In the previous post we told you what bankruptcy law is for. Thus, with the health and economic crisis resulting from Covid-19, there will be an increase in insolvency proceedings. Unfortunately, many companies and/or self-employed will find themselves in insolvency situations. For this reason, we would like to explain today what the pre-insolvency proceedings are, a tool that can prevent the closure of businesses.
Insolvency law is a fundamental tool to avoid economic and business deterioration. If your company is experiencing financial difficulties, you have surely heard of this branch of law. However, there are other options before insolvency proceedings as such.
What is pre-insolvency proceedings?
A pre-concurso de crededores is a shorter and less costly alternative to insolvency proceedings. In the new Texto Refundido de la Ley Concursal (Consolidated Text of the Insolvency Act), which entered into force on 1 September, introduces a number of new features.
Thus, pre-insolvency proceedings (a term that does not exist as such in the Law) is the situation in which the insolvent debtor finds itself once it has notified the court responsible for declaring insolvency proceedings of the opening of negotiations with its creditors. In this situation, an attempt may be made to reach an out-of-court payment agreement, to obtain adherence to an early arrangement proposal or to reach a refinancing agreement.
Therefore, the definition of pre-insolvency proceedings indicates that it is an extra period of time to try to solve the economic difficulties, which the Law grants to the debtor who should apply for insolvency proceedings, due to current or imminent insolvency.
How long does the pre-insolvency proceedings last?
The Law grants three months, counting from the communication to the court of the opening of negotiations with the creditors, to reach an agreement. For the natural person debtor who is not an entrepreneur, the period would be two months.
If this is not achieved, the debtor must file for insolvency proceedings within the first following business month, if he is currently insolvent.
What is pre-insolvency proceedings and how do they differ from insolvency proceedings?
The preconcurso de crededores is a voluntary preliminary phase included in article 583 and following of the Texto Refundido de la Ley Concursal (TRLC), which allows companies or self-employed individuals at risk of insolvency to initiate orderly negotiations with their creditors before entering into formal insolvency proceedings.
. Its main purpose is to avoid bankruptcy, maintaining control over the company and avoiding premature judicial interventions.
In contrast, insolvency proceedings are a formal judicial procedure that can be voluntary or necessary, in which insolvency is declared and management is intervened to restructure or liquidate the debt.
At Martínez-Sanz Lawyers we are experts in insolvency law. If you need advice, please do not hesitate to contact us. We will be pleased to help you.
