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Learn about the new bankruptcy procedure for micro-enterprises

If in our previous post we talked about one of the most important tax innovations that brings us 2023 – the so-called Excise tax on non-reusable plastic containersIn this post we focus on another relevant legislative change for any company: the coming into force of the new contest for microenterpriseswhich also took place on January 1.

We are aware that issues related to insolvency law are always complex. That is why in this post we want to explain clearly what this new bankruptcy procedure consists of and in which cases it is applied, as well as its main advantages .

Remember that we are always at your disposal to answer any questions you may have.

What is the new competition for microenterprises?

The latest reform of the Insolvency Law brought with it an important novelty: the design and approval of a new insolvency proceeding specifically designed for micro-companies, which has already been baptized as insolvency proceedings for micro-companies.

The legislator, aware that most of the business fabric in Spain is made up of small companies. and of the limited usefulness of the ‘traditional’ competition for this type of business, has created a new procedural path for them that seeks to to reduce the cost and simplify bankruptcy proceedings for this type of companyThe aim is to facilitate, as far as possible, the viability and continuity of these companies.

The reform ‘s own explanatory memorandum explains that “special attention has been paid to micro-enterprises, which constitute around 94 percent of Spanish companies, for which the existing instruments have not worked satisfactorily”.

Thus, among other things, the legislator recognizes that instruments such as out-of-court payment agreements have had “little use,” and that bankruptcy has “high fixed costs that detract from the scarce resources available to creditors.”

For this reason, the law introduces a single insolvency procedure for microenterprises that aims to manage both insolvency situations (actual or imminent insolvency) and preinsolvency situations (probability of insolvency), and which is applied on a mandatory basis to all debtors that fall within the legal concept of microenterprise.

This procedure, therefore, is specially adapted to the needs of this group (the majority in our country), offering a “…a new way of working”.maximum procedural simplification”. The objective is to increase the efficiency of the contest for these companies, introducing multiple procedural modifications aimed at streamlining the procedure, facilitate the approval of an agreement when the company is viable and a quick liquidation when it is not.

As we will see, among other things, standardized forms are introduced, possible costs and professional interventions are reduced when they are not necessary, priority is given to the use of telematic means, the intervention of the judge is limited, different phases can be developed in parallel, deadlines are shortened and defined…

The result is lower cost and greater speed and simplicity throughout the procedure.

It is also true that, as this is a very new method -a specific telematic platform has even been created for the processing of these procedures-, some doubts remain in the air that will be solved little by little through practice and regulatory development.

To which companies does the bankruptcy procedure for microenterprises apply?

The microenterprise competition applies to natural or legal persons that carry out an activity and have the status of microenterprises. To qualify for this consideration, the following must be met:

  • To have employed during the year prior to the application an average of less than 10 workers . This requirement will be met when the number of working hours performed by the entire workforce is equal to or less than the number that would have corresponded to less than ten full-time workers.
  • To have an annual turnover of less than 700,000 euros or liabilities of less than 350,000 euros, according to the accounts closed in the fiscal year prior to the filing of the application (in the case of belonging to a group of companies, on a consolidated basis).

In the case of the self-employed, in addition to having access to the special procedure (if they are microenterprises), they can access the second chance procedure.

On the other hand, it will not be possible for micro-enterprises to make use of the classic bankruptcy and pre-bankruptcy instruments (those applicable to other businesses). In short, choosing this new procedure is not optional if the above-mentioned requirements for microenterprise status are met.

Main features of bankruptcy proceedings for microenterprises

These are the main features of the new bankruptcy procedure for microenterprises :

  • The special procedure designed seeks to reduce the costs of the procedure, eliminating all unnecessary formalities. The participation of professionals and institutions is also reduced to those cases in which they fulfill an essential function, or whose cost is voluntarily assumed by the parties.
  • The intervention of the judge will only take place in order to adopt the most relevant decisions of the procedure, or when there is a litigious issue that the parties bring before the court. Incidents shall be resolved, with exceptions, by written procedure; and, when the oral participation of the parties or experts is necessary, virtual hearings, held by telematic means, shall be used.
  • Incidents and appeals shall not have suspensive effects, although the judge may adopt precautionary measures or suspend certain effects. In general, court decisions are not subject to appeal.
  • An online payment calculation and simulation program is available free of charge, thus reducing the debtor’s advisory costs.
  • As part of the structural procedural simplification for the parties, communication during the procedure will be carried out through official standard forms accessible online, free of charge. With them, it will be possible to receive information in real time.
  • The proceedings of the special procedure may be carried out in parallel, unlike the insolvency proceeding, which is carried out in a linear manner with consecutive stages. This allows for significant time savings.
  • To use the procedure, users can (and should) make use of their own qualified electronic certificates or electronic identification systems such as Cl@ve and Cl@veJusticia.
  • One of the most innovative aspects of this system, as the standard itself explains, is its modular nature. Thus, the special procedure allows the parties to request the application of certain effects only if they so wish: for example, this applies to the stay of execution on secured assets or the appointment of professionals.
  • On this last point (appointment of professionals), the participation of a mediator, insolvency administrator, restructuring expert… is only required to perform certain functions or when requested by the parties and they assume the cost. Again, the objective is to make the process cheaper.
  • The “pillar of the procedure” is the “truthfulness of the information provided”, according to the reform. Therefore, the concealment of relevant information, the manipulation of data or the provision of incorrect or not entirely truthful documentation has severe consequences, such as the guilty qualification, which will be brought to the attention of the Public Prosecutor’s Office.

Advantages of the new bankruptcy procedure for microenterprises

One of the reasons for regulating a single, simplified system is to facilitate its understanding by users who, for the most part, will lack specific knowledge of pre-bankruptcy and bankruptcy instruments and will have limited resources to hire external advisors.

In addition, it should be noted that this procedure is based on negotiation and agility, which is an important advantage for all parties involved.

  • On the one hand, a three-month non-extendable negotiation period is contemplated, during which the singular executions are suspended and a continuation plan or the disposal of the going concern can be prepared.
  • At the end of this period, a very flexible and low-cost procedure is initiated, with two possible paths: a fast-track liquidation (fast-track) or a fast-track and flexible continuation procedure .
  • In addition, the self-employed will be able to access the second chance procedure from either of the two itineraries, either liquidation or continuation.

In short, the advantages associated with this new procedure can be summarized in terms of agility, cost reduction and, in general, a greater likelihood of the company’s success, thanks to a tailored and much more flexible procedural path. If everything works as expected by the legislator, this change could be a real shot in the arm for a significant percentage of Spanish companies.

Finally, bear in mind that you will need a lawyer and a solicitor if you decide to file for insolvency proceedings for microenterprises . In our firm we can help you in any procedure related to the solvency of your business: contact our team.