09

Nov

2022

Bankruptcy Reform and the procedure for micro-enterprises

Bankruptcy Reform and the procedure for micro-enterprises

This special procedure for micro-enterprises aims to minimize costs by greatly simplifying procedural management through electronic processing using standardized forms.

 

On January 1st, 2023 all the modifications related to the special procedure for micro-companies and the self-employed will come into force.

 

Law 16/2022 on the Reform of the Insolvency Act incorporates a special procedure for micro-companies (less than 10 employees and less than 700,000 euros in turnover or 350,000 euros in liabilities), in which the role of creditors becomes more important, creating a unique insolvency mechanism specially adapted to the needs and circumstances of this type of company, guaranteeing maximum procedural simplification.

On 26 September, the long-awaited reform of the Insolvency Law will come into force (carried out by Law 16/2022), addressing, and greatly modifying the entire insolvency system, although it will not be until 1 January 2023 when all the modifications related to the special procedure for micro-companies and the self-employed will come into force.

The aim of this reform is to put an end to the current limitations of the country’s insolvency system by means of a “far-reaching structural reform of the insolvency system”, as stated in the Preamble of the law.

Special procedure for micro-enterprises

Focusing on the special procedure for micro-enterprises, the reform aims to reduce costs as much as possible, greatly simplifying procedural management thanks to electronic processing by means of standardized forms. In this respect, it is envisaged that all communications will be made electronically and that appearances will be telematic.

One of the main new features of the reform in procedures for micro-companies is the creation of a single insolvency mechanism, specially adapted to the needs and circumstances of this type of company, guaranteeing the aforementioned maximum procedural simplification.

The Reform has created this new single procedure for micro-companies due to the failure in the application of out-of-court payment agreements, thus creating a parallel insolvency system with the aim of reducing costs. It is characterized by being more agile and flexible with shortened deadlines. The special regime for microenterprises will not enter into force until 1 January 2023.
It should be remembered that, at insolvency level, micro-companies are understood to be those with no more than 10 employees and with an annual turnover of less than 700,000 euros, or with liabilities of less than 350,000 euros. In this sense, what is envisaged is that the special procedure will compact the pre-insolvency and insolvency processes, without these having access to the restructuring plans.

Phases of the procedure

With regard to the phases of the procedure, it starts with a notification to the court of the start of negotiations, which will subsequently lead to the continuation procedure or the liquidation procedure. As far as the continuation procedure is concerned, it is equivalent to the well-known insolvency agreements, although with some specificities in its operation, such as the fact that if the creditor does not cast a vote, it will be understood that he is in favor of the plan in question. If, on the other hand, the procedure culminates in liquidation, it is envisaged that the debtor may liquidate the assets on its own, without the intervention of the insolvency administrator being mandatory, except in cases where the debtor itself or creditors representing at least 20% of the liabilities so request.

Another important aspect to highlight in this type of procedure is that, from the opening of the special procedure until its conclusion, the debtor will always maintain the powers of administration and disposal, although the performance of acts that involve the continuity of the business or professional activity will be limited. Likewise, judicial, and extrajudicial executions will be suspended, with the exception of secured credits, or those that are not affected by the continuation plan.

Finally, it is worth mentioning that the reform proposes the option for the debtor/microenterprise that is a natural person to have the recognized right to free legal aid, which will operate in all the procedures of the special procedure.

For further information, please contact Legal Advice