“The legislation tightens the requirements for the debtor requesting its own liquidation, safeguarding the ultimate purpose of this procedure and avoiding its misuse,” emphasizes Francisco Fuentes, director of the Civil Litigation and Arbitration group.
Last week, the law that modifies the current insolvency law came into force. The new law creates simplified and low-cost procedures for micro and small companies and individuals, in addition to modifying certain matters pertaining to reorganization and liquidation proceedings.
In this context, this amendment creates categories of liquidators: category A (liquidators who will manage the insolvency proceedings for the liquidation of the debtor company) and category B (liquidators who will manage the insolvency proceedings of the debtor). The emergence of these two categories shows that the legislator recognizes that the insolvency proceedings of the company in liquidation require greater technical and, in some cases, legal capacity for the resolution of contingencies inherent to the debtor’s business.
An example of the above occurs with electricity generation, transmission or distribution companies that undergo a liquidation process, which requires specific skills and knowledge of a highly technical and regulated market such as the electricity market, in addition to a correct application of the special regulations governing the insolvency process, plus the due and constant relationship that must be maintained with the sectorial authorities.
Second, the new law broadens the grounds for challenging the reorganization agreement. Now it may be challenged much more broadly by creditors if it contains one or more stipulations that are contrary to the legal system, for example, a violation of principles of general application of the law, a specific provision of any other law, regulation or decree, or even an infringement of public order when the rule in question is intended to protect or safeguard it. In short, it will be up to case law to determine the scope to be given to the term “legal order” once this reform begins to be applied.
However, the new law also establishes some increased requirements. In this case, it increases the requirements to request the voluntary liquidation. Under the old law, it was sufficient for the applicant to submit a list of its assets, the place where they were located and the encumbrances that affected them in order to account for its assets affected by the bankruptcy process. Now, on the other hand, the applicant will have to add to this documentation that proves that he is the owner of these assets. Likewise, it must indicate its participation in companies, communities and hereditary communities; attach a copy of the background of its electronic tax folder; copies of the historical charts of current and demand accounts associated with the debtor; and a sworn statement indicating that all the information provided is complete and reliable.
As can be seen, the legislation tightens the requirements for the debtor requesting its own liquidation, safeguarding the ultimate purpose of this procedure and avoiding its improper use or with the purpose of evading the obligations incurred and owed as of the date of the request for the initiation of the bankruptcy proceeding.
The new law also adds requirements to be able to request the initiation of bankruptcy liquidation proceedings as a creditor. These additional requirements go hand in hand to prove to the court that the debtor company is effectively in a state of insolvency, and to prevent this procedural tool from being used only as a measure of pressure against a debtor that does not yet have a matured title against it, or that such title refers to activities that are not part of its line of business.
In view of the new modifications and requirements established by this new insolvency law regarding reorganization and liquidation, it is important that not only SMEs inform themselves about the new regulations and prepare themselves in case they have to comply with them, but also all companies in the market. Companies must internalize that the process is now more demanding for debtors or creditors that require the initiation of an insolvency liquidation process, as well as for the debtor that wants to reorganize, who must pay special attention that the proposals made in its agreement are 100% compatible with all the rules and principles that govern our legal system.
