Until December 31 and as part of the Royal Decree-Law on extraordinary measures to support business solvency

Extension of the moratorium on bankruptcy until December 31

March 14 was the deadline established by the previous extension of the insolvency moratorium, which eliminated the requirement to file for insolvency proceedings for companies in a situation of insolvency. If it had not been extended by the Council of Ministers, the obligation to file for insolvency proceedings would have been reactivated within the two months following the moment in which the insolvency situation of the company became known to the company’s administrators.

The Council of Ministers has agreed to extend, until the end of the year, the insolvency moratorium previously established until March 14, 2021. The purpose of this measure is to give companies a period of time to rebalance their balance sheets and thus avoid unnecessary insolvency proceedings caused by an occasional imbalance.

Specifically, the moratoriums relating to the exemption from the debtor’s duty to request the declaration of bankruptcy and the non-admission of bankruptcy applications filed by creditors are extended; the deadline for renegotiating both refinancing agreements and out-of-court payment agreements (both are instruments prior to bankruptcy) and the bankruptcy agreements themselves is extended; and the procedural measures that expedite the processes, such as preferential processing and the promotion of out-of-court auctions, are extended until December 31, 2021.

This extension will provide a period to address the analysis and restructuring processes of companies without triggering an unnecessary loss of value while modernizing and streamlining the insolvency regime, favoring early action and debt restructuring agreements in order to avoid the destruction of employment and productive fabric, on the occasion of the transposition of the EU Directive on preventive restructuring frameworks, debt waivers and disqualifications, and on measures to increase the efficiency of restructuring, insolvency and debt waiver proceedings.

On the other hand, according to Pedro Martín Molina, lawyer and economist, in an article on the consequences of the end of the moratorium, the existence of the moratorium does not exempt the administrator from the responsibility of requesting voluntary insolvency proceedings in the event of actual or imminent insolvency. As a result of this statement, in the insolvency qualification phase, the moratorium does not exonerate the administrator from any possible culpability in the case of aggravation of the insolvency, since the legislator did not modify in this Decree the rule regarding his liability in a situation of insolvency.

This expert understands that, in order to avoid the possible liabilities of the corporate director, the corporate director must begin to prepare his company’s strategy with a view to a possible insolvency proceeding and, if he considers that there is current insolvency or that insolvency problems will arise in a short period of time, he must seek solutions, such as refinancing, cost restructuring, sale of the production unit -within a pre-pack process- or the insolvency proceeding itself, among others.