Business Crisis Unit 13: Insolvency Law

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What defines fortuitous insolvency?

Involves serious inaccuracies in financial documentation

Results from gross negligence in managing company funds

Involves intentional deceit to hide the financial situation

Occurs without a legal cause implying fraudulent actions (correct)

Which of the following is a characteristic of fraudulent insolvency?

Accurate and transparent financial documentation

Legal acts that simulate a fictitious equity situation (correct)

Compliance with all payment agreements

Failure to pay debts due to unforeseen circumstances

What is one possible outcome of a court's decision on insolvency qualification?

Immediate discharge of debts to all creditors

Permanent closure of the insolvent entity

Disqualification of affected individuals for 2 to 15 years (correct)

Complete annulment of all contracts with creditors

Which action can third parties take regarding insolvency qualifications?

Challenge the qualification if they are affected by it Signup and view all the answers

What must the receiver provide when proposing the insolvency classification?

A reasoned report for the classification Signup and view all the answers

What is the primary objective of a restructuring plan in a pre-insolvency situation?

To avoid entering formal insolvency proceedings Signup and view all the answers

Which of the following actions may be included in a restructuring plan?

Sale of assets Signup and view all the answers

What signifies a pre-insolvency situation?

A forecast indicating potential insolvency Signup and view all the answers

What is required for a restructuring plan to be validated in court?

Judicial approval based on legal requirements Signup and view all the answers

What is the difference between pre-insolvency and insolvency proceedings?

Pre-insolvency can involve negotiations while insolvency leads to liquidation Signup and view all the answers

In insolvency law, what does the term 'winding-up' refer to?

Closing down a company and liquidating its assets Signup and view all the answers

Which factor is considered crucial in the approval of a restructuring plan?

Sufficient agreement from creditors Signup and view all the answers

Which statement about insolvency proceedings is accurate?

They become mandatory if a company cannot reach an agreement. Signup and view all the answers

What is the priority order for payment in the winding-up phase of insolvency?

Debts with general privilege last Signup and view all the answers

What must be proven for an agreement to be reached during the insolvency procedure?

Economic feasibility of payments Signup and view all the answers

What occurs if no agreement is reached during the insolvency procedure?

Opening of the winding-up phase Signup and view all the answers

Which of the following is NOT a type of liability listed?

Unsecured loans Signup and view all the answers

During which phase are the powers of the debtor or directors suspended?

Winding-up phase Signup and view all the answers

What is required for a payment plan to be approved during the agreement phase?

Minimum adhesions from creditors Signup and view all the answers

What does the winding-up phase involve regarding legal persons?

Declaration of dissolution Signup and view all the answers

What is scrutinized in relation to the generation or aggravation of insolvency?

Fraud or serious fault by the debtor Signup and view all the answers

What is the primary purpose of the judicial procedure known as 'concurso de acreedores'?

To legally order the insolvency situation and defend creditors' rights. Signup and view all the answers

In what scenario is a necessary insolvency proceeding requested?

When a creditor has an enforceable title of debt and there is insufficient equity for execution. Signup and view all the answers

What is the time frame for applying for a declaration of insolvency once the situation is known?

2 months from the knowledge of insolvency. Signup and view all the answers

What happens to the powers of the directors once an insolvency situation is declared?

They are suspended from decision-making on equity disposals. Signup and view all the answers

Who bears the 'Diligence Duty' in the context of insolvency proceedings?

Any natural or legal person involved in the insolvency. Signup and view all the answers

What is a significant effect of declaring an insolvency situation?

Judicial authorization is required for asset disposal. Signup and view all the answers

What distinguishes a voluntary insolvency proceeding from a necessary one?

Voluntary proceedings are requested by the debtor, while necessary ones are requested by creditors. Signup and view all the answers

Which of the following statements about asset disposal during insolvency proceedings is correct?

Assets may only be disposed of with judicial authorization, except for operational necessities. Signup and view all the answers

What must the receiver determine as part of the insolvency proceeding?

The list of liabilities and inventory of goods Signup and view all the answers

Which of the following debts must be paid according to the legal order of priority?

Insolvency debts arising before the judicial declaration Signup and view all the answers

What is the purpose of creating an inventory of goods and rights during insolvency proceedings?

To evaluate the debtor's assets and potential for business sale Signup and view all the answers

What are 'créditos contra la masa' in insolvency proceedings?

Claims against the entire insolvency estate Signup and view all the answers

What happens to contracts during a declaration of insolvency?

Contracts maintain their validity Signup and view all the answers

What is not a responsibility of the debtor after the declaration of insolvency?

To maximize business profit Signup and view all the answers

Which of the following is NOT included in the inventory of assets?

