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Euroepe, Spain Bankruptcy Legal System

Written by benjamin-nicolau
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Administrators and Chiefs Executives must act with the due diligence of a responsible businessman and of a legal representative, accomplishing their legal duty (article 127 of the Spanish Law of Anonym Societies) within a socially normal behavior and good practices in business management.

On the great amount of responsibilities of the administrators in both legal and economical spheres, here we analyze their responsibility in case of company crisis related to the bankruptcy proceedings submit.

The 2003 Spanish Bankruptcy Law came to replace the cessation of payments and bankruptcy proceedings formerly regulated in the 1829 and 1885 Spanish Commercial Codes, in the 1881 Spanish Civil Procedure Rules and in the 1922 Spanish Law of Cessation of Payments.

The Spanish Bankruptcy Law establishes in its article 163 that it is admissible the formation of a bankruptcy analysis procedure:

• When an agreement with a partial acquittance higher to the third part of the debt or with a wait higher to three years is approved,

• When the liquidation phase is open, just in case the parties do not achieve an agreement.

Bankruptcy could be fortuitous or culpable. Like the article 261 of the Spanish Criminal Code, the Spanish Bankruptcy Law points out that the analysis of the bankruptcy situation made will not bind the Criminal Judges.

Law establishes the cases in which a bankruptcy proceeding must be considered as culpable, that is, when the generation or aggravation of the insolvency situation had been caused by the debtor’s gross negligence or willful misconduct. This definition is practically the same as the criminal figure, which entails that the barrier between culpable and fortuitous bankruptcy will be marked by the magnitude of the gross negligence or willful misconduct.

Moreover, Law establishes the following assumptions, in which the bankruptcy proceeding is automatically considered as culpable:

• When accountancy has not been done, when it is double or when it presents important irregularities.

• When the debtor had committed serious inaccuracy or had handed in false documents in the bankruptcy proceeding or afterward.

• When the agreement has been breached.

• When a concealment of property has been committed.

• When in the previous two years to the bankruptcy declaration the debtor’s properties and rights had gone out fraudulently from the debtor’s patrimony.

• When simulation acts of patrimonial situation were done.

Law also establishes presumptions of gross negligence or willful misconduct of the debtors, in case of non-fulfillment of the obligation of filing a bankruptcy proceeding (That is to say, in all the necessary bankruptcy proceedings demanded by creditors), when they had broken their obligation to collaborate with Justice or with the bankruptcy corps and when they had not handed in the annual accounts.

The consequences of the qualification of the bankruptcy proceeding in the Commercial sphere are the loss of rights that creditors could hold in the bankruptcy proceeding, the personal responsibility, in case of non-fulfillment of the creditor’s debts payment obligation when the parties have approved a settlement agreement, and their disqualification for the practice of the commerce for a period between 2 and 15 years.

The Spanish Bankruptcy Law also previously establishes in its article 48, the possibility of placing a lien on the current and the former (those who were administrators from two years before to the beginning of bankruptcy situation) de facto or de jure administrator’s goods, when from the proceeding results a founded possibility of the culpable denomination of the bankruptcy proceeding and when the active asset is enough to pay the debts.

The Spanish Bankruptcy Law was complemented by the Organic Law of Bankruptcy reform to modify the Spanish Judiciary Organic Law. It was under the figure of organic law that modified because it affected basic rights, establishing as possible effects on the bankrupted party of the bankruptcy statement:

• Communications tapping,

• Domiciliary search,

• If the debtor is a natural person, he could be obliged to remain in his place of residence. If this obligation is infringed or there based reasons to believe that he could fail to accomplish this prohibition, the appropriate judicial authority, which is the Judge of the Commercial Court, could take the necessary measures, including the house arrest.

The article 260 of the Spanish Criminal Code of 1995, which is in force, relative to the punishable insolvency, establishes in its first paragraph that those who was declared bankrupt will be punished with prison between two and six years and a fine between eight and twenty four months, when the bankruptcy situation has been fraudulently caused by the debtor or the person who acts on his behalf.

The fourth paragraph of the aforementioned article points out that in no case will the definition of the bankruptcy proceeding in the civil proceeding bind the criminal jurisdiction.

The penalty of this crime is serious, taking into account that the legally-protected Rights and is equal or superior to others socially considered as more serious.
In addition to the above mentioned, the Spanish Criminal Code reform criminalized likewise, in its article 259, the so-called unlawful favoritism to a number of creditors, raising to the category of criminal the infringement of the principle that had to govern the universal execution proceedings, which is the pars condition creditorum principle, that is to say, the equality of conditions and of treatment for all the credits and creditors (respecting the privileges established by law, in its case).

The difficulty will lie in distinguish when the bankruptcy has been caused or aggravated in a fraudulent way.

In conclusion, the same conduct (causing or aggravating the bankruptcy situation in a fraudulent way) could have Commercial or Criminal consequences depending on the willful misconduct of the debtor). The lack of concretion of the punishable conducts leads to an important legal uncertainty, contrary to the freedom of earning and entrepreneurship principles. The separation of the Criminal, Civil and Commercial jurisdictions could cause distortions, in some cases, close to the prison for debts, frontally opposite to the human rights.

Benjamin Nicolau
Attorney at Law

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