Insolvency Advisory: Expert Guidance Through Bankruptcy and Restructuring

Insolvency proceedings in Spain are governed by the Texto Refundido de la Ley Concursal (TRLC, Legislative Royal Decree 1/2020), as substantially reformed by Law 16/2022 which transposed EU Directive 2019/1023 on preventive restructuring frameworks. Spanish insolvency law distinguishes between imminent insolvency — where the debtor foresees that it will be unable to meet its obligations regularly within three months — and current insolvency, where payment obligations are already being missed. Directors have a legal duty to file for insolvency within two months of becoming aware of current insolvency; failure to comply exposes them to personal liability for company debts under the insolvency culpability regime. The reformed TRLC gives priority to restructuring tools (Book I plans and pre-insolvency notifications) over formal insolvency proceedings, aiming to preserve viable businesses.

Our team combines insolvency law expertise, financial restructuring experience, and creditor negotiation skills to intervene at the point where options still exist — not after they have been exhausted.

Why Spanish Companies Reach Formal Insolvency Too Late

The reformed Ley Concursal (TRLC) introduced pre-insolvency restructuring plans as an alternative to formal bankruptcy for companies facing imminent insolvency. This instrument allows companies to negotiate debt reduction with financial creditors under the protection of a judicial shield that suspends individual enforcement actions — without declaring formal insolvency and without management losing control of the company.

The mechanism works as follows: the company notifies the commercial court that it has begun negotiations with creditors to reach a restructuring plan. This notification automatically activates a protection period of up to six months (extendable) during which no creditor can enforce guarantees or initiate individual enforcement actions against the company’s assets. This creates time to negotiate without the pressure of concurrent enforcement proceedings.

If the plan obtains the required majority support in each creditor class, the judge can homologate it and extend its effects to dissenting creditors who voted against. This is a fundamental change from the pre-reform regime: unanimous creditor consent is no longer required to implement a haircut or maturity extension. With the right majorities by class, the plan binds all creditors.

Directors’ Personal Liability: How to Limit It by Acting Early

Directors’ personal liability in financial distress is one of the most critical aspects of our advisory work. Article 367 of the Spanish Companies Act establishes that directors are jointly and severally liable for company obligations arising after the cause of dissolution occurred, if they fail to convene a shareholders’ meeting to adopt the required measures within two months.

The Ley Concursal adds an additional layer of liability: if the insolvency proceedings are classified as fraudulent (due to the director’s fraudulent or grossly negligent conduct), the court can order directors to cover the insolvency deficit from their personal assets. Unjustified delay in filing for insolvency is one of the factors that commercial court judges take into account when classifying the insolvency proceedings.

Early intervention is the best protection. A director who identifies imminent insolvency, seeks specialist advice, takes documented steps commensurate with the situation, and files for insolvency within the statutory deadline if restructuring fails, is in a fundamentally different legal position from a director who waits until suppliers cut off supply and banks enforce guarantees. We coordinate this advisory with forensic accounting analysis when there are questions about the company’s true financial position.

The Micro-Enterprise Procedure and Second-Chance Law

The TRLC introduced a special abbreviated procedure for micro-enterprises — companies with fewer than 10 employees and liabilities below EUR 1 million. This procedure is significantly faster and less expensive than ordinary insolvency proceedings, giving smaller companies access to restructuring mechanisms without the full costs of a conventional insolvency process.

For natural persons — self-employed entrepreneurs and company directors who have provided personal guarantees — Spain’s second-chance law allows cancellation of unpaid debts after insolvency proceedings and a genuine fresh start. The reach of the mechanism has been progressively expanded to make it genuinely effective for entrepreneurs who have risked their personal assets in a business that failed. We advise on the discharge of unsatisfied liabilities (BEPI) under both the liquidation route and the payment plan route, and on the specific treatment of public debts to the Tax Agency and Social Security.

Negotiating With Banks and Debt Funds

Negotiations with financial creditors in financial distress situations have their own dynamics. Banks operate under internal risk management protocols that their local relationship managers have limited authority to deviate from. Distressed debt funds have very different decision-making structures and return objectives. Understanding these dynamics is fundamental to designing a viable proposal.

Our team has experience negotiating standstill agreements, restructuring syndicated loans, converting debt into equity as an alternative to haircuts, and negotiating secured debt with company assets. We coordinate with financial advisors from our restructuring team when the transaction requires a refinancing component involving new investors or debt funds.

In situations where the company needs urgent liquidity to maintain operations during restructuring, we advise on interim financing options and on how to structure the guarantees that new lenders may require in a way that is protected in the event that formal insolvency proceedings are eventually declared. Where M&A transactions are a potential restructuring solution — selling a business unit or bringing in a strategic investor — we coordinate the process with our corporate advisory team.