Unit 13 Business Crisis: Legal Regime of Insolvency PDF

Unit 13.- Business crisis: legal regime of insolvency - Content Guide - Business Law - BBA Course 2024-25 Jordi Adell Martínez 1 Unit 13.- Business crisis: legal regime of insolvency 1. Restructuring plans (pre-ins...

Unit 13.- Business crisis: legal regime of insolvency - Content Guide - Business Law - BBA Course 2024-25 Jordi Adell Martínez 1 Unit 13.- Business crisis: legal regime of insolvency 1. Restructuring plans (pre-insolvency alternatives) 2. Insolvency proceeding. Legal efects 3. Inventory of assets. List of liabilities 4. The solution of the procedure: Agreement or Winding-up. 5. Classification of the Insolvency RDL 1/2020, May 5th, Insolvency act (TRLC) 1. Restructuring plans (pre-insolvency alternatives) Legal proceedings for the insolvency management Insolvency is not equal to decapitalization due to losses TRLC treatment: Insolvency LSC treatment: dissolution or capital proceedings reduction when stablished by law Pre- Insolvency proceeding Insolvency proceeding  1. Restructuring plans (pre-insolvency alternatives) Legal proceedings for the insolvency management Pre-insolvency situations Insolvency situation, already stablished (insolvency forecast) Pre-insolvency legal Insolvency courts proceedings: proceeding: (procedimiento concursal) (procedimiento preconcursal) NOT MANDATORY Agreements or Winding-up BUT “DILIGENT” ACT TO AVOID (Convenio o Liquidación) INSOLVENCY MANDATORY Restructuring plans (Planes de reestructuración) 1. Restructuring plans (pre-insolvency alternatives) 1st 100 % agreements with creditors => situation solved Restructuring plan proposed by debtor If not, then: May include: Payment agreements, 2nd contractual renegotiations, Not agreement with all but with enough “yes” sale of assets, capital increase, according to law: judicial approval of the … (any measures to redirect restructuring plan if also meets the legal the difficulties situation) requirements(Expert in restructuring is required to validate the plan). 3rd Not enough agreement or not meeting legal requirements => Insolvency proceeding  2. Insolvency proceeding. Legal efects => Plurality of creditors (1 single creditor, no insolvency proceeding) Scope: widespread insolvency of the debtor , current or imminent What => Mandatory application for declaration of insolvency assumptions !!! Term: 2 months from when the insolvency situation is known or should be known => Diligence Duty Scope: any natural or legal person ( entrepreneurs or not) not public entities Who does it apply to!!!  2. Insolvency proceeding. Legal efects Object (purpose) of the judicial procedure (concurso de acreedores): Legal ordering of the insolvency situation, in defense of creditors' rights and preserving, as far as possible, the economic activity of the insolvent entrepreneur.  2. Insolvency proceeding. Legal efects Voluntary procedure vs. Necessary procedure When the first to When requested by a creditor request it is the with an enforceable title of insolvent debtor debt and there is insufficient itself. equity for execution Debtor will be suspended of its legal possibility to decide on its own equity disposals  2. Insolvency proceeding. Legal efects Effects of the declaration of the insolvency situation ( most remarkable effects ): a. Effect on the powers of the directors (or the debtor, if it is a natural person) Voluntary procedure: intervened equity disposals Insolvency receiver appointment Necessary procedure: faculties (administrador concursal, -AC-) suspended  2. Insolvency proceeding. Legal efects Effects of the declaration of the insolvency situation ( most remarkable effects ): b. Assets may not be disposed without judicial authorization ( except inherent to the activity or essential according to the AC) c. As a general rule, the continuity of the business activity is not interrupted (if it is the case of an entrepreneur debtor) d. Duty of collaboration with the judge and AC; make the accounting books or any relevant document necessary; the obligation to keep accounts (entrepreneurs) remains.  