Vol 6 (2009) - Issue 4

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Amendment to the Spanish Insolvency Law: Will it Pass the Acid Test?

The development of the economic global crisis and its impact on the Spanish economy forced a fast legislative reaction from the Spanish Government with the aim to improve and adequate certain insolvency provisions to the actual economic scenario.

1. Introduction

The Spanish regulations on insolvency experienced a turning point when Law 22/2003 on insolvency (the ‘Insolvency Law’) was enacted in 2003 and came into force on 1 September 2004. The Insolvency Law completely changed the Spanish insolvency system, which had been (until then) based on rules laid down in the 19th century and early 1900s resulting in an unclear system with old-fashioned solutions. The current scenario of organisations and forms of business activities responds to a modern and global economy of the 21st century, to which our legislators were well aware of.3 In general, the major aims of the Insolvency Law were to respond to the new developments in a changing society and, in particular, to meet domestic and international needs and to fit in modern economic realities.

Before the Insolvency Law was enacted, there were four types of bankruptcy proceedings: (i) two for commercial debtors (quiebras y suspensiones de pagos); and (ii) two for non-commercial debtors (concurso de acreedores y quita y espera). After 1 September 2004, the Spanish insolvency legislation only contemplates a single insolvency proceeding (concurso de acreedores) being applicable to all kinds of debtors.

In summary, the Insolvency Law defines insolvency (concurso) as the situation in which the debtor is not able to comply regularly and timely with its payment obligations when they are due. Likewise, the debtor may file for insolvency if foresees that in the future will fall in insolvency.

This single procedure encompasses a joint phase and two different solutions: (i) composition agreement (the aim is to reach an agreement between the debtor and the creditors on the payment of the credits to enable the debtor to restructure its business); and (ii) liquidation (the aim is to liquidate the assets of the debtor in order to pay off its debts).

During the short period of time in which the Insolvency Law has been in force, its strengths and weaknesses have emerged and, although some progress has materialised, this Law has not been able to provide appropriate solutions for periods of economic crisis as it intended to. As scholars have unanimously stated, this failure cannot be solely attributed to the legal text, but to the whole institution as such, in conjunction with several other reasons.