Law 16/2022, of 5th September, which amends the consolidated text of the Insolvency Act (hereinafter referred to as the “New Insolvency Act”) does not modify article 455 of the Consolidated Text of the Insolvency Act, according to which, in the event a judgment declares insolvency proceedings as tortious, in addition to expressing the cause, it must also determine:
a) Who are the persons affected by the classification and those declared to be accomplices;
b) The loss of any right which said persons may have as a creditor in the insolvency proceedings or against the insolvency estate;
c) The sentence given to such persons to return the assets or rights that they have unduly obtained from the debtor’s patrimony or received from the active assets;
d) The sentence given to such persons to indemnify the damages caused.
e) The disqualification of the natural persons affected by the classification to administer the assets of others and to represent any person, for a period of two to fifteen years.
The New Insolvency Act introduces a new article (451bis) with an important new development in reference to tortious insolvency proceedings: the possibility of reaching a settlement agreement regarding the financial content of the classification.
We shall examine who are the entitled parties, what is the scope, the requirements and the procedure.
Subjects
The following are entitled parties:
- The insolvency administration;
- Creditors who have filed a classification report;
- Persons who, according to the classification report, may be affected by the classification or be declared accomplices.
As for the second group, it is important to note that not all creditors are entitled parties to file the classification report, but only those who have formulated allegations tending to classify the insolvency proceeding as tortious, providing they represent a minimum of five percent of the liabilities or they are holders of claims for an amount exceeding one million Euros in accordance with the provisional list filed by the insolvency administrator.
The Public Prosecution Service will not be able to request it given that, according to the new Insolvency Act, its role in the classification section is limited to being informed by the Judge regarding the classification reports, in the cases in which, the possibility to exercise criminal actions, exclusively to such effects, may be derived therefrom.
The persons who may be affected by the classification are numerous, and include, amongst others, directors, liquidators and general managers of the insolvent company, in fact or by law, during two years prior to the declaration of insolvency, and even companies belonging to or linked to the same corporate group as the insolvent company.
The persons who may be declared accomplices are also numerous, and include any type of natural person or legal entity which may have cooperated, with wilful intent or gross negligence, with the insolvent company, its directors, liquidators, in fact or by law, and its general managers, in carrying out any act which may have been grounds for declaring the insolvency proceedings as tortious.
Object
The financial content of the classification shall be defined in the terms established in paragraphs b), c) and d) set forth above, insofar as they are susceptible to quantification.
It should be noted that the disqualification for managing and representing is excluded.
Requirements
As a requirement for its effectiveness the agreement must be approved by the Judge of the insolvency proceedings, after the appropriate procedure has been followed.
Procedure
The entitled parties file the application for approval, the Counsel for the Justice System gives notice to the parties in the classification section of the insolvency proceedings so that, within ten days, they may file allegations and, once said allegations have been filed or once the term has elapsed, the Judge issues an order approving or denying the request.
An appeal may be filed against the approval order. No appeal shall be allowed against the rejection order.
In assessing this new legal figure, we highlight the following:
- On the one hand it will allow the entitled parties to negotiate and determine the financial content of the classification, without the need for the Judge to do this, thus discharging the Judge from said task, which may well boost the negotiation, the closing and the approval of settlement agreements within the insolvency proceedings. However, this objective would have been more strongly encouraged if the possibility of disqualification had been excluded in these cases, with the aim of achieving a full settlement agreement.
- It has yet to be seen whether the legally established limitation on the creditors so that they may request this type of agreements will be to the benefit of the insolvency proceedings or not.
- A wide interpretation makes it possible to understand that settlement agreements may be reached, whether totally or partially, between all or some of the entitled parties, but ¿what will happen if there is a conflict of interest amongst them? For example, those which may arise from the classification reports that attribute the culpability of the insolvency proceeding to different causes and subjects. We know that the interests of the insolvency proceedings must prevail, but how are they going to be asserted?
The settlement agreement may be requested in insolvency proceedings which are declared following the entry into force of the New Insolvency Law and also those proceedings declared beforehand, when the classification section is opened or reopened following its entry into force.
We shall see in the following months how many settlement agreements are concluded.
Vilá Abogados
Mireia Bosch
For more information, please contact:
21st October 2022
