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.

This service is part of our legal advisory practice.

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.

Regulatory Framework: TRLC and Law 16/2022

Spanish insolvency law is governed by the Texto Refundido de la Ley Concursal (TRLC, Legislative Royal Decree 1/2020), which consolidated the original 2003 Insolvency Act (Law 22/2003) and subsequent reforms. Law 16/2022, which entered into force on 26 September 2022, represents the most significant reform of Spanish insolvency law in two decades, transposing EU Directive 2019/1023 on preventive restructuring frameworks.

The key changes introduced by Law 16/2022 are:

• Introduction of Book I TRLC restructuring plans, replacing the old refinancing agreement homologation mechanism with a more flexible and powerful instrument.
• Introduction of class voting and cross-class cram-down (judicial extension of the plan to dissenting creditor classes where the required majorities and the value test are met).
• Extension of the pre-insolvency notification mechanism (Art. 583 TRLC) to provide up to six months of protection.
• Introduction of the special micro-enterprise procedure for companies with fewer than 10 employees and liabilities below EUR 1 million.
• Expansion and strengthening of the fresh start mechanism (BEPI) for individuals.

For formal insolvency proceedings, the TRLC distinguishes between ordinary proceedings (Libro II TRLC) applicable to larger or more complex cases, and abbreviated proceedings for smaller debtors. The insolvency administrator (administrador concursal) plays a central role in formal proceedings, taking over or supervising management depending on the type of insolvency declared. Directors’ powers are restricted in voluntary insolvency (supervisory intervention) and suspended in involuntary insolvency (full administration).

Sectors Most Affected by Insolvency

Construction and real estate: Spain’s construction sector accounts for approximately 20-25% of all insolvency proceedings in a typical year. Project-based businesses with high fixed-cost structures, concentrated customer bases (public administration, housing developers), and long payment cycles are structurally vulnerable to liquidity crises.

Hospitality and tourism: hotel and restaurant operations have high operational leverage and are highly sensitive to economic cycles and external shocks (COVID-19 demonstrated this acutely). The combination of lease liabilities, bank acquisition debt, and seasonal revenue patterns creates complex insolvency scenarios that require coordinated treatment of financial and operational elements.

Retail: the structural shift to e-commerce has accelerated insolvency pressure on traditional brick-and-mortar retailers. The main challenge in retail insolvencies is managing lease portfolios (often subject to Art. 44 TRLC treatment in formal proceedings) alongside the bank debt and trade credit.

Technology and startups: venture-backed startups face insolvency when funding rounds fail to close, the runway is exhausted, and the company has ongoing employment liabilities. These cases are typically fast-moving — the window between the last failed funding conversation and the mandatory insolvency filing obligation can be measured in weeks.

Common Mistakes We Fix

1. Waiting until current insolvency to seek advice. The richest period for advisory value is imminent insolvency — when the company foresees but has not yet hit the inability to pay. At that point, restructuring plans, pre-insolvency filings, and voluntary arrangements are all viable. Once current insolvency is reached, the two-month mandatory filing clock starts and options narrow rapidly.

2. Treating bank debt and trade credit as a single creditor class. Banks and trade creditors have radically different decision-making structures, recovery objectives, and negotiating flexibility. A restructuring proposal that works for the banks may not work for trade creditors, and vice versa. Class-by-class negotiation strategy is essential.

3. Not accounting for employment liabilities in the restructuring plan. Collective redundancies (ERE) typically accompany corporate restructurings and require their own consultation process, independently of the creditor negotiation. Companies that fail to integrate the employment restructuring into the overall plan create a second negotiation front that can delay or derail the financial restructuring.

4. Underestimating the personal liability timeline. Directors frequently overestimate the time they have before personal liability begins to accrue. Art. 367 LSC liability starts running from the moment the dissolution cause arises — regardless of when the director becomes aware of it. The culpable insolvency analysis starts from the same moment.

5. Assuming the micro-enterprise procedure is always the cheapest route. The micro-enterprise procedure under Law 16/2022 is designed for eligible companies (fewer than 10 employees, liabilities under EUR 1 million). For companies above these thresholds, or where the debt structure requires negotiation with sophisticated financial creditors, the standard restructuring tools provide more powerful protection and better outcomes.

Geographic Coverage

We manage insolvency advisory and restructuring proceedings across Spain: Madrid, Barcelona, Valencia, Málaga, Marbella, Murcia, and Las Palmas de Gran Canaria. For cross-border insolvencies involving creditors or assets in other EU Member States, we apply the COMI (Centre of Main Interests) framework under EU Regulation 2015/848 and coordinate with insolvency counsel in the relevant jurisdictions.

Worked Example: Manufacturing Company Pre-Insolvency Restructuring

A Spanish mid-tier manufacturer (85 employees, EUR 18 million revenue) in the automotive supply chain faced EUR 7.5 million in bank term debt maturing within 9 months, following a major OEM customer reducing orders by 45% after restructuring its supply chain. EBITDA had fallen from EUR 2.1 million to EUR 350,000.

BMC’s involvement:

• Initial financial diagnostic: confirmed imminent insolvency (cash runway 4 months without restructuring); quantified director liability risk under Art. 367 LSC at nil if action taken promptly.
• Filed Art. 583 TRLC pre-insolvency notification within 5 days of instruction; enforcement actions by two creditors with pledge over receivables immediately stayed.
• Led creditor negotiations over 4 months: bank debt reduced to EUR 5.5 million with a 5-year amortisation schedule and covenant holiday for 18 months; trade creditor payment plan of EUR 800,000 over 24 months.
• Coordinated AEAT instalment application (EUR 240,000 VAT debt) in parallel; granted within 6 weeks.
• Business operational restructuring: headcount reduced from 85 to 62 employees through a negotiated ERE (no legal challenges), two product lines discontinued.
• Formal restructuring plan homologated by the Commercial Court; binding on all creditors.

