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When to request bankruptcy?

On many occasions the employer considers bankruptcy when the insolvency of the company is irremediable. In these cases, the contest is considered as the mandatory or necessary step for the definitive closure of the company.

We must have a broader view of the contest as an exit mechanism when things are not going well in the company, which may or may not lead to the closure of the company. Companies can survive bankruptcy.

When things stop working we must go to the bankruptcy since in this way we will avoid an aggravation of the economic situation of the company. In this way we will protect our own assets by avoiding liability derivations and we will reduce the possibility that the contest will plead guilty.

What is a bankruptcy?

The bankruptcy is a judicial procedure created for the protection of debtors and creditors, as it allows you to organize your finances in order to comply with most of the obligations that you contracted with your creditors.

It is a right but also an obligation if with your income you cannot face your debts for a long time.

  • Cessation of judicial processes for the collection of personal credits

  • Cessation of the Mortgage Foreclosure, when it is the object of a good affected by economic activity. As well as, extension of the term to pay the overdue debt and suspend the execution

  • Freezing of interest on debts

Types of bankruptcy

We can talk about two types or classes of bankruptcy:

  • Voluntary bankruptcy : takes place when the same debtor presents and justifies the first of the applications. The advance declaration would be accepted if the same debtor can foresee this situation imminently. This type of bankruptcy is only valid if it is original in its instance, it could not be considered in such a way if the request is the consequence of a bankruptcy in a necessary way that had not previously prospered due to procedural matters.

  • Necessary bankruptcy : In this case the insolvency situation must be current, not imminent. Said competition may be considered necessary when the first application submitted is made by a legitimate party other than the creditor.

The request for bankruptcy is mandatory by law and such request must be submitted two months before the company is considered insolvent.

It can be requested from the following requests:

  • When the company does not have sufficient assets in a situation of embargo

  • Existence of seizure situations that directly affect the assets of the company

  • In a situation of non-payment of social security contributions or during a quarterly period of tax obligations

Phases of the Bankruptcy

1) Common phase. Self-declaration of the Bankruptcy.

  • It is at this point in the process when all pending executions are paralyzed, so interest accruals are suspended and new lawsuits are prevented.

  • The declaration of entering the Creditors' Contest is made public in the Official Gazettes and is registered in the Mercantile Registry.

  • Once this declaration has been made, the creditors cannot continue to exercise any individual action.

  • When the bankruptcy administrator enters the process, he intervenes in all the acts that the administrator of the company in question has to do. Within a month you must submit a report declaring the inventory, the company's accounting status and the list of creditors.

2) Second phase.

Here there are two possibilities: agreement proposal or settlement.

    • Agreement proposal: the Bankruptcy judge will issue a sentence ending the first phase, opening the Agreement and calling the Creditors' Meeting to approve it. If there have been no objections or inconveniences, it will be resolved in a maximum of 8 to 10 months from the moment of the request.

    • Opening of liquidation: if sufficient take-away agreements are not reached, the company proceeds to the liquidation phase.

3) Third phase. End of the Creditors' Contest

It is at this point when a Contest resolution is given. When the judge receives the report with the justification of compliance, he will determine in the order whether he declares it or not and, if so, it will be published in newsletters and newspapers.
Finally, the order for the conclusion of the Creditors' Contest is issued, which will close the process, the debts of the company being totally released.

What is the express contest?

The express bankruptcy is a form of bankruptcy that is applied when the company shows that there are not enough assets in its assets to be able to deal with the debtors.

It is a modality that is much faster and less expensive, since steps are avoided in the procedure of declaration of insolvency and liquidation of the company. In fact, in the order in which it is stated that a company is in bankruptcy proceedings, at that very moment the judge can raise the conclusion of the bankruptcy, providing the reasons that justify that the company does not have sufficient assets to pay your creditors.

Requirements to qualify:

It is the debtor who must provide the documentation and all the necessary information that demonstrates, in a totally reliable and truthful manner, the inexistence of a sufficient mass of assets to satisfy the total debt, and that, even, proves that it does not have of the money necessary to be able to meet the expenses that the entire bankruptcy process entails.

In addition, the circumstances that concur must show that there is no viability to undertake other actions that could reimburse the money that is owed to creditors or that imply the liability of third parties.

What effects does it have?

When a company accepts the express creditors' bankruptcy, and finally the judge admits it to the procedure, the process varies with respect to the ordinary modality in the following points:

  • There is no appointment of a bankruptcy administrator who is in charge of the control and administration of the company while the procedure lasts, precisely because it does not make sense since the company is going to disappear. In the same order in which the contest is presented before the judge, the documentation that justifies carrying out the process by the express modality is provided.

  • The qualification phase of the bankruptcy is not executed, deriving from this fact the debtor is not liable for the company's insolvency situation. Even if the debtor is not the subject of culpable bankruptcy, the general administration body would be subject to the corresponding liability regime.

  • At the moment in which the judge dictates the conclusion of the express bankruptcy:

- the company is liquidated immediately

- if there are assets in the asset, they are liquidated and distributed among creditors

- the company and its activity are completely extinguished

- the registration of the company is canceled in the corresponding Commercial Registry.




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Palma de Mallorca, CP 07003




c / General Riera 8, 3rd floor
Palma de Mallorca, CP 07003



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