Primers on the Out of Court Payment Agreement (IV): Scope of the moratorium on enforcement action against the debtor’s property
One of the main benefits of the Out of Court Payment Agreement proceeding is that it allows use to be made of the “preinsolvency notice” under article 5 bis of the Insolvency Law, following which, while the agreement is being negotiated –the law provides that this will last up to 3 months-, an insolvency order may not be issued on the debtor and no enforcement action against the debtor’s assets is allowed (or any such action is put on hold at least). This provides the negotiation process for the agreement with a stable platform by preventing possible contamination from external distortion caused by the absence of the desirable trust and good faith between the parties involved.
In the specific case of an Out of Court Payment Agreement, the scope of the interruption or moratorium on enforcement action is broader than in the other cases under article 5 bis of the Insolvency Law. In connection with the notice of negotiations to reach a refinancing agreement or with an advance proposal for an arrangement, it is specified that no enforcement action in or out of court against any assets or rights that are needed for the continuity of the debtor’s professional or business activity may be commenced or continued, whereas for the notice of negotiations to reach an Out of Court Payment Agreement, article 235 of the Insolvency Law provides that any creditors that may be bound by the potential agreement may not commence or continue any enforcement action in or out or court against the debtor’s property.
This prohibition does not apply to creditors holding collateral other than assets or rights that are needed for the continuity of the debtor’s professional or business activity, or the debtor’s principal residence (this latter case is only mentioned in relation to the Out of Court Payment Agreement). If those assets have been provided as collateral, the creditors could bring any action in rem to which they may be entitled, although, after the proceeding has commenced, any such action will be interrupted until the end of the period allowed for negotiating the agreement. This is a means of avoiding creditors with collateral being prevented from commencing separate enforcement action for their collateral under article 57 of the Insolvency Law, if a potential insolvency order is issued with the immediate commencement of liquidation.
Garrigues Restructuring and Insolvency department