What is insolvency and how does it work?

Insolvency proceedings are a legal process that takes place when a company or self-employed person is unable to meet its debts. Its objective is to seek the best solution for creditors and, in some cases, to preserve the continuity of the business. This procedure is regulated by Spanish law and allows debtors to organise their finances in an orderly manner. There are different types of insolvency applications, which are initiated depending on the debtor's financial situation.

Definition and purpose of insolvency proceedings

Insolvency proceedings are a legal mechanism that seeks to offer an orderly solution to companies or self-employed individuals who find themselves in a situation of insolvency. This process aims to reconcile the interests of debtors and creditors, facilitating debt restructuring or, failing that, the liquidation of assets.

Insolvency concept

Insolvency is the situation where a debtor is unable to meet its financial obligations, which can be either a temporary incapacity or a chronic situation. A distinction is made between actual insolvency, which implies a sustained state of illiquidity, and provisional insolvency, where the debtor may be able to resolve his situation in the near future.

Objectives of insolvency proceedings

The primary objectives of insolvency proceedings include:

Facilitate the collection of debts from creditors as equitably as possible.
Preserve business continuity, avoiding liquidation if viable restructuring options exist.
Protect the rights of workers and other affected groups during the process.
Create a legal framework that allows for a diagnosis of the debtor's real financial situation.

Difference between restructuring and liquidation

There are two approaches that can arise during insolvency proceedings: restructuring and liquidation. Restructuring involves a plan that allows the company to continue to operate while satisfying, on some terms, its obligations. Liquidation, on the other hand, is undertaken when there are no viable options for business continuity, resulting in the sale of assets to pay creditors. The choice between these two paths will depend on a thorough assessment of the debtor's economic situation and its ability to generate long-term income.

The regulation of insolvency proceedings in Spain is established by various laws that guarantee an effective legal framework. This legislation seeks to protect both debtors and creditors, promoting an adequate solution in insolvency situations.

Law regulating insolvency proceedings in Spain

Law 22/2003 of 9 July 2003

Law 22/2003 of 9 July 2003 is the fundamental law establishing the legal regime for insolvency proceedings in Spain. Its main objective is to provide a framework that facilitates both the liquidation of the assets of a bankrupt company and the restructuring of its debt, with the aim of guaranteeing the recovery of creditors and, as far as possible, preserving the continuity of the business.

This law introduces key concepts, such as necessary and voluntary insolvency, as well as the procedures associated with each. It also establishes the figure of the insolvency administrator, whose role is fundamental to supervise the process and act in the interests of all parties involved.

Subsequent regulations and updates

Since the enactment of Law 22/2003, there have been various regulations and amendments that have updated and improved the insolvency system in Spain. These adaptations have sought to respond to the changing needs of the economic and business environment.

One of the most significant updates was the reform introduced by Law 14/2013, which facilitated the restructuring of companies and improved the mechanisms for debtors to address their financial situation. The amendment introduced simplifications in the insolvency procedure and promoted mediation between debtors and creditors to reach agreements.

Likewise, Law 9/2015 also made changes to the regulations, focusing on the role of the insolvency administrator and the speed of the process. These modifications have allowed for a more agile and flexible approach, adapting to the current realities of the business environment.

Types of insolvency proceedings

There are two main modalities under which insolvency proceedings may be filed, each with specific characteristics and procedures. These modalities are voluntary insolvency proceedings and compulsory insolvency proceedings, which are different in nature and in the circumstances surrounding the application.

Voluntary bankruptcy

Voluntary insolvency proceedings are a procedure initiated by the debtor himself, whether a natural person or a legal entity, who recognises his insolvency situation. This implies that the debtor is unable to meet its financial obligations and chooses to initiate this process as a way of managing its debts in an orderly manner.

