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October 24, 2013
The Entreprenuers Act, passed by Governement Law 14/2013, de 27 de Septiembre, de Apoyo a los emprendedores y su Internacionalización, establishes the modifications in the Bankruptcy Act, introducing a new figure called Extrajudicial Payment Agreement.
This figure offers individuals and corporations, of relative size, a graceful exit to the stage of insolvency, allowing them to initiate extrajudicial proceedings in order to reach a payment agreement with the creditors.
It is important to keep in mind that the agreement will not be admissible in cases in which the company has submitted negotiations through Article 5 bis, or in cases in which the corporation has been declared in bankruptcy, due to the fact that this Extrajudicial Payment Agreement is a stage prior to both cases.
To initiate this procedure it is necessary to turn in an application, including numerous documents such as:
– Application signed by the debtor, individual or corporation, requesting the naming of a mediator.
– List of creditors, including the amount and maturity date.
– List of pending expenses.
The next step will involve naming a Bankruptcy Mediator. In case of being an individual, it will be appointed by a Notary Public, and in case of being a corporation, the Companies House where the debtor resides will appoint the mediator.
From the moment the application is presented, the debtor may continue their normal work activity, but will not be able to apply for credits or loans. On the other hand, the advantages include the standstill of executions on the debtor’s assets for a maximum period of three months.
The aim of appointing a mediator is holding a meeting with the creditors, which must be preceded by the presentation of a payment plan that will be sent by the mediator, accompanied by a financial viability plan and a continuity plan of the professional or business activity.
For the approval of the payment plan, 60% of the debtors must vote in favour, and if Real Estate assets are included, then it will be necessary to have 75% of the debtors´ votes in favour.
In case of not reaching an agreement with the creditors, the bankruptcy mediator, acting without the debtor´s participation, will automatically proceed to the declaration of insolvency, which the judge shall automatically declare.
Since casuistry, or case-based reasoning, is complex, in order to deal with an economic crisis situation, it is necessary to seek the advice of a professional with experience on the matter for both businesses and individuals.