Monday, January 17

How the new bankruptcy law affects entrepreneurs in trouble

The Spanish government approved on Tuesday a bill to reform the bankruptcy law with the intention of simplifying and streamlining the restructuring processes of companies in financial problems, without forgetting entrepreneurs and founders of small businesses.

The most important considerations of this bill for entrepreneurs are the following:

  • A new insolvency procedure is introduced adapted to the specific needs and characteristics of the self-employed and micro-companies with fewer than 10 workers.
  • This procedure simplifies the bankruptcy process by offering two possibilities: reaching an agreement with creditors in a maximum of three months, or settlement through an online platform.
  • The repetition of the undertaking after a previous fiasco is also encouraged, with measures such as the exoneration of debts without paying off personal assets, or the establishment of a payment plan for the self-employed, who will be able to keep their habitual residence and continue with their activity.

The Minister of Justice, Pilar Llop, assured that the objective of this new law is that no viable company “has to lower the blind due to specific economic difficulties”, as well as avoid that “entrepreneurial men and women stop undertaking because of a failed project that will drag them down forever. “

The Government’s intention is for the law to be approved urgently to enter into force before June 30, 2022, the date until which the bankruptcy moratorium approved during the pandemic that suspended the obligation to present bankruptcy to conscious companies was extended. of its insolvency.

Prevention is better than cure

Broadly speaking, the bill approved by the Government aims to create “an effective preventive restructuring procedure” that allows companies to anticipate a future lack of viability and continue their activity, thus minimizing the destruction of the national productive fabric.

Along these lines, the new law proposed by the Executive of Pedro Sanchez introduces a unique insolvency procedure for the self-employed and micro-businesses of 10 workers that promises to be “faster, digitized and at a very low cost”.

This process, indicate from the Moncloa, simplifies the bankruptcy process and offers two possible itineraries to entrepreneurs.

After a negotiation period of a maximum of three months with their creditors, they will have to choose to take advantage of a “fast and flexible” continuation plan of the company if they reach an agreement with them, or proceed to the liquidation of the company through an online platform.

The lawyer and partner in AMBAR, Eugenio Caravia Izquierdo, writes in the blog of the IE Law School that companies with less than 10 workers and annual income of less than two million euros, which make up 90 percent of the Spanish business fabric, can benefit from this specific mechanism because “it would reduce the associated costs.”

Likewise, the proposed law may also benefit the self-employed who “may cancel their debts under the liability exemption mechanism”, and have a special liquidation procedure consisting of a platform for direct sale or auction of assets to which you will be able to access it for free and universal.

A second chance to undertake

In the event that a company is forced to close, the intention of the new law, as highlighted Wolf, is that this failure does not discourage the creation of new companies.

For that reason, the draft law of the government reforms the second chance procedure aimed at both individuals and the self-employed in trouble, “with the aim of encouraging beneficiaries to continue with their work or business activity.”

Among the measures introduced in the bill, the possibility of getting rid of debt burdens without having to resort to the liquidation of the personal assets of the entrepreneurs stands out, who will be able to benefit from a payment plan with their creditors, keeping their habitual residence and , in case of being autonomous, even continue with their activity.

The payment plan available to entrepreneurs will have a maximum duration of three years that will be extended to five years when the debtor’s habitual residence is not sold, points out the government’s statement on the new bankruptcy law.

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