When filing for voluntary insolvency proceedings, the debtor has the opportunity to propose a restructuring plan that seeks the continuity of the business, while protecting the interests of creditors. The entrepreneur must file the application within a specified period of two months after becoming aware of his own insolvency. Failure to meet this deadline may lead to legal consequences and penalties.

Forced competition

Enforced bankruptcy, on the other hand, is that which is requested by one or several creditors when it is impossible to collect their debts. In this case, it is the creditors who sue the debtor, stating that the debtor does not comply with its payment obligations and, therefore, request the declaration of insolvency proceedings to ensure some kind of recovery of their claims.

The judge reviews the application for compulsory insolvency proceedings and decides whether it is appropriate to proceed with the process. In this case, a more exhaustive analysis of the debtor's financial situation is carried out, and the aim is to ensure that the resolution of the insolvency proceeding respects the order of priority of the creditors' claims. This modality is less common than voluntary insolvency proceedings, since it involves direct action by creditors.

Obligations of the debtor in bankruptcy proceedings

The debtor has several essential responsibilities during the insolvency proceedings that must be strictly complied with in order to ensure the proper conduct of the proceedings. These obligations include specific deadlines and penalties for non-compliance.

Application deadlines

There are precise deadlines that the debtor must respect when applying for insolvency proceedings, and it is essential to act quickly and diligently in order to avoid negative consequences in the process. This section is divided into two subcategories: voluntary insolvency proceedings and forced insolvency proceedings.

Application for voluntary insolvency proceedings

The application for voluntary insolvency proceedings must be filed by the debtor within two months of becoming aware of his insolvency. This deadline is crucial, as failure to file within the established timeframe may lead to penalties. The debtor must submit the required documentation together with the application in a complete and organised manner in order to avoid setbacks that may affect the process.

Application for forced competition

An application for compulsory insolvency proceedings may be initiated by a creditor in the event that he has not succeeded in collecting the debt. Such an application may jeopardise the debtor's position if he has not previously filed for voluntary insolvency proceedings. It is therefore advisable for the debtor to continuously audit his financial situation in order to foresee the possibility of an insolvency proceeding.

Penalties for non-compliance

Failure to comply with the obligations established by law may give rise to various sanctions that have a negative impact on the debtor's situation. Sanctions can be both financial and legal, depending on the nature of the offence committed.

Possible sanctions include:

Financial penalties that can be imposed by the court.
Criminal liability, in cases of culpable insolvency, where it is proven that the debtor has acted negligently or fraudulently.
Insolvency rating implications, which may negatively affect access to future credit and the debtor's reputation in the market.

It is essential that the debtor is aware of his obligations and acts accordingly in order to avoid any kind of penalty that could aggravate his financial situation.

Necessary documentation for submitting the tender

The filing for insolvency proceedings requires the collection of a number of essential documents. This documentation enables the court to assess the debtor's financial situation and to determine the viability of the bankruptcy proceedings.

Declaration of entitlement

The declaration of entitlement is a document certifying that the applicant is entitled to file the insolvency proceedings. This can be either a natural person or a legal entity. It is essential that this declaration contains accurate information on the identity of the debtor as well as his or her current financial situation. Lack of standing could invalidate the application.

Debtor's financial report

The financial report is a key document that provides a detailed overview of the debtor's finances. This report should include:

Description of the business or professional activity.
Causes that have led to the insolvency situation.
Analysis of the annual accounts and any other relevant financial background.
Economic projections reflecting the restructuring and resilience of the business.

This document is highly relevant for the judge to understand the magnitude of the debt and the possibilities of business continuity.

Inventory of goods and rights

The inventory of assets and rights is a comprehensive list documenting all assets of the debtor. This inventory should include:

Real estate, such as property and land.
Movable property, including vehicles and machinery.
Rights held, such as enforceable claims or contracts.
Any other assets that may be relevant to the insolvency proceedings.

This document is crucial for assessing the debtor's assets and establishing the debtor's ability to pay creditors.

