Out Of Court Payment Agreement (X): Costs related to the Insolvency Manager in the consecutive insolvency proceeding
The purpose of the consecutive insolvency proceeding is to save time and money for a debtor who has already been through an Out of Court Payment Agreement. This is why some of the specific provisions on the consecutive insolvency proceeding are geared towards avoiding duplication of the tasks already completed in the earlier proceeding and the cost associated with them.
One of these measures is that provided in article 242.2.2 of the Insolvency Law which establishes that, unless just cause is satisfied, the judge entertaining the consecutive insolvency proceeding shall appoint the insolvency mediator as manager of the insolvency proceeding in the insolvency order, who shall not receive in that respect a fee greater than that set in the out of court mediation proceeding. Two interpretation questions emerge on this subject which complicate the bringing into effect of these savings.
One issue is that, for a mediator to become an insolvency manager he must satisfy the conditions in article 27 of the Insolvency Law on belonging to a given professional body and having specific experience or training in insolvency matters. When the insolvency mediator is appointed, however, the only requirement is for him to be mediator in accordance with the specific legislation on mediators. What may happen, therefore, is that when an Out of Court Payment Agreement proceeding leads to a consecutive insolvency proceeding, the judge may not be able to appoint the insolvency mediator as insolvency manager, because he fails to satisfy the necessary conditions, and the judge must appoint someone else, with all the extra cost and effort that this involves. It should, therefore, be included as an initial requirement for the insolvency mediator to satisfy both the conditions to be mediator and those to be insolvency manager under article 27 of the Insolvency Law.
Another issue concerns the reference to the fee that the insolvency mediator who has become insolvency manager will have to receive for his work in the insolvency proceeding, which is misleading. Can the insolvency manager in a consecutive insolvency proceeding be paid some kind of fee in this respect? Or can he only receive the fee that was set in the Out of Court Payment Agreement proceeding? Another possible interpretation of article 242.2.2 of the Insolvency Law is that the insolvency manager in a consecutive insolvency proceeding may receive his fee for the insolvency proceeding, but he may never receive an amount greater than the fee he received for his work in the Out of Court Payment Agreement proceeding.
More than one possible interpretation exist, as we have seen, which implies legal uncertainty for both the debtor, who has to foot the bill for the fee, and for the insolvency mediator/manager who has to be able to estimate how much he will receive for the work to be performed when he accepts his position as insolvency mediator.
This measure is intended by the lawmakers as an incentive to achieve successful Out of Court Payment Agreements and avoid orders for consecutive insolvency proceedings, but it places the burden of achieving that goal on the insolvency mediator when, sometimes, achieving an agreement will be out of his hands and he will be the one who has the least to gain in the event of a consecutive insolvency proceeding. In fact, many authors (and a court decision, even) have argued that, in a consecutive insolvency proceeding, an insolvency manager cannot receive any fee if he has already received the fee to which he was entitled in the Out of Court Payment Agreement proceeding.
Other authors, however, take the view that, if the liquidation phase is commenced in an consecutive insolvency proceeding, considering that this phase would not overlap with any of the work performed by the insolvency mediator in the Out of Court Payment Agreement proceeding, the insolvency manager (formerly mediator) would indeed be able to receive the fee related to that phase in the insolvency proceeding, especially in exceptional cases where the liquidation is particularly complex.
One last issue, related to the insolvency manager’s fee in the consecutive insolvency proceeding, is who has to pay the cost of the appraisals needed to calculate the values of the security for the claims with collateral that must be included on the list of creditors. In theory, the debtor initiating the application for an Out of Court Payment Agreement must provide a list of creditors on which he must provide a value for the loans with collateral as required in article 94.5 of the Insolvency Law (that is, by deducting from 9/10ths of the fair value of the property or right that was provided as collateral the outstanding debts for which a preferred security interest was given in that property). This value is relevant for the purposes of the binding effects of the Out of Court Payment Agreement. In a consecutive insolvency proceeding, however, that appraisal would have to be done by the insolvency manager when he draws up the list of creditors in his report under article 75 of the Insolvency Law, and it is provided in that case that the cost of the reports or appraisals needed to establish that value would be deducted from his fee.
Although ultimately this cost would always be paid by the debtor, this issue may by important because, if the Out of Court Payment Agreement leads to a consecutive insolvency proceeding, it is not clear (i) who is required to calculate the value of the collateral and to obtain, if applicable, the necessary appraisals for this purpose; and (ii) therefore, whether the cost of those appraisals must be paid directly by the debtor, as an extra cost of the Out of Court Payment Agreement proceeding or the insolvency manager, out of his fee (which will, in most cases, be that set in the insolvency mediation proceeding as a lump sum).
Garrigues Restructuring and Insolvency department