Personal items of the entrepreneur Signup and view all the answers

What must be included in the reintegration action during insolvency proceedings?

Cancellable detrimental acts of asset disposition Signup and view all the answers

Study Notes

Unit 13: Business Crisis: Legal Regime of Insolvency

Content overview: This unit covers legal aspects of business crises, specifically the insolvency regime.
Key topics: Restructuring plans (pre-insolvency alternatives), insolvency proceedings, inventory of assets/list of liabilities, solutions (agreement or winding-up), and classification of insolvency.
Relevant legislation: RDL 1/2020, May 5th, Insolvency act (TRLC)

1. Restructuring Plans (Pre-Insolvency Alternatives)

Legal proceedings for insolvency management: A structured approach to managing insolvency.
Insolvency ≠ Decapitalization: Insolvency is distinct from losses that lead to a reduction in capital.
Pre-insolvency situations (insolvency forecast): Initial steps taken in anticipation of insolvency.
Pre-insolvency legal proceeding: Voluntary; meant to avert insolvency; not mandatory.
Restructuring plan: Proposed by the debtor, can include payment agreements, renegotiations, asset sales, or capital increases to resolve the financial problems.
Stages of restructuring plan approval:
- 100% creditor agreement: Situation solved.
- Partial agreement: Needs judicial approval if the plan follows the legal framework. Expert in restructuring is required.
- No agreement: Insolvency proceeding.

2. Insolvency Proceeding, Legal Effects

Scope: Widespread insolvency of the debtor (current or imminent): Determines if there are enough creditors to trigger the official insolvency process.
Mandatory application: Within two months after the insolvency situation is known or becomes apparent.
- Who is affected: Any natural or legal person (entrepreneurs or not) that are not public entities
Object of judicial procedure (concurso de acreedores): Legal ordering to protect creditors' rights and preserve the economic activity of the insolvent entrepreneur.
Voluntary vs Necessary procedure:
- Voluntary: Initially requested by the debtor themselves.
- Necessary: Requested by a creditor when debt exceeds equity and there's enforceable debt. Suspends the debtor's ability to manage their own assets.
Effects on debtor/directors:
- Voluntary procedure: Limited intervention regarding asset disposal.
- Necessary procedure: Suspension of management authority.
Effect on assets: Assets cannot be disposed without judicial authorization (except those inherent to the business activity).
Continuity: Businesses usually remain operative during the process.
Collaboration: Debtor must collaborate with the court and insolvency receiver, providing necessary documents (e.g., accounting books).

3. Inventory of Assets, List of Liabilities

Receiver's role: The receiver (AC) creates a list of all the debtor's assets and liabilities.
Asset valuation: Assets are valued at market price.
Inventory of goods/rights: Includes all goods, rights, and assets held by the debtor.
Liability classifications: Categorizes debts according to priority of payment to creditors. This includes those debts incurred before and after insolvency proceedings, and is ordered according to a system of priority.
- Debts with special privilege (1st). E.g. mortgage loans
- Debts with general privilege (2nd). E.g. public law credits, tort liability
- Insolvency debts (3rd). E.g. ordinary debts
- Subordinated debts (4th). Other kinds of debts, based on when they were incurred and the relation to the bankrupt business

4. The Solution of the Procedure: Agreement or Winding-up

Possibility of agreement: Reaching an agreement among creditors and the insolvent debtor.
Agreement (convenio) details:
- Creditor meeting to reach agreement.
- Payment plan, with details of the resources.
- Minimum creditor agreements to be approved by judge
Non-viability leads to winding-up: If an agreement isn't possible, the insolvency proceeding advances to winding-up.
Winding up process
- Debtors or appointed creditors may request closing process of business
- Directors are suspended (if not initially suspended)
- Legal structure of any legal persons is dissolved.
- Priorities set based on priority of debt

5. Classification of the Insolvency

Fortuitous insolvency: No legal fault or misconduct, unfortunate circumstances lead to insolvency.
Fraudulent insolvency: Debtor or director actions caused or exacerbated the insolvency (such as intentional mismanagement that resulted in the insolvency. This may include specific acts of fraud or gross negligence)
Receiver's role: The receiver prepares a report, proposes a classification, and the debtor has the right to contest. The judge will make the final decision.
Effects of classification: This can lead to additional liabilities for those found in fault, and the process may involve courts deciding any other legal actions involved, such as disqualification of directors and individuals.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Explore the legal aspects of business crises focused on the insolvency regime in this comprehensive unit. Key topics include restructuring plans, insolvency proceedings, and the classification of insolvency, grounded in the RDL 1/2020 Insolvency Act. Gain insight into pre-insolvency alternatives and strategies for managing financial distress.