List of creditors

The list of creditors must set out all the debtor's claims against third parties. It is essential that this list contains:

Full name of each creditor.
The amount owed to each of them.
The nature of the debt, specifying whether it is secured or unsecured.
The order of priority that each claim could have in the event of liquidation.

Having a clear and well-structured list will allow for an orderly handling of claims during the insolvency proceedings.

Commercial court proceedings

The procedure in the commercial court is a key stage in the insolvency proceedings. It begins with the filing of the petition, which establishes the legal framework for dealing with the insolvency of the company or self-employed person.

Submission and admissibility

The application for insolvency proceedings is filed with the competent commercial court. In this step, the debtor must submit a number of documents justifying his insolvency. The judge examines these documents in order to decide whether to admit the application for insolvency proceedings. This phase is crucial, as a correct filing can determine the future of the insolvency proceedings.

The documents to be submitted include, among others:

Declaration of the legal standing to file the competition.
Economic report explaining the causes of insolvency.
Inventory of the debtor's assets and rights.
List of creditors in alphabetical order.

Admission to proceedings implies that the court considers that there are sufficient grounds to proceed with the insolvency proceeding, which entails the suspension of the creditors' individual executions, limiting their rights to act on their own account in the recovery of debts.

Publication in the BOE

Once the judge admits the application for insolvency proceedings, the decision is published in the Official State Gazette (BOE). This publication is a fundamental step, as it informs all creditors and interested parties of the debtor's situation and the opening of the insolvency proceedings.

The notification in the BOE fulfils essential functions:

It informs creditors of the opening of bankruptcy proceedings.
It stops any individual enforcement action that creditors may have initiated.
It allows creditors to present their claims and rights within the insolvency proceedings.

The deadline for creditors to file their claims starts to run from the date of publication in the BOE, marking the formal start of the common phase of the insolvency proceedings. The transparency of this procedure is essential to preserve the right of creditors to be informed about the evolution of the process.

Acts prior to the arrangement with creditors

Before initiating the insolvency proceedings, it is essential to carry out a series of preliminary actions to assess the financial situation of the company or self-employed person. This initial phase helps to adequately prepare the subsequent insolvency proceedings.

Diagnosis of the economic situation

The diagnosis of the financial situation is a critical step in identifying the nature and extent of the insolvency. It involves a comprehensive review of the current financial situation, including:

Analysis of financial statements: balance sheets, profit and loss accounts and cash flows should be examined. This analysis provides a clear picture of the financial health of the business.
Identifying the causes of insolvency: it is necessary to understand why insolvency has occurred, considering internal factors such as mismanagement, low revenues or high costs, as well as external factors such as market changes or economic crises.
Evaluation of assets and liabilities: a detailed inventory of assets and rights, as well as debts and liabilities, provides an accurate picture of the company's net worth and ability to pay.

Preparation of documentation

Once the diagnosis has been made, it is crucial to prepare the documentation that will be necessary to file for bankruptcy. This documentation must be accurate and complete, as it will serve as the basis for the bankruptcy process. Some of the documents required are:

Statement of standing: a document attesting to the debtor's capacity to file for insolvency proceedings.
Debtor's economic report: this report should include a detailed analysis of the causes of insolvency, economic projections and plans for the restructuring of the business, if possible.
Inventory of assets and rights: a complete list of all assets owned by the company and their current valuation should be drawn up.
List of creditors: It is essential to compile a list of all the company's creditors, in alphabetical order and with relevant information on outstanding debts.

Proper preparation of this documentation not only facilitates the court process, but also reflects the debtor's transparency and commitment to properly manage the insolvency situation.

Development of the common phase

The common phase is a crucial stage of the insolvency proceedings which starts after the application has been accepted. This phase seeks to establish a clear picture of the debtor's economic situation and to ensure a fair procedure for all creditors.

