Insolvency Proceedings in Spain: Procedure, Phases and Effects (TRLC 2020)

What is insolvency proceedings (concurso de acreedores)

Concurso de acreedores (Spanish insolvency proceedings) is the judicial insolvency procedure governed by the Consolidated Insolvency Act (Texto Refundido de la Ley Concursal, TRLC), approved by Royal Legislative Decree 1/2020, of 5 May. Its purpose is to organise the satisfaction of creditors of a debtor in a situation of actual or imminent insolvency, prioritising business continuity where viable.

The reform of the TRLC by Act 16/2022, of 5 September (transposing EU Directive 2019/1023 on restructuring and insolvency), introduced substantial changes: binding pre-insolvency restructuring plans, a new credit classification system, and a simplified fast-track procedure (concurso exprés).

Subjective requirements: who can be declared insolvent

All natural and legal persons may be declared insolvent (Art. 1 TRLC), including:

• Sole traders and self-employed individuals (autónomos).
• Commercial companies (S.A. ( public limited companies, S.L. ) private limited companies, cooperatives).
• Non-business natural persons (consumer insolvency).
• Entities without legal personality that hold a separate estate.

Excluded are: credit institutions, insurance companies, investment services firms, and central counterparties, which are subject to specific resolution procedures.

Objective requirements: insolvency (Art. 2 TRLC)

A debtor is in a situation of actual insolvency when they are unable to meet their due and payable obligations on a regular basis. Imminent insolvency arises when the debtor foresees that they will be unable to meet those obligations punctually in the near future.

Indicators of insolvency (Art. 586 TRLC, for involuntary proceedings): a creditor applying for insolvency proceedings may evidence insolvency through telling circumstances such as a general cessation of payments, failed enforcement proceedings, fraudulent asset concealment, or closure of business premises.

Types of insolvency proceedings

By who files the application:

• Voluntary (voluntario): filed by the debtor themselves (obligation under Art. 5 TRLC: the debtor must file within 2 months of knowing or being able to know of their actual insolvency; in the case of imminent insolvency, they have the right but not the obligation to file).
• Involuntary (necesario): filed by creditors or other eligible parties (Art. 3 TRLC).

By size/complexity:

• Ordinary proceedings (concurso ordinario): full procedure with comprehensive insolvency administration.
• Abbreviated proceedings (concurso abreviado, Arts. 522–534 TRLC): for debtors with liabilities under €5M or fewer than 50 creditors; procedural deadlines are reduced by half.
• Fast-track or asset-deficient proceedings (concurso exprés o de masa insuficiente, Art. 470 TRLC): where the debtor's estate is insufficient to cover procedural costs; the case proceeds directly to liquidation without a creditors' arrangement.

Notification of negotiations: pre-insolvency (preconcurso, Art. 583 TRLC)

Prior to formally filing for insolvency, the debtor may notify the court of the commencement of negotiations with creditors to reach a restructuring plan (plan de reestructuración, Art. 583 TRLC). This notification produces protective effects for three months (extendable by a further month):

• Individual enforcement proceedings and attachments initiated by creditors are stayed.
• Agreed acceleration clauses are suspended.
• Negotiations on the plan may proceed free from enforcement pressure.

A restructuring plan approved (homologado) by the court is binding on all creditors in the affected class, including dissenting creditors, provided the legally required majorities are reached (a key innovation of Act 16/2022).

Application and declaration of insolvency proceedings (Arts. 7–26 TRLC)

The debtor files the application before the Tribunal de Instancia Mercantil (Commercial Court; or the Court of First Instance in jurisdictions without a dedicated Commercial Court) at the debtor's registered address or centre of main interests (COMI). The application must be accompanied by:

• An explanatory memorandum covering the debtor's economic and legal history.
• An inventory of assets and rights with valuations.
• A list of creditors with identification details and amounts owed.
• Annual accounts for the last three financial years (where available).
• A list of employees and applicable collective agreements.

The court issues a ruling declaring insolvency (auto de declaración de concurso) identifying the debtor, appointing the insolvency administration, setting out the effects on the debtor, and calling upon creditors to come forward.

Insolvency administration (administración concursal, Arts. 60–148 TRLC)

The insolvency ruling appoints one or more insolvency administrators (administradores concursales, AC). Following the 2022 reform, the insolvency administration consists of a single administrator (a natural or legal person) with a preferably legal-economic background, registered on the public list of the Registro Público Concursal (Public Insolvency Register).

