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The Reform of Bankruptcy Law 22/2003 was published on 4th October. Said reform shall enter into force on 1st January 2012, however, certain provisions shall enter into force immediately following the publication of the Law. The report below focuses on the articles of the Bankruptcy Act, which entered into force on 5th October 2011, by way of an extensive study and explanation thereof.
Following the same line, and according to the Third Final Regulation of the reform, this Act will enter into force on 1st January 2012. Nevertheless, the second section of said regulation establishes a series of exceptions, which will come into force the day after its publication. There is also a second series of exceptions which regulate bankruptcy administration, communications, recognition and classification of credits, agreement, liquidation, labour aspects, connected bankruptcies, effects of the bankruptcy over individual shares and credits in particular, bankruptcy classification of credits, conclusion of the bankruptcy, abbreviated proceedings and bankruptcy system, which shall take effect in specific cases regulated by the Act. Therefore, the articles below shall come into force as from 5th October 2011:
• Article 5 bis.
• Article 15.
• Section 6 and 7 of article 71.
• Section 11 of article 84.2.
• Section 6 of article 91.
• Fourth additional regulation.
2.- Articles of immediate application.
ARTICLE 5 bis. Communication of the negotiations and effects regarding the obligation to file for bankruptcy.
By means of the recent reform of the bankruptcy Act, the previous article 5.3 is abolished and article 5 bis is created. As a direct consequence of this substitution, there is a broadening of the options open to the debtor during pre – bankruptcy stages. In the previous Act, the debtor only had the option of communicating the negotiations to the court when these negotiations occurred in order to obtain adhesions to an early agreement. Under the new Act, the debtor will also be able to communicate negotiations to the court when he is negotiating a refinancing agreement.
Another innovation is the option to make said communication before the situation of insolvency arises. The new drafting specifies the options of the debtor; it defines the obligation to communicate to the competent court, and invalidates any other court.
Finally, the new Act makes two distinctions regarding the previous term of 3 months to negotiate without the obligation of declaring bankruptcy, plus the additional month once the deadline has passed.
First, the debtor will now have one working month to file the declaration of bankruptcy once the three-month deadline has passed and filing will only be compulsory if the debtor is insolvent.
In this way the legislator attempts to avoid the concealment of bankruptcy situations, providing debtors with the ability to communicate without filing for voluntary bankruptcy, provided the debtor is negotiating refinancing or an early agreement.
Secondly, this gives the debtor an advantage, given that once the communication has been carried out, compulsory bankruptcy shall not be possible, according to the new drafting of article 15.
ARTICLE 15. Request for bankruptcy by the debtor and accumulation of requests.
The new drafting of article 15 introduces a new section, whereby, when a request for compulsory bankruptcy is filed by a creditor and is based on a seizure or on an unsuccessful investigation of assets, or it would have resulted in a judicial or administrative sentence of insolvency, compulsory bankruptcy shall be declared by the judge the day after the filing of the request, as long as no other formality is necessary.
All eligible parties will be able to file the request for bankruptcy according to the conditions of the previous Act, with the exceptions of those that come under the above-mentioned cases of article 15.1.
Finally, the new drafting of article 15.3 is modified to accommodate the new article 5 bis. An exception is established in this article, whereby, if the debtor has filed a communication of the negotiations, as is established in article 5 bis, during the term of three months, the court will only allow requests for bankruptcy made by the debtor. The creditors will have to wait for said term of three months, as well as the month that article 5 bis provides to the debtor, before filing a request for bankruptcy.
ARTICLE 71. 6 AND 71.7. Actions of reimbursement.
The new drafting of this article moves the previous section 6 to section 7 and inserts a new section 6. The reform specifies a series of agreements, which cannot be cancelled, provided that they fulfil a number of requirements. These include refinancing, business, and payment agreements of any form. Amongst other requirements, these agreements must include an increase of available credit and a viability plan, which permit the continuity of the business activity. The agreements must also be signed before the declaration of bankruptcy.
Although the Law says that these acts may not be cancelled when they fulfil this series of requirements, article 72.2 refers to a third party, since it makes clear that the bankruptcy administrators will have the authority to cancel these agreements.
ARTICLE 84.2.11. Composition of bankruptcy assets. Credits against the bankruptcy assets.
The new drafting of article 84.2 enlarges the list of credits against the bankruptcy assets.
The reformed article 84.2 closes the list with a final type of credit against the bankruptcy assets set forth in article 84.2.11: “50% of the total credits granted in refinancing agreements, executed within the legal framework of article 71.6”. Likewise credits, which are granted to a debtor for the fulfilment of a creditors agreement oriented to the continuity of the company’s activity, and involving a viability plan shall be regarded as credits against the bankruptcy assets in the event of liquidation.
Finally, the article excludes operations of capital increase, loans and acts with the same purpose as credits against the bankruptcy assets.
ARTICLE 91 6º. Credits with general privilege.
The modification of the wording of section 6 of article 91 inserts a new type of credit with general privilege and abolishes a type of credit that existed until now. Section 6 of article 91 now includes as credits with general privilege those credits, which imply new deposits of liquid assets under the previous section 6 of the conditions of article 71.6.
Therefore, the former section 6 of article 91 is abolished, referring to credits with privilege amounting to a quarter of those credits held by the creditor, which were not of a subordinate nature.
FOURTH ADDITIONAL REGULATION. Endorsement of the refinancing agreements.
The fourth additional regulation is completely new and establishes the possibility to endorse the credits granted under the conditions of article 71.6. The purpose served by said endorsement is to extend the effects of the agreement in question to those creditors that would not have signed the agreement or who would have objected thereto. That is to say, the endorsement shall mean that the same wait shall be applied to these credits as applied to the agreement reached.
The conditions for these agreements shall be the same as those set forth in article 71.6 and additionally, it shall be necessary for at least 75% of the financial creditors to sign them.
The extent of these effects shall not affect the credits, which are backed by an in rem guarantee. Furthermore, the admission of the request by the secretary of the court shall bring about the paralysation of the particular executions on assets for a term of one month, extendable to three years, although the Law does not make clear to which particulars it refers.
In short, the sections of the reform which come into force immediately (5th October 2011) regulate two fundamental issues:
first of all, the possibility to communicate the existence of negotiations for an early agreement or for refinancing agreements, thus impeding the requests for compulsory bankruptcy; and secondly, refinancing agreements, which have been established as a special type of agreement and therefore have been granted a privileged status in respect of other agreements.