Halting debt enforcement

During the common phase, there is an immediate standstill effect on all debt enforcements that may be ongoing. This mechanism prevents creditors from acting individually to collect their debts, thus ensuring equal treatment among all creditors. The prohibition of enforcement actions applies to:

Embargos: Attachments that have been initiated prior to the declaration of insolvency proceedings are suspended.
Enforcement actions: Creditors cannot initiate new claims to collect debts during the common phase.
Evictions: Eviction proceedings related to the debtor's insolvency are stopped.

The suspension of these actions is designed to give the debtor the possibility to reorganise its debts and seek viable solutions. This creates a space to reach agreements that benefit both the company and the creditors, avoiding an immediate collapse that could lead to the liquidation of the business.

Debtor cooperation

The debtor has a fundamental role during the common phase, as his cooperation is essential for the smooth running of the process. The debtor must provide all necessary information and cooperate with the insolvency administrator and the court. The main contributions include:

Detailed report: Provide an economic report explaining the causes of insolvency and an analysis identifying possible solutions.
Transparent documentation: Submit a complete inventory of assets and rights, as well as a list of creditors in alphabetical order.
Active attendance: Maintain constant communication and attend calls for proposals, ensuring that all information is available to those managing the process.

The cooperation of the debtor contributes to the credibility of the procedure and can positively influence the perception of creditors, facilitating the establishment of an agreement that allows the continuity of the business.

Resolution phase of the insolvency proceedings

The resolution phase is a crucial moment in insolvency proceedings. During this stage, the future of the company in difficulty is determined, either through an agreement that allows it to continue or through the liquidation of its assets.

Establishment of an agreement

The composition is an agreement between the debtor and its creditors that sets out the conditions under which the debts will be satisfied. The main purpose of this agreement is to allow the continuity of the company's operations and to facilitate the payment of outstanding obligations in a viable manner.

For an agreement to be approved, a plan must be submitted that includes:

Payment proposals detailing deadlines and amounts.
Specific financial restructuring measures.
Agreements stipulating the possible write-off of debts, if necessary.

Once the arrangement has been submitted, it is submitted for approval by the creditors at a meeting. For it to be accepted, a minimum number of creditors representing a major part of the capital owed must vote in favour. If accepted, it is ratified by the judge and becomes binding on all parties involved.

Compliance with the terms of the arrangement is essential. In case of non-compliance, creditors may request the declaration of the opening of the liquidation phase, which could put an end to the viability of the business.

Settlement process

If a composition is not feasible or an agreement is not reached, the alternative is the liquidation process. Liquidation involves the sale of the company's assets to satisfy debts owed to creditors as far as possible. This process is carried out under the supervision of the insolvency administrator, who is responsible for managing the sale of assets and the distribution of the proceeds.

During settlement, the following guidelines are followed:

An inventory is made of all the company's assets and rights.
Assets are sold as appropriate, seeking to obtain the best possible value.
The proceeds are distributed among creditors according to the order of priority established by law, ensuring that the rights of claims against the estate and privileged claims are respected.

The closure of the company comes once all assets have been sold and debts have been paid as far as possible. This marks the end of the bankruptcy proceedings and often the definitive closure of the business.

Determination of responsibilities

The determination of liability is crucial in the context of insolvency proceedings. It is assessed whether the insolvency has been caused by chance or whether fault can be attributed to the company's directors or shareholders. This distinction has important legal and economic consequences.

Fortuitous insolvency vs. culpable insolvency

Fortuitous insolvency refers to situations where the company is unable to meet its financial obligations due to unforeseen and unavoidable circumstances. For example, a sudden economic crisis or natural disasters can be considered as fortuitous factors.

On the other hand, culpable insolvency occurs when lack of diligence in the management of the company or erroneous decisions made by the directors contribute significantly to the insolvency situation. Aspects that may be considered culpable include:

Making ruinous investments without proper analysis.
Diversion of company funds for personal purposes.
Negligence in complying with tax obligations.
Accumulation of debts without a clear plan for their repayment.

