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What are the main insolvency procedures applicable to companies in your jurisdiction?
- Mediation (“acuerdo extrajudicial de pagos”)
Concurso – Spain has a gateway insolvency procedure known as a concurso (insolvency). It can be commenced by either (i) by the directors of the company (voluntary insolvency) or (ii) by any creditor (compulsory insolvency). On declaring a concurso, the court will appoint an insolvency administrator.
The procedure commences with the common phase which can lead to either:
(i) a creditors’ composition agreement intended to rescue the business and provide repayment of the company’s debts; or
(ii) a liquidation in which the assets of the company are realised and the proceeds distributed to its creditors.
Mediation - An extra judicial procedure during which the company attempts to agree a payment agreement with its creditors. If no agreement can be reached, the company goes into concurso. A mediation is commenced by publishing a notice in the Official State Gazette (Boletín Oficial del Estado).
Can a company obtain a moratorium whilst it prepares a restructuring plan?
In a mediation the company can obtain a moratorium on enforcement and insolvency proceedings for up to three months.
To what extent do the directors of the company remain in control of its affairs during any of the above procedures?
Mediation - the directors of the company continue to manage and operate the business except that they are prohibited from obtaining further credit or borrowing.
Voluntary insolvency - the initial position is that the directors of the company continue to manage the business subject to supervision by the insolvency administrator.
Mandatory insolvency - the initial position is that the insolvency administrator assumes the management powers of the directors and the management.
In either form of insolvency the initial position can be varied by the court in light of the specific
circumstances of the case.
Timeline to commence liquidation
How quickly can a creditor generally commence the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?
One to two months.
Do your courts recognise insolvency proceedings commenced in the courts of another jurisdiction?
Yes. Insolvency proceedings commenced in an EU member state will be recognised in Spain in accordance with the EC insolvency regulation.
Insolvency proceedings commenced outside of the EU will be recognised if there is an international agreement or treaty (bilateral or multilateral) in place. If there is no such agreement then an exequatur must be obtained through diplomatic channels and presented to the courts in order for a non-EU insolvency judgement to be effective in Spain.
Position of creditors
Forms of security
What are the main forms of security over movable and immovable property?
Security is taken over:
- real estate assets by real estate mortgage (“hipoteca”)
- moveable assets (including securities) by ordinary pledge
- industrial plants, business premises, airplanes, machinery and equipment by chattel mortgage (“hipoteca mobiliaria”)
- art collections, raw materials and stock in a warehouse by pledge without transfer of possession (“prenda sin desplazamiento”)
Which classes of creditor are given preferential status? Are any classes subordinated?
The order or priority of payment of debts is as follows:
- the fees and expenses of the insolvency (créditos contra la masa)
- special preferential debts secured by way of a pledge or mortgage
- ordinary preferential debts including: (i) tax and social security liabilities; (ii) salary and redundancy payments up to a certain threshold
- ordinary unsecured debts
- subordinated debts including: (i) claims for interest for late payment and penalty payments; and (ii) claims of companies or individuals who are connected to the company
Treatment of foreign creditors
Are foreign creditors treated equally to domestic creditors?
Termination of contract by reason of insolvency
Are contract terms permitting termination of the contract by reason of insolvency valid?
No. Such terms are void under Spanish law
Retention of title
Are retention of title clauses effective?
Yes, they have the status of a special preferential debt
Setting aside transactions
Transaction avoidance provisions
What are the main transaction avoidance provisions, and who can challenge transactions?
The insolvency administrator can bring proceedings to have transactions entered into in the two years prior to insolvency avoided if those transactions were detrimental to the company’s estate.
There is a rebuttable presumption that the company’s estate has been prejudiced by:
(i) transactions with connected parties, even when entered into for good and valuable consideration
(ii) security is granted in respect of existing indebtedness
(iii) any refinancing of debt
Position of directors
Risks for directors
What are the risks facing the directors of an insolvent company?
Directors can be held personally liable for the debts of the company if their wilful misconduct or gross negligence caused or aggravated the company’s insolvency. They can also lose any rights as creditors of the company, be ordered to return assets or rights obtained from the company and may be ordered to indemnify the company for any losses they have caused.
Directors can be disqualified from acting as directors and managing third party assets for a period of two to 15 years.