.1.- Individual or batch realisation.
The insolvency administration may arrange for the assets to be realised individually or in batches. In the latter case, grouping together assets subject to specially privileged credits held by different creditors must be avoided, as this makes it more difficult for those entities to submit offers.
3.2.5.2.- Notarial formalisation.
The sale process shall be formalised before a notary.
3.2.5.3.- Entity rules.
In any matter not expressly provided for, the rules of the specialised entity shall apply.
3.2.6.- Notarial auction.
Where no specialised entity is willing to carry out the realisation of the asset, or where the insolvency administration considers that circumstances exist which make referral to such entities inadvisable, a notarial auction may be used as a strictly exceptional measure.
The auction will be electronic and will take place on the Auction Portal of the Spanish Official Gazette State Agency (art. 73.1 LN).
The opening bid will be set at the value assigned to the asset in the inventory of assets and rights.
For the purposes of art. 77 and 74.3 LN, the auction will be treated as a voluntary auction, and the insolvency administration, as the requesting party, may set particular conditions regarding deposit requirements, opening bid price, and acceptance of bids below the reserve price.
In all other respects, the rules set out in arts. 72 to 76 LN shall apply.
The insolvency administration is responsible for determining the competent notary. Once the auction of the property has concluded and the purchase price has been paid, the insolvency administration will execute a public deed of sale in favour of the successful bidder before the same notary (art. 75.4 LN).
3.2.7.- Release of charges.
Once the public deed of transfer or sale has been executed, the insolvency administration will submit a copy to the Court in order to proceed with the cancellation of any charges encumbering the transferred asset, on the terms set out in art. 149.5 LC, with the exception of those that have been extinguished by merger or whose cancellation was carried out within the deed itself.
3.2.8.- Quarterly report of the insolvency director
In any event, the insolvency administration must report to the insolvency judge in the next applicable quarterly report on the status of the out-of-court liquidation proceedings, on the terms set out in this resolution.
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