Legal consequences

The legal consequences of the insolvency determination are serious and may involve various sanctions for the company's directors depending on whether the insolvency is considered fortuitous or culpable.

Criminal liability

Where insolvency is found to be culpable, administrators may face criminal charges. These charges can range from unfair administration to misrepresentation of accounts. Penalties can range from financial fines to imprisonment, depending on the seriousness of the actions committed.

Financial compensation

In cases of culpable insolvency, the administrators may be obliged to compensate the company for the damages caused. This financial compensation is intended to compensate for losses suffered by the company as a result of poor management decisions. The amount to be paid can be determined on the basis of the specific losses that can be directly attributed to the negligent or wilful misconduct of the directors.

Recovery order in insolvency proceedings

The order of collection in insolvency proceedings is the criterion that determines how the debts of the insolvent company or self-employed person are satisfied. This order is based on the nature of the claims and the established legal framework, which allows for an orderly and structured process.

Claims against the estate

This type of credit includes those debts that are necessary for the maintenance of the business activity during the insolvency proceedings. These payments have priority over the others, as they are essential for the continuity of the business.

Salaries and allowances

Employees' wages accrued in the context of insolvency proceedings are given special consideration. Wage claims are considered claims against the insolvency estate and therefore have priority. This means that workers are guaranteed to receive their wages above other debts. Severance payments that may be due in the event of dismissal are also included in this category.

Fees of the insolvency practitioner

The fees corresponding to the insolvency administrator, appointed to supervise and manage the insolvency process, are also considered claims against the insolvency estate. This reimbursement is essential to ensure that the insolvency proceedings are properly managed and that the interests of all creditors are defended during the process.

Privileged credits

Privileged claims have preferential treatment because they are secured by some form of collateral, such as real estate. These claims mainly deal with debts in favour of entities such as the tax authorities or the social security authorities.

Mortgage debts

Debts secured by mortgages have a specific degree of protection, since in the event of liquidation, mortgage creditors are entitled to collect their claims first from the assets that are specifically mortgaged. This category reflects the preference of claims secured by collateral.

Tax and Social Security debts

The debts that a company owes to the Tax Administration and Social Security enjoy a privileged status. These debts are considered privileged credits, which means that, in an insolvency proceeding, their payment is made before other ordinary credits, given the public interest in ensuring the collection of taxes and contributions.

Subordinated claims

Subordinated claims are those that are satisfied at the end of the collection process, once claims against the estate and privileged claims have been met. This type of debt is unsecured and therefore carries a higher risk for creditors.

In general, the treatment of subordinated claims implies that these creditors will only receive payments if resources are available after the higher priority debts have been satisfied. As a result, holders of subordinated claims should be aware of the high risk they are taking when lending to an entity in insolvency proceedings.

Business impact and continuity alternatives

Insolvency proceedings can have significant effects on the operation of a business. However, it also opens doors to restructuring and measures that can allow for business continuity.

Possibilities for restructuring

Restructuring is one of the most desirable alternatives during insolvency proceedings. This process involves adopting changes in the organisation and financing of the company so that it can continue to operate. Restructuring possibilities often include:

Arrangements with creditors: Agreements can be made to modify the terms of payment of debts, such as longer terms or partial write-offs.
Cost reduction: Implement austerity measures by re-evaluating operational costs and eliminating unnecessary expenses.
Liquidity generation: Additional sources of funding can be sought, either through debt or equity issuance.
Sale of non-strategic assets: Liquidating assets that are not essential to the operation of the business can provide immediate resources.
Internal reorganisation: Review and adjustment of the organisational structure to improve efficiency and productivity.

