Out of Court Payment Agreement (III): On access to insolvency mediation
Individuals may attempt an Out of Court Payment Agreement if they are in a state of insolvency, or their insolvency is imminent, as long as the initial estimate of their liabilities does not exceed five million. An agreement may be attempted by individuals who are business owners, and by other individuals who may nevertheless find themselves in either of these positions, simply as consumers of goods and services who are in debt.
For legal entities to be able to attempt to restructure their debt through an Out of Court Payment Agreement, the law lays down further requirements, however, namely that: a) the legal entities must be in a state of insolvency (nothing is mentioned about the option for the legal entity to attempt an Out of Court Payment Agreement in cases of imminent insolvency, although these cases are accepted by some legal authors); b) if an insolvency order has been issued on them, the insolvency proceeding must not be particularly complex; and c) they must have sufficient assets to be able to cover the costs associated with the agreement; this last requirement is not laid down for individuals, which is consistent with individuals not being required to pay the notary’s or registry’s fees, at least at the start of the proceeding.
The Commercial Registrar (or Chamber of Commerce, as applicable) receiving the application for appointment of an insolvency mediator will therefore have to assess whether, besides being in a state of insolvency, the applicant legal entity’s insolvency proceeding is not particularly complex, by reference to it having fewer than 50 creditors, its liabilities not exceeding five million euros or its assets being below five million euros. The view taken by most legal authors, which also appeared in the conclusions of the commercial judges practicing in Madrid, drawn up on October 11, 2013, is that it not all three requirements have to be met for the examiner for the Out of Court Payment Agreement to be able to commence the proceeding; meeting only one of them will be sufficient. The application form for the proceeding for reaching an Out of Court Payment Agreement –approved by Ministerial Order JUS/2831/2015, of December 17, 2015- does not make matters easy, however, because it asks the signing entity to state that it meets the three requirements specified in article 190 of the Insolvency Law for the insolvency proceeding to be deemed not particularly complex.
To determine satisfaction of the requirement to have sufficient assets to pay the costs associated with the agreement, the examiner for the proceeding will usually have to rely on the ad hoc declaration that the applicant will make (because this is also required on the application form) although he may make an estimate of those costs –it may be inferred that they include publicity costs, notary’s fees, registrar’s fees and mediator’s fees- and compare it to the aggregates obtained from the balance sheets submitted with the application form –legal entities and business owner individuals have a mandatory obligation to produce balance sheets -.
This balance sheet –which will also be useful for determining the quantitative limits for an insolvency proceeding that is not particularly complex – must be produced by the debtor as of the preceding fiscal year-end, but updated to the date on which the application for the Out of Court Payment Agreement is filed, to enable the Commercial Registrar or Chamber of Commerce to verify that the applicable parameters fall within the legal limit.
Creditors are not allowed to apply for an Out of Court Payment Agreement in relation to their debtors, although they can always encourage a debtor to apply for one if they consider it may be in the interests of both.
Nothing is specified as to whether more than one debtor may file a joint application for the commencement of an Out of Court Payment Agreement proceeding (in cases such as those in article 25 of the Insolvency Law, for example), except in scenarios involving married couples where the Out of Court Payment Agreement may have an impact on the family home. In these cases, the application must necessarily be made by both spouses.
Lastly, there are a number of cases in which an application to reach an Out of Court Payment Agreement is prohibited for either anyone who has been convicted in a nonappealable judgment for given financial offenses in the previous 10 years, and for anyone who has recently had access to any of the tools provided for management of an insolvency or is using them simultaneously. A doubt arises in connection with this last point over what would happen if a debtor applying for the appointment of an insolvency mediator had also petitioned for an insolvency order that had not been issued. Would it be allowable to withdraw the petition for the insolvency order and continue with the Out of Court Payment Agreement proceeding? The Insolvency Law specifies in this respect that the option of an Out of Court Payment Agreement will not be available if the petition for an insolvency order has been admitted for consideration, but if the petition has not given rise to any effects, we consider it acceptable for a debtor to reconsider his options for resolving his state of insolvency and choose the format for restructuring his debts that best suits his interests.
Garrigues Restructuring and Insolvency department