Main functions:

• Supervision or substitution of the debtor: in voluntary proceedings, the administrator supervises (the debtor retains powers subject to authorisation for acts of disposal); in involuntary proceedings, the administrator replaces the debtor.
• Administrator's report (informe de la AC, Art. 292 TRLC): within two months (extendable), the administrator issues a report analysing the debtor's financial position, the list of creditors, and the inventory of the active estate.
• List of creditors and classification of claims.
• Active and passive estate (masa activa y pasiva): inventory and valuation of assets, classification of claims.

Effects of the declaration on the debtor and creditors

On the debtor:

• The debtor loses or has their powers of disposal over assets restricted.
• Accrual of interest on insolvency claims is suspended (Art. 153 TRLC), except for claims secured by a real guarantee (interest accrues up to the value of the security).
• Pending contracts are not automatically terminated; the administrator may reinstate contracts terminated for breach prior to the insolvency declaration (Art. 157 TRLC).

On creditors:

• Stay of enforcement: individual enforcement proceedings against assets necessary for the business are stayed (Art. 143 TRLC). Mortgages and pledges over non-essential assets may still be enforced (Art. 145 TRLC).
• Prohibition on set-off of insolvency claims (unless the right of set-off was enforceable before the insolvency declaration, Art. 154 TRLC).
• Acceleration clauses: do not operate automatically, but a creditor may terminate contracts on just cause as assessed by the court.

Classification of claims (Arts. 269–315 TRLC)

The current classification distinguishes between:

1. Claims against the estate (créditos contra la masa, Art. 242 TRLC): procedural costs, post-insolvency wages, claims of new financiers under a restructuring plan. These are satisfied in priority and outside the insolvency proceedings.

2. Claims with special privilege (créditos con privilegio especial, Art. 271 TRLC): secured by mortgage, pledge, or financial collateral over specific assets. Satisfied from the encumbered asset.

3. Claims with general privilege (créditos con privilegio general, Art. 280 TRLC): wages for the last 30 days (up to 3 times the statutory minimum wage, SMI), employment termination compensation (up to three times the SMI per year of service), and tax and social security claims up to 50%.

4. Ordinary claims (créditos ordinarios, Art. 290 TRLC): those not classified in any other category.

5. Subordinated claims (créditos subordinados, Art. 291 TRLC): claims held by persons specially related to the debtor (shareholders holding >10% of share capital, directors, etc.), claims for interest, fines and penalties, and claims arising from insolvency rescission (rescisión concursal). These are the last to be paid.

Phases of the proceedings: arrangement or liquidation

Arrangement phase (fase de convenio, Arts. 316–387 TRLC): The debtor or creditors may propose a payment arrangement (convenio). The arrangement may include debt write-downs (haircuts of up to 75% of ordinary claims), payment deferrals (up to 10 years), debt-to-equity conversions, and any other measures. It is approved by a creditors' meeting with the legally required majorities and confirmed (homologado) by the court.

Liquidation phase (fase de liquidación, Arts. 406–469 TRLC): Where no arrangement is approved, the court opens liquidation proceedings. The insolvency administrator sells the debtor's assets and rights and pays creditors in order of priority. The liquidation plan may provide for the sale of the business as a going concern, with preservation of employment.

Classification of the proceedings (calificación del concurso, Arts. 441–464 TRLC)

Where the proceedings end in liquidation (or in a breach of the arrangement), the classification section (sección de calificación) is opened. The proceedings may be classified as:

• Fortuitous (fortuito): the debtor acted diligently; no personal consequences follow.
• Culpable (culpable): the debtor or its directors caused or aggravated the insolvency through wilful misconduct or gross negligence. Consequences include: disqualification from acting as a director (2–15 years) and liability for the insolvency deficit.

Conduct giving rise to a finding of culpability (irrebuttable presumptions, iuris et de iure): serious accounting irregularities, fraudulent concealment of assets, and fraudulent dissipation of the estate.

Discharge of unsatisfied liabilities (EPI): Second Chance Act (Arts. 486–502 TRLC)

A natural person (whether a business owner or a consumer) who has been unable to satisfy their debts may obtain a discharge (exoneración del pasivo insatisfecho, EPI) of residual insolvency liabilities following liquidation, provided that:

• They have attempted an out-of-court payment agreement (acuerdo extrajudicial de pagos, AEP) or this has proved impossible.
• They have not been convicted of an economic offence (unless the debt does not arise from that offence).
• They have not obtained a discharge in the previous 10 years.
• They have satisfied claims against the estate, privileged claims and, in certain cases, 25% of ordinary claims.

The discharge may be immediate or subject to a 3-year payment plan. Public-law debts (tax authority, social security) are dischargeable up to certain limits following the 2022 reform.