Effects of liquidation

In cases where a viable restructuring is not achieved, liquidation becomes the inevitable outcome of insolvency proceedings. This process involves the sale of all the company's assets to pay off outstanding debts. The effects of liquidation can be profound:

Definitive closure: The liquidation culminates in the closure of the company, which represents the loss of jobs and the paralysis of economic activity.
Asset allocation: The assets sold are used to pay creditors according to the order of priority established by law.
Consequences for the employer: Depending on the nature of the insolvency, the entrepreneur could face legal and criminal liabilities.
Register of debts: Unpaid debts are recorded and may negatively affect the entrepreneur's future financial situation, including his or her ability to access credit.

Arrangement with creditors for natural and legal persons

This type of insolvency proceeding applies to both self-employed and companies, offering a legal framework for the recovery of their debts. The differences and similarities between the two types of debtors are detailed below, as well as practical examples that illustrate how they work.

Differences and similarities

Individuals, such as the self-employed, and legal entities, such as limited companies, can be involved in insolvency proceedings. However, there are some key differences in their legal treatment and the implications of each. These are broken down below:

Asset Liability:
- Self-employed persons are liable with their personal assets for debts incurred, which may include assets that are not connected to the business activity.
- Legal persons, on the other hand, have a limit to their liability, as it is limited to the company's assets, except for the partners, who remain protected unless bad faith is proven.
Required documentation:
- Self-employed persons are required to submit a financial report reflecting their income and expenditure, whereas companies usually have more complex accounting structures which will include balance sheets and profit and loss accounts.
- The lists of creditors are similar, but the diversity of obligations may be greater in legal persons due to their broader functioning.
Procedure:
- The insolvency proceedings of natural persons can be handled in a more streamlined manner, whereas those of legal persons often involve more sophisticated handling due to the larger number of stakeholders and claims.
Possible outlets:
- A self-employed person may opt for a payment agreement that allows him to continue operating, but will face limitations if he fails to reach a workable agreement.
- Companies often have more alternatives, including restructuring their debts through agreements that provide more lasting financial relief.

Practical examples

To illustrate how bankruptcy applies to both natural and legal persons, two examples reflecting these situations are presented below.

Example of a self-employed person:A self-employed consultant is faced with the inability to pay his suppliers due to a drop in demand. By filing for insolvency proceedings, he presents a plan that allows him to pay his debts in stages, continuing his professional activity and avoiding the liquidation of his personal assets.
Example of a company:A limited company that has been in business for several years finds itself in an unsustainable situation due to the accumulation of debts. It applies for insolvency proceedings, whereby an agreement is drawn up in which a 50% reduction of its obligations is agreed, as well as a commercial re-strategy that allows it to clean up its accounts and continue to operate.

Role of the insolvency practitioner

The insolvency administrator plays a crucial role in the insolvency process, ensuring that proper procedures are followed and that the rights of both the debtor and creditors are respected. His or her function is to manage the financial situation of the company in crisis, facilitating the resolution of the insolvency proceedings in an efficient manner.

Roles and responsibilities

The insolvency administrator has multiple functions that are essential for the development of the insolvency proceedings. Among them, the following stand out:

Evaluation of the debtor's financial situation: It carries out a detailed analysis of the economic and equity situation of the entity, identifying assets and liabilities.
Preparation of the insolvency report: Prepares a report reflecting the debtor's economic situation, including causes of insolvency and possible solutions.
Asset management: The management of the debtor's assets to maximise value for the benefit of creditors.
Convening meetings: Organises meetings with creditors to discuss possible solutions and strategies to be followed, being the point of contact between the parties.
Arrangement proposal: If feasible, the administrator can propose an arrangement between debtor and creditors that allows for the restructuring of the debt.
Payment oversight: Monitors that the fulfilment of any agreement reached is carried out correctly.
Determination of responsibilities: Assesses whether there has been fault in the insolvency and whether it is appropriate to report it to the judicial authority.

