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HOW TO CLOSE A company IN SPAIN:
When insolvency proceedings are either unwanted or not viable, the company must dismiss any employees and settle all outstanding debts. Winding up a company therefore requires a collective negotiation process and must conclude with a liquidation balance sheet.
The full closure of a company in Spain (where the workforce exceeds five employees) requires a workforce restructuring procedure (Collective Dismissal Procedure (ERE) or collective dismissal).
Written by Josep Conesa
Employment and insolvency lawyer
This follows from Article 51 of the Workers' Statute:
"The termination of employment contracts affecting the entire workforce of a company shall likewise be considered a collective dismissal, provided that the number of employees affected exceeds five, where such termination results from the total cessation of the company's business activity on the same grounds set out above."
GROUNDS FOR collective dismissal UNDER ARTICLE 51 OF THE Workers' Statute:
• Economic grounds
• Technical grounds
• Organisational grounds
• Production-related grounds
TIMELINE:
The timescales for collective bargaining may be whatever the parties agree, but the Workers' Statute sets minimum periods, after which the company may communicate its decision.
These periods may be shorter if the negotiations end in agreement with the employees.
Where employee representatives are in place:
Companies with more than 50 employees:
A minimum of 52 days, broken down as follows:
+ 7 days' notice for the Collective Dismissal Procedure (ERE) Negotiating Committee to be constituted and the consultation period (negotiations) to begin
+ 30 days' consultation period with the employees' legal representatives in companies with more than 50 employees
+ 15 days for individual notification in accordance with the formalities set out in Article 53.1 of the Workers' Statute.
Companies with fewer than 50 employees:
A minimum of 37 days, broken down as follows:
+ 7 days' notice for the Collective Dismissal Procedure (ERE) Negotiating Committee to be constituted and the consultation period (negotiations) to begin
+ 15 days for companies with fewer than fifty employees,
or + 30 days' consultation period with the employees' legal representatives in companies with more than 50 employees
+ 15 days' individual notice period in accordance with the formalities set out in Article 53.1 of the Workers' Statute.
Where no employee representatives are in place:
The notice period for constituting the Negotiating Committee shall be 15 days instead of 7 days (Article 41.4 of the Workers' Statute).
The total timescales are therefore:
60 days for companies with more than 50 employees.
45 days for companies with fewer than 50 employees.
REQUIRED DOCUMENTATION:
The company's documentation must contain a number of specific items and must also include the following, which must be submitted to the competent Labour Authority for supervision and the issuing of a non-binding report:
- An explanatory memorandum and technical reports setting out the grounds
- Any documentation the employer considers necessary.
- Balance sheets and profit and loss accounts for the last two years.
SOCIAL MEASURES TO BE NEGOTIATED DURING THE Collective Dismissal Procedure (ERE):
The consultation with employee legal representatives must cover, as a minimum, the possibilities of avoiding or reducing collective dismissals and mitigating their consequences through recourse to accompanying social measures, such as outplacement measures or vocational training and retraining actions aimed at improving employability.
1. Measures to avoid or reduce dismissals:
a) Internal redeployment of employees within the same company or, where applicable, within another company in the group to which it belongs.
b) Functional reassignment of employees.
c) Geographical relocation of employees.
d) Substantial changes to working conditions.
e) Disapplying the working conditions set out in the collective bargaining agreement.
f) Vocational training or retraining actions for employees that may contribute to the continuity of the business project.
g) Any other organisational, technical or operational measure aimed at reducing the number of employees affected.
2. Measures to mitigate the consequences for those affected:
a) The right of preferential reinstatement to vacancies in the same or similar professional group that arise within the company within the period stipulated. In this regard, it should be noted that Royal Decree 439/2007 (approving the Personal Income Tax Regulations and amending the Pension Plans and Funds Regulations, approved by Royal Decree 304/2004 of 20 February) provides that the exemption applicable to compensation received is conditional upon the genuine and effective severance of the employee's relationship with the company, and that it shall be presumed, unless proven otherwise, that such severance has not occurred where, within the three years following the dismissal or cessation, the employee resumes providing services to the same company or to a company connected to it.
b) External outplacement of employees.
c) Vocational training or retraining actions to improve the employability of employees.
d) Promotion of self-employment as self-employed individuals or within social economy enterprises (provided these do not pursue the continuation of the affected employees' working relationship with the same company through works or service contracts or analogous contractual arrangements designed to circumvent, in fraudulent breach of the law, the obligations arising from the employment contract).
e) Measures to offset costs arising from geographical relocation.
f) Measures to compensate for salary differentials with a new employment.
POSSIBLE ACTIONS BY THE LABOUR AUTHORITY:
The labour authority will oversee the effectiveness of the consultation period and may, where appropriate, issue warnings and recommendations to the parties. These will not, under any circumstances, result in the suspension or interruption of the procedure. The labour authority will provide both parties with copies of any communications containing such warnings or recommendations, even where those communications are addressed to one party in particular.
It is required to issue a mandatory report covering the matters set out in the original notification and the conduct of the consultation period. Where evidence has been found, the report will also record the existence of fraud, bad faith, coercion or abuse of process in reaching any agreement.
CHALLENGING THE EMPLOYER'S DECISION:
Employees may challenge the employer's decision on an individual basis, and the employees' representatives may also bring a challenge.
Where the consultation or negotiation period concluded with an agreement reached with employee representatives, it will be presumed that the grounds for the measure were valid in any challenge subsequently brought by an individual employee, unless that employee can demonstrate in those proceedings that the agreement was reached through fraud, bad faith, coercion or abuse of process.
A challenge to the employer's decision brought by employee representatives suspends any individual actions, and it will be for the courts to determine whether the grounds justifying the employer's measure are made out, and whether the procedural requirements imposed by the Workers' Statute and Royal Decree 1483/2012 were complied with.
THE COSTS OF INSOLVENCY PROCEEDINGS: EMPLOYMENT COMPENSATION
The costs of insolvency proceedings will vary depending on the agreement reached, but the current statutory minimum redundancy payment that the company must offer employees is 20 days' salary per year of service, capped at 12 monthly instalments.
CLOSURE THROUGH INSOLVENCY PROCEEDINGS:
This article describes how to close a company while avoiding insolvency proceedings, but if you would like full information on insolvency proceedings, please follow this link:
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