Great hopes had been placed on it

The Bankruptcy Reform Bill Is Not To Anyone’s Liking

Spanish Parlament.
Spanish Parlament.

J.C. González Vázquez * | On August 3rd, the Council of Ministers fi­nally ap­proved the lon­g-a­waited Bill for the adap­ta­tion of our in­sol­vency le­gis­la­tion to EU Directive 2019/1023 re­gar­ding pre­ven­tive res­truc­tu­ring fra­me­works, dis­charge of debt and dis­qua­li­fi­ca­tions. In ad­di­tion, mea­sures to in­crease the ef­fi­ciency of pro­ce­dures con­cer­ning res­truc­tu­ring, in­sol­vency and dis­charge of debt.

Great hopes had been placed on it because it was thought that it would help to save companies which, although going through a difficult patch, were viable. However, these hopes were dashed as soon as its content was known. The Bill has drawn heavy criticism from all concerned parties and the high number and length of the allegations presented go to prove the Bill has met with unanimous rejection. And, unfortunately, we have to agree with most of the criticism. Obviously, not everything is negative since the European Directive imposes certain changes which will improve our current regulatory system.

Since this is an extract from an article published in we can’t go into too much detail so we will highlight three general aspects that permeate the entire reform. In our opinion, these denote the misguided frame of mind in which the transposition of the aforementioned Directive has been approached.

Firstly, the unhealthy and out of focus overprotection of whatever has to do with “labour” or “what is public” (in particular, but not only, labour credits and public credits). Since the pruning of privileges regarding these credits carried out in the 2003 Insolvency Law, such privileges and protection have been increased in successive reforms in spite of widespread criticism from national and international quarters.

The same mistake is made in this Bill. For example restructuring plans are prevented from affecting labour or public credits. However, what we find most shocking is the fact that, in the case of public credits, there is no exemption from financial liability. And the people who have received firm administrative sanctions in the previous 10 years or who have been subject to derivation of liability for offences classified as fraudulent can’t avail themselves of such exemption.

Secondly, the erroneous belief that in order to speed up insolvency proceedings and make them cheaper you have to reduce or do away with the involvement of private insolvency professionals. As if they were responsible for these proceedings lasting too long or not being very efficient when it comes to debt recovery for creditors.

In the last reforms of the Insolvency Law, and in particular in the ones since 2014-2015, there has been a clear bias against insolvency administrators which in this Bill has been extended to other professionals taking part in insolvency proceedings. In fact their presence is not compulsory in special proceedings regarding microenterprises. This bias can also be seen in the fact that their fees will be halved when the different phases of the proceedings last over a certain number of months – as if they were responsible for the excessive duration of such proceedings – and in the implementation of a single public platform for all electronic auctions. Quite the opposite to what the Government did during the pandemic when it encouraged out-of-court settlements which have proved quite successful in this last year and a half.

Thirdly, the lack of clear definition of some essential questions can be a source of conflict. For example, it is not clear what is meant by when interim financing is “necessary and appropriate” or by an expert in restructuring who has to be someone with experience in that field. This is in direct contradiction to what the European Directive says, since that expert can be named by debtors and creditors without having to be vetted by any administrative or judicial authority.

To make matters worse, in the case of special proceedings concerning microenterprises, there is no provision for appeal against decisions and judgements. An attack on the right to legal protection which could render the Bill unconstitutional.

In short, this Bill has been drafted from a perspective distorted by some unfounded ideological prejudices and without taking into account the reality of our courts and of Spanish insolvency practice. As a result, we feel very pessimistic about the possibility of it being amended during its passage through Parliament.

(*) Tenured lecturer in Commercial Law (UCM) | Partner at CECA MAGÁN Law Firm

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