Remuneration and appointment

The insolvency administrator's remuneration is subject to specific regulations and is one of the main concerns in insolvency proceedings. The process of appointing the insolvency administrator is generally carried out as follows:

Selection by the judge: The judge appoints the insolvency administrator, usually from a list of professionals who meet the requirements established by law.
Fees: Fees are set by the judge, subject to a fee regime that considers the complexity and volume of the bankruptcy. The costs are usually covered by the assets of the insolvent company.
Transparency: The trustee is required to act with full transparency, informing creditors about its management and use of resources.

Examples of insolvency proceedings in Spain

There are several cases of insolvency proceedings in Spain that have marked the country's economic history. These examples highlight both the complexity of the process and the lessons that can be drawn from them.

Flagship cases

Some of the most prominent insolvency proceedings in Spain have been relevant not only because of the companies involved, but also because of the repercussions they have had on the market and on legislation. Among the most notable cases are:

Martinsa-Fadesa: This important construction group, which was at the forefront of the sector, filed for bankruptcy in 2008 due to the real estate crisis in Spain. The situation led to the restructuring of its debt and an intense judicial process, serving as a reference for other similar cases.
MásMóvil: Although in a different context, MásMóvil went through a bankruptcy process in its early days, which allowed it to reorganise its financial structure and become one of the leading telecommunications operators in Spain.
Hotelier Pescanova: This iconic seafood company filed for bankruptcy protection in 2013. Its complicated economic outlook, stemming from significant debts and the crisis in the sector, led to the liquidation and restructuring of a large part of its operation.
Banco Popular: In 2017, Banco Popular was intervened and rescued by Banco Santander after a bankruptcy process that exposed the fragility of the banking system. This case is used as a benchmark study in banking regulation and crisis management.

Lessons learnt

Bankruptcies have provided valuable lessons for both companies and regulators. Some of the most relevant include:

Importance of financial planning: Companies need to keep a tight control of their finances and be able to anticipate liquidity problems to avoid insolvency.
Flexibility in restructuring: Successful insolvency often depends on the willingness of the debtor and creditors to negotiate alternative solutions, such as arrangements that allow the business to continue.
Social and economic impact: Bankruptcies affect not only debtors and creditors, but also employees, suppliers and the community at large. It is essential to consider all the implications of an insolvency process.
Adaptive regulation: The experiences gained throughout the various processes have led to adjustments in the regulations governing insolvency proceedings, seeking greater protection for both debtors and creditors.

Frequently asked questions on insolvency proceedings

Insolvency proceedings raise a number of questions among debtors and creditors. The following are the most common questions related to this legal procedure.

When is it mandatory to apply?

An application for insolvency proceedings is mandatory when a company or a self-employed person is in a situation of insolvency. This means that they are unable to meet their payment obligations on a regular basis. The law establishes that the debtor must file for insolvency proceedings within a maximum of two months of becoming aware that he or she is in this situation. Failure to do so may result in sanctions, ranging from fines to possible criminal charges.

What happens if you don't show up on time?

Failure to file for insolvency proceedings within the stipulated time period entails a number of legal consequences. Firstly, the debtor could be held liable for debts incurred during the period in which he should have filed for insolvency proceedings. In addition, this may result in administrative sanctions, which may include fines. In more serious situations, failure to file could lead to criminal liability if it is established that the insolvency has been deliberately aggravated. It is therefore crucial to act quickly and follow the procedures laid down by law.

Is it possible to emerge stronger from the process?

Exiting bankruptcy with a strengthened position is possible, but depends on a number of factors. If the debtor succeeds in reaching an agreement with its creditors that allows for the restructuring of debts, the company can continue to operate under more favourable conditions. Such an agreement may involve debt reduction, changes in payment terms or restructuring of the business itself. However, if no agreement is reached, and the liquidation option is pursued, the company could face closure. Therefore, the ability to emerge stronger depends largely on the financial situation, proper planning and the willingness of creditors to negotiate a mutually beneficial agreement.

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