Out of Court Agreement (II): Some figures
It has now been more than a year and a half since the most recent reform of any breadth of the insolvency law, approved in Law 25/2015, of July 28, 2015 on the second chance mechanism, reduction of the financial burden and other measures of a social nature, made the latest enhancements surrounding the Out of Court Payment Agreement to add flexibility to its contents and effects and strengthen the insolvency mediator’s role.
According to data collected by the Register of the General Council of Economists (Refor) updated as of September 30, 2016, in the latest year to be surveyed, 1095 insolvency mediation proceedings were conducted in Spain, up 136.88% on the previous figure. Chart 1 shows the data on the number of insolvency mediation proceedings measured on the dates specified, in which that increase can be seen.
The autonomous community in which the Out of Court Payment Agreement was used the most was Catalonia, where there were 239 insolvency mediation proceedings until September 2016.
As shown in the chart, this mechanism is gaining currency in Spain, although we are still a long way from Europe or the United States, where insolvency mediation has taken root as the most successful alternative to the courts.
Spanish companies are still unaware of the opportunities offered by Out of Court Payment Agreements as an out of court alternative for entering into an arrangement over debts which is binding on dissenting creditors if the support of a given majority of creditors is achieved. On top of this, for the few companies that did apply for the commencement of an insolvency mediation proceeding, it was seen more as a means of delaying the start of the insolvency proceeding than as an alternative to that proceeding.
Most of the insolvency mediation proceedings conducted in Spain concerned individuals. In actual fact, 96% of all insolvency mediation proceedings related to individuals whereas only 4% related to legal entities or enterprises. This is probably due to the close link between this proceeding and the achievement of the second chance mechanism. Despite this link, the debt relief mechanism has not had the expected take-up so far.
In Catalonia, a pioneer in Out of Court Payment Agreements, this prompted the setting up of a task force, composed of judges and lawyers, to breathe life into the Second Chance Law and make it actually serve its intended purpose: to provide heavily indebted business owners and citizens with a mechanism to liquidate their assets and make a fresh start. Several lines of action are being considered to achieve this, such as (i) creating a public office for debtor assistance to make the procedure easier; (ii) approving a document setting out the required steps by reference to various standard types of cases or (iii) pushing for amendments to the legislation.
Garrigues Restructuring and Insolvency department