Introduction
The important question of fulfilling accounting obligations set forth in the Capital Companies Act (CCA) is also reflected in the Stated Purpose of the Insolvency Act (IA), which indicates the relevance of this matter for companies under insolvency proceedings. The general premise of the obligation to keep company accounts when a company is declared to be under insolvency proceedings remains in force once the insolvency has been declared. The need for further clarification lies with the question of who is qualified to formulate annual accounts, depending on whether the insolvency proceedings allows the exercise of the debtor’s powers (of management and disposal of its assets) or suspends said powers.
The figure of the Insolvency Administration
The declaration of insolvency of a company means the appointment of an Insolvency Administration which shall intervene in the overall financial-assets dynamics of the company, included in the process relative to the formulation and approval of the annual accounts thereof, which are, ordinarily, responsibilities that correspond to the administration organ and the general shareholders’ meeting, respectively. The intervention of the Insolvency Administration in matters of this type usually cause tension with said corporate organs, given the contrast of interests between them (the Insolvency Administration acts in the interest of the insolvency proceedings, whereas, the corporate organs look after corporate interests).
The new wording of article 46 of the IA deals with the matter of the annual accounts and clarifies, at least in part, the fact that despite the insolvency situation, annual accounts must continue to be formed, and the derived result applied, with the deposit of the consequent documentation at the Companies Registry. However, the matter of the conflict between the corporate organs and the Insolvency Administration when forming the Annual Accounts, continues to be poorly explained in the IA.
In the case of exercise of powers of attorney, article 46.1 of the IA mentions that the obligation toformulate annual accounts and submit them for auditing, lies with the corporate administrators, under the supervision of the Insolvency Administration, who should approve and sign the annual accounts. However, in the case of suspension of powers of attorney, article 46.3 of the IA transfers said obligations exclusively to the insolvency administrators, given that the corporate administrators have been dismissed of their functions and in general all powers of attorney regarding the disposal of assets of the insolvent company have been suspended.
For the formulation of the accounts (regardless of whether the exercise or suspension of powers of attorney applies), pursuant to article 32 of the IA, the possibility of resorting to the assistance of an external collaborator appointed by the Judge at the request of the Insolvency Administration exists. However, when the Insolvency Administration is a company (Art. 27.1 IA), this possibility is put aside, given the presumption that the Insolvency Administration holds the capacity to undertake said formulation of accounts.
The question regarding the approval of accounts, which would usually correspond to the general shareholders’ meeting (Art. 160, 164, 272 and 273 of CCA), is more controversial and not well detailed in the IA, especially in the case of suspension of powers of attorney. Normally the general shareholders’ meeting takes responsibility for the approval or rejection of the accounts, and in the former case they have full competence for the application of the results, however, said competence, under insolvency proceedings is limited by the Insolvency Administration, in order to guarantee the appropriate management and disposal of corporate assets, (pursuant to Art. 43.1 of the Insolvency Administration). Pursuant to article 48.2 p2, the execution of decisions or agreements of the general shareholders’ meeting (in cases of both exercise and suspension of powers of attorney) which bring about the exercise of operative faculties over the assets as elements of corporate funds (such as the application of the result of the company accounts) means, in order to be efficient, the participation and approval of the Insolvency Administration.
In summary, the general shareholders’ meeting shall maintain the decision-making powers in agreements relative to the determination of the results and their application, which shall nevertheless be subject to the authorisation of the Insolvency Administration, given that it is an aspect involving the disposal of the assets of the insolvent company.
Possibility of delaying the formulation of the accounts.
Article 46.1 p2 of IA (dedicated to the case of suspension of powers) establishes that the Insolvency Administration may authorise the corporate administrators so that the fulfilment of the obligation to formulate company accounts for the fiscal year prior to the insolvency declaration be delayed to the month following the inventory and creditors’ list of the Insolvency Administration. This is an exception to the general imperative rule established in article 253.1 of the CCA. However, it is necessary to clarify that the IA does not automatically declare the corporate administrators to be authorised for formulating accounts after the legally established deadline, and justification should be given for the delay, which shall be analysed by the Insolvency Administration (without the need for judicial authorisation). This issue is directly tied to article 75.1.2º of IA, which states that if the debtor has not filed the annual accounts of the fiscal year previous to the declaration of insolvency, said accounts shall be formulated by the Insolvency Administration; therefore, ultimately the Insolvency Administration shall be responsible for the formulation of the accounts if the debtor has not already done so, nor requested the corresponding extension set forth in article 46.1 of the IA.
In cases where the Insolvency Administration authorises the extension for formulating the accounts, article 46.1.p2 of the IA, in accordance with the ordinary schedule for the approval of annual accounts, set forth in article 164 of CCA, a term of three months is fixed for the approval thereof by the general shareholders’ meeting. The insolvency judge and the Companies Registry must be informed of this matter, in order that the corresponding registration sheet is not closed to new entries, if the term of one month for the filing of the accounts as from the approval thereof from the general shareholders’ meeting is fulfilled (according to article 279 CCA).
Furthermore, this article of the IA establishes that each of the documents forming part of the annual accounts (following article 34.1 of the Commercial Code), shall mention the legitimate reason for the delay.
Revocation of the auditor of the accounts of the insolvent company.
When the company under insolvency proceedings is obliged to submit its annual accounts to auditing, said verification must take place without exception, however, article 46.2 of the IA authorises the Insolvency Administration to request from the insolvency judge, the revocation of the appointment of the auditor of the accounts of the insolvent company, and the appointment of new auditors. Despite the wording not specifying whether said power of the IA is applicable to cases of suspension and / or the exercise of the powers regarding the disposal of assets of the insolvent company, it should be assumed that this is applied only in the cases of the exercise of powers, and furthermore this is found in article 46.2 (between the section dedicated to the exercise and suspension of powers of attorney), and due to the fact that in the case of suspension, the powers allowing the company to request from the judge any measures having an effect on assets, correspond in any case, exclusively to the Insolvency Administration.
The initial legitimacy for requesting the revocation of the auditor, granted in article 264.3 and 266 of the CCA to the company, or 265.2 of the same act, to those shareholders holding more than 5% of share capital, in cases of insolvency proceedings with the exercise of powers of attorney, said legitimacy should be shared with the Insolvency Administration. In the case of suspension of powers, the Insolvency Administration has full powers for adopting such decisions as the revocation of auditors and the appointment of a successor.
Conclusion
The obligation to keep accounts in good order, in accordance with accounting and commercial laws, must continue to be fulfilled during the insolvency stage, however, the ordinary operative regarding the creation and approval of annual accounts is altered by the appointment of the Insolvency Administration, who, by virtue of its office, must safeguard the insolvency assets in defence of all creditors’, and becomes an active part of said corporate procedure.
Vilá Abogados
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30th of May 2013
