Out of Court Payment Agreement (VIII): How must the “attempt” to conclude an Out of Court Payment Agreement take place to be able to benefit from a second chance
As we discussed in earlier posts, the inescapable connection between an Out of Court Payment Agreement and relief from unpaid claims is not without complexity.
Any debtor wishing to benefit from a “second chance” must decide right from the start which debt relief model best suits him: model A (with payment of a minimum liability threshold) or model B (with acceptance of a payment plan for the debt falling outside the relief). If in doubt, and the debtor is within the limits set out in the law, it is recommendable to attempt an Out of Court Payment Agreement, unless a liquidation of assets in an insolvency proceeding is preferred and it is very clear that the proceeds will cover up to 25% of the unsecured claims.
Legal writers and the courts have emphasized that the attempt to conclude an Out of Court Payment Agreement must be serious and real for the requirement to be deemed satisfied. Not just any attempt will do. The fact of the application for the commencement of an Out of Court Payment Agreement proceeding not being admitted or the notary requested to do so failing to meet the request will not be deemed an attempt, if this is not evidenced. It will not be accepted as an excuse for not attempting to conclude an Out of Court Payment Agreement that the necessary form did not exist when the proceeding commenced or that the debtor himself had unsuccessfully tested the water among his creditors to try and reach an agreement. And obviously, it is not acceptable either to propose in the Out of Court Payment Agreement a composition discharging the whole of the claims, because this could be held evasion of the law, which was found in the judgment by Logroño Court of First Instance no 6 on February 25, 2016 (JUR 2016\49714).
The commercial judges practicing in Barcelona have selected a number of scenarios in which they do indeed deem that an attempt to conclude an Out of Court Payment Agreement has been made: (i) where a proposal for an agreement is submitted and is not accepted by the creditors; (ii) where the mediator decides, in view of the circumstances of the case, not to submit a proposal to the creditors and to petition for an insolvency order; (iii) where the request for an Out of Court Payment Agreement has been accepted and the insolvency mediator has not accepted the position for a reason not attributable to the debtor; and (iv) where other scenarios are evidenced which bring the Out of Court Payment Agreement proceeding to an end for a reason not attributable to the debtor. Aside from the exceptions discussed above, the commercial judges favor a broad interpretation of an attempt at an Out of Court Payment Agreement, which also includes cases in which the agreement is not observed or is rendered void.
The conclusion to be drawn is that the lawmakers should clarify the unknowns arising from the confusing wording of article 178 bis (3) of the Insolvency Law. Meanwhile, any individual debtor aspiring to obtain a second chance will have to plan his strategy very carefully from the start and, if possible, approach the composition of his debts by actually applying for an Out of Court Payment Agreement. The attempt to conclude this agreement with his creditors will, in most cases, be proof of the necessary good faith on the part of the debtor to admit the request for relief from unpaid claims.
Garrigues Restructuring and Insolvency department
