Out of Court Payment Agreement (IX): The consecutive insolvency proceeding as an effect of the failure of the Out of Court Payment Agreement. Can the debtor object to an insolvency order?
The consecutive insolvency proceeding: meaning an insolvency proceeding petitioned by the insolvency meditator, by the debtor, or by the creditors as a result of the inability to reach an Out of Court Payment Agreement, or of such an agreement being breached or rendered void. In other words, a consecutive insolvency proceeding is directly related to the failure of an Out of Court Payment Agreement.
It would not be a consecutive insolvency proceeding, therefore, if the insolvency order were petitioned by a debtor following compliance with an earlier Out of Court Payment Agreement, or if the insolvency order had been petitioned by a creditor while an Out of Court Payment Agreement were in force but for a reason unrelated to the agreement, namely, due to one of the facts revealing insolvency set out in article 2.4 of the Insolvency Law.
The consecutive insolvency proceeding is not a particular kind of insolvency proceeding, it is a normal insolvency proceeding which will follow the steps of an expedited insolvency proceeding; although there are certain specific provisions on the consecutive insolvency proceeding, most of which are designed to take full advantage of the work performed in the Out of Court Payment Agreement proceeding. The functioning of consecutive insolvency proceedings has not been sufficiently tested, and therefore some of these specific requirements raise some questions to which the courts will have to find answers.
The debtor’s ability to object to the consecutive insolvency proceeding
In principle, a consecutive insolvency proceeding will be voluntary, if the petition for the insolvency order is made by the debtor, and necessary, if the order was petitioned by the creditors or by the insolvency mediator. If the petition for the insolvency order is made by the insolvency mediator because any of the three legal requirements laid down for doing so are met, the question arises as to whether the debtor will have the opportunity to object to that order pursuant to article 18 of the Insolvency Law.
This clearly seems to be the case if the mediator determines that a majority of the creditors have decided not to continue with the negotiations or if the proposal for an Out of Court Payment Agreement is not accepted, because in both cases the Insolvency Law refers to the necessary further requirement for the debtor to be in a state of insolvency for the insolvency mediator to be required to petition immediately for an insolvency order. So in these cases the debtor ought to be given the opportunity to argue that he is not in a state of insolvency and that therefore an insolvency order is not required. Some authors consider, however, that such an objection is not possible if the proposal for an Out of Court Payment Agreement is not accepted by the creditors, because article 238.3 of the Insolvency Law provides in such a case that, after a petition has been made by the insolvency mediator, the judge must rule on the insolvency order immediately also; in other words, immediacy appears to prevail over the option of admitting an objection.
For its part, we consider that the debtor may also object to the order for a consecutive insolvency proceeding in the event of petition made by the insolvency mediator as a result of a breach of the Out of Court Payment Agreement. In these cases, the insolvency mediator would not need to evidence the existence of a state of insolvency, because the breach of the Out of Court Payment Agreement would become an external event revealing insolvency; but the debtor should indeed have the opportunity to object to the petition for an insolvency order either to invalidate the presumed insolvency or even to invalidate the very fact of the breach of the Out of Court Payment Agreement.
And what happens when an Out of Court Payment Agreement is rendered void? In these cases the law provides that the rendering void of the agreement (in a judgment) will give rise to a consecutive insolvency proceeding. It is not expressly provided how, but it would appear that the court with jurisdiction to entertain the insolvency proceeding on the debtor may issue an order, immediately after the judgment rendering the agreement void (and in a certificate attached to it) for a consecutive insolvency proceeding on the debtor as a necessary insolvency proceeding without the order needing to be petitioned by the persons authorized to do so according to article 242.1 of the Insolvency Law.
Consequently, the debtor in such a case would not be able to object to that necessary insolvency proceeding. What the debtor could do is appeal against the judgment rendering the Out of Court Payment Agreement void, basing his appeal on failure to satisfy the requirements to be rendered void or to satisfy the requirements for an insolvency order, and use the appeal as a vehicle for objecting to the order for a consecutive insolvency proceeding.