Outcome: company is trading, cash positive, and servicing the restructured debt on schedule 18 months after homologation.

When Formal Insolvency Proceedings Are the Right Answer

Pre-insolvency restructuring tools are not always the appropriate solution. Formal insolvency proceedings under Book II TRLC are the better route when:

The business is not viable — the financial restructuring would not produce a solvent, cash-generative business. In this case, orderly liquidation through formal proceedings allows assets to be realised at fair value and employment obligations to be managed under FOGASA protection.

The creditor base is too atomised for private negotiation — companies with 50+ unsecured trade creditors in various amounts cannot realistically negotiate individual standstill agreements with all of them. The collective framework of formal insolvency proceedings (with an insolvency administrator managing the process on behalf of all creditors) is the only practical mechanism.

An involuntary insolvency petition has been filed — once a creditor has filed an involuntary insolvency petition and it has been notified to the debtor, the Art. 583 TRLC shield can delay but not indefinitely prevent formal proceedings. In these cases, filing a voluntary insolvency application immediately (converting the involuntary petition into a voluntary one) is usually the best strategy for preserving management control.

Assets are at risk of dissipation — where there is evidence of asset stripping by insiders or connected parties, the court supervision and insolvency administrator oversight of formal proceedings provides stronger protection for creditors than a pre-insolvency restructuring process.

Second-Chance Law and Personal Fresh Start

For natural persons — self-employed entrepreneurs and company directors who have provided personal guarantees — Spain’s second-chance law (Ley de Segunda Oportunidad, Arts. 486 et seq. TRLC) allows cancellation of unpaid debts after completion of insolvency proceedings and a genuine fresh start. The mechanism requires either completion of a payment plan (covering a portion of the debt over 3-5 years) or total liquidation of the debtor’s assets, after which the remaining unsatisfied debts are discharged.

The February 2026 Supreme Court judgments significantly extended the scope of the mechanism: public debts (AEAT and TGSS) can now be partially discharged — surcharges, interest, and penalties in full; principal within TRLC limits. This expansion makes the second-chance mechanism genuinely effective for the significant proportion of insolvent entrepreneurs who owe substantial public debt.

We advise on the eligibility assessment, the choice between the payment plan and liquidation routes, and the coordination of the personal fresh start proceedings with any related company insolvency or dissolution.

The Insolvency Administrator: Role and Interaction

In formal insolvency proceedings, the court appoints an insolvency administrator (administrador concursal) whose role is to oversee the proceedings on behalf of all creditors. Understanding how to work constructively with the insolvency administrator is a critical skill that many company directors and their advisers underestimate.

The insolvency administrator has broad powers to investigate the company’s affairs, challenge transactions made in the period before the insolvency filing (the suspect period — generally two years before the filing date), classify the insolvency as culpable or innocent, and propose the liquidation or continuation plan. Directors’ cooperation with the insolvency administrator is both a legal obligation and a strategic imperative: directors who are seen as obstructive, uncooperative, or as having concealed information face a significantly higher risk of culpable insolvency classification and associated personal liability.

We advise the board of directors on how to cooperate fully with the insolvency administrator’s information requests whilst protecting the directors’ own legal position, and on the specific transactions and decisions that are most likely to be scrutinised in the retrospective investigation.

Suspect Period Transactions: Risk Assessment

The insolvency administrator has the power to challenge transactions entered into within two years of the insolvency filing date under Arts. 226-243 TRLC (acción rescisoria concursal), if those transactions are prejudicial to the creditor mass — regardless of the intent of the parties at the time of the transaction. This covers:

• Asset sales at below-market prices to related parties.
• Early repayment of loans to directors or shareholders during the financial difficulty period.
• Grant of security (mortgage, pledge) over previously unsecured debt within the two-year window.
• Dividends distributed when the company was in a state of insolvency or dissolved.
• Payments to preferred creditors in the months before the filing.

We conduct a retrospective transaction review at the outset of an insolvency engagement to identify transactions that may be at risk and to advise on the strength of any defence arguments (based on the specific terms, the market conditions at the time, and the documentation available). This analysis is essential for managing the directors’ personal exposure and for anticipating the insolvency administrator’s likely approach.

Out-of-Court Payment Agreement (Acuerdo Extrajudicial de Pagos — AEP)

For eligible companies — those with liabilities not exceeding EUR 5 million — the TRLC provides for an out-of-court payment agreement (AEP) facilitated by a court-appointed mediator. The AEP is an alternative to formal insolvency proceedings and is designed to produce a negotiated payment plan with creditors through mediation, avoiding the full procedural apparatus of insolvency proceedings.

The AEP mediator convenes a meeting of creditors and presents a proposed payment plan on behalf of the debtor. If the plan is accepted by the required majority (60% of ordinary liabilities, or 75% for certain plan features), it becomes binding on all ordinary creditors including dissenters. If the AEP fails, the mediator files for insolvency on behalf of the debtor and the case transitions into a formal concurso consecutivo (consecutive insolvency proceeding) with accelerated timelines.

The AEP is particularly useful for SMEs with straightforward debt structures and a manageable number of creditors. For companies with bank debt, the AEP is less effective — banks typically prefer the full insolvency restructuring plan framework where the legal basis for majority voting and cram-down is more clearly established.