2. Insolvency proceeding. Legal efects Effects of the declaration of the insolvency situation ( most remarkable effects ): e. Integration of creditors in the “list of liabilities” f. Maintenance of the validity of the contracts g. Reintegration action (cancellable detrimental acts of disposition of the assets , < 2 previous years) 3. Inventory of assets. List of liabilities The receiver (AC) must determine the list of liabilities as well as the inventory of goods and rights - In orden to organize the payments (legal order) and determine the assets available and their value; - As well as finding out if there a possibility to “sell” the business activity (unidad productiva) of the debtor in case of a winding-up situation  3. Inventory of assets. List of liabilities Inventory of goods and rights: The goods and rights integrated into the debtor's asset on the date of judicial declaration of the Insolvency and those that are integrated into it or are acquired until the conclusion of the procedure. Formation of the inventory by the receiver, expressing identification, characteristics and possible encumbrances on the goods and rights; valuation at market price.  3. Inventory of assets. List of liabilities List of liabilities Insolvency debts (debts originated before the judicial declaration of insolvency) credits against the debtor which arised before the judicial procedure and that are not considered claims against the entire insolvency estate (such certain amount of salaries) They are paid according to legal order of priority by debts classes Claims against the entire insolvency estate (créditos contra la masa): - Salaries of the last 30 days (with maximums limits) - Those which arise after the insolvency judicial declaration. - The necessary expenses for the insolvency proceeding - Others, … Have to be paid when due  3. Inventory of assets. List of liabilities - Debts with special privilege 1st Mortgage loans, … - Debts with general privilege 2nd Insolvency debts Public law credits, for salaries, tort liability,... - Ordinary debts 3rd Those that do not correspond to any other class - Subordinated debts 4th Late announcements, sanctions, debts with partners,... Order by which they must be paid  4. The solution of the procedure: Agreement or Winding-up. - If feasibility of payments => AGREEMENT BETWEEN THE DEBTOR AND CREDITORS (convenio) Possibility of payment agreements with creditors if economic feasibility; or winding-up otherwise - Non-viability of payments => WINDING- UP OF THE DEBTOR => Opening WINDING-UP PHASE  4. The solution of the procedure: Agreement or Winding-up. AGREEMENT (Convenio): - The creditors are called to try to reach a proposed agreement: Withdrawal and waiting proposals Payment plan will be attached with details of the resources provided for compliance ; including feasibility plan (in case of being a business debtor). - Requires minimum adhesions to be approved by the judge => the effects of the insolvency procedure cease  4. The solution of the procedure: Agreement or Winding-up. WINDING-UP PHASE: - At the request of the debtor, AC or creditors; when an agreement is not reached or when it is breached. - The powers of the debtor or the directors are suspended (if they had not been initially suspended) - Legal persons => declaration of dissolution. - Settlement plan: payment according to legal priority order for insolvency debts. - Priority solution: sell the productive unit as a whole (to maintain activity, employment, ….)  5. Classification of the Insolvency  Scrutiny on whether in the generation or aggravation of the insolvency there has been fraud or serious fault of the debtor (or their legal representatives, directors,…).  To find out if there may be liabilities for third parties - Fortuituos Insolvency (fortuito) - Fraudulent Insolvency (culpable)  The judge decides, proposed by the receiver; possibility to add creditors; possibility to be challenged by third parties affected.  5. Classification of the Insolvency When? Fortuitous Insolvency: When there is no legal cause that implies the fraudulent classification 5. Classification of the Insolvency When there is fraud or gross negligence in the generation or aggravation of the insolvency When? - In any case , if any of the following occurs: Certain breaches and accounting irregularities. Fraudulent Insolvency Serious inaccuracy in the documents provided to the procedure Settlement for breach of the payments agreements Legal acts of simulation of fictitious equity situation Others, … 5. Classification of the Insolvency 1. The receiver formulates a reasoned report proposing the qualification: fortuitous or fraudulent. Right of the debtor to oppose the rating proposal. Guilty Insolvency 2. Court decision of qualification of the insolvency; will include (in summary): Third parties affected by the rating. - The disqualification of people affected (from 2 to 15 years) - Possible economic responsibility (only if evidences that the irregular acts which lead to the fraudulent qualification have produced damages to creditors due to unpaid debts). 23