Title X of Book I of Legislative Decree 1/2020, of 5th May, approving the Revised Text of the Insolvency Act, which came into force on 1st September 2020, contains important new provisions regarding the classification of insolvency proceedings.
The first notable new development is the replacement of the figure of general representatives by that of general managers (directores generales), whose system of liability is comparable to that of company directors (administradores societarios).
Thus, article 443 (at-fault proceedings), establishes that the insolvency proceedings shall be classified as at-faultwhen, in the generation or aggravation of the state of insolvency, there has been fraud or gross negligence on the part of the debtor or, if applicable, the debtor’s legal representatives and, in the case of a legal entity, its directors (administradores) or liquidators, in fact or in law, general managers (directores generales) and those who, within the two years prior to the date of filing for insolvency proceedings, have held any such status.
In article 445 (Accomplices), accomplices are considered to be those persons who, with fraud or gross negligence, may have cooperated with the debtor, or, if applicable, the debtor’s legal representatives, and in the case of a legal entity, with its directors (administradores) or liquidators, in fact or in law, or with its general managers (directores generales), upon carrying out any act which may constitute grounds for classifying the insolvency proceedings as negligent. It must be noted that this article takes up the concept of accomplice which is established in the Second Legal Basis of Supreme Court Ruling No 5/2016 of 27th January, Rec. 1439/2016.
The second new development consists of the regulation of the contents of the sixth section (classification)establishing, in the third point of article 446, that the section will be headed with evidence of the judicial decision that has ordered its formation and will include evidence of the application for filing for insolvency, the documentation provided by the debtor, the court order declaring insolvency and the report from the insolvency administration with the attached documents. Thus, this will be the only documentation that will make up Section Six, without the need to obtain other documentation from other sections.
A third new development is contained in article 447 (appearance in proceedings of creditors), insofar as it allows the personal appearance of creditors or a person who accredits legitimate interest, so that they can be party to the section and can argue in writing what they consider relevant in order for the insolvency administration or the Prosecution Service to be able to establish the classification of the insolvency as negligent. According to Supreme Court Ruling No. 191/2020 of 21st May, Rec. 2759/2017 creditors are even able to appeal against the ruling on classification.
A fourth new development may be found in article 448 (insolvency administration report), which develops the contents of the insolvency administration report, establishing that it must have the structure of a claim, and express the identity of the persons who may be affected by the classification and those who may be considered as accomplices, with justification of the cause and the damages that may have been caused.
As for the classification judgment (article 445), it must be pointed out that, when the insolvency proceedings are classified as at-fault, it shall contain several declarations:
(i) establishing the persons affected by the classification, as well as the persons declared to be accomplices. In the case of a legal entity, along the same lines as above, the persons affected by the classification may be the directors (administradores) or liquidators, in fact or in law, the general managers (directores generales) and those who, within the two years prior to the date of filing for insolvency proceedings, have held any such status. Creditors who, under the terms of the agreement, have special rights to information, to authorise certain operations by the debtor or to monitor and control compliance with the viability plan will not be considered directors (administradores) in law or in fact;
(ii) the disqualification of natural persons affected by the classification to administer the assets of others, as well as to represent any person, for a period of two to fifteen years, which is another new development;
(iii) the loss of any rights that the persons affected by the classification or declared accomplices had as insolvency creditors;
(iv) the sentence requiring such persons to repay assets or rights they have wrongfully obtained from the debtor’s assets or received from the insolvency estate;
(v) the sentence requiring such persons to compensate damages caused.
With regard to the Sentence to cover the deficit (article 456) we may highlight the new development whereby said concept is now defined, considering that a deficit exists when the value of the assets or rights of the insolvency estate as per the inventory of the insolvency administration is less than the sum of the amounts of the credits recognised in the creditor’s list. Likewise, it should also be noted that when the classification section has been formed or reopened as a consequence of the opening of the liquidation phase, the judge, in the classification judgment, may order, whether severally or not, that the total or partial coverage of the deficit is borne by all or some of the directors (administrators), liquidators, in fact or in law, or general managers (directores generales) of the insolvent legal entity who have been declared to be affected by the classification, to the extent that the conduct of these persons, which may have determined the negligent insolvency classification, has generated or aggravated the insolvency. In the event of a number of people sentenced to cover the insolvency deficit, the judgment must individualise the amount to be paid by each of them in accordance with their participation in the events that determined the classification of the insolvency proceedings.
In conclusion, in view of the fact that the Revised Text of the Insolvency Act, in line with the provisions of article 236 of the Spanish Companies Act (Ley de Sociedades de Capital), equates the liability of general managers (directores generales) to that of company directors (administradores societarios), it will be appropriate in each case to thoroughly review, both from a legal and material point of view, on a practical level, in their day-to-day business, the specific scope of action of the general managers (directores generales), in order to adopt the necessary measures aimed at preventing and avoiding that, in the future, the type of liability established in the Revised Text may be attributed to them.
Mireia Bosch
Vilá Abogados
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11th December 2020
