Company bankruptcy
If you run a company that is in a bad financial situation and has no way to meet its debts as scheduled, you have to file for bankruptcy. According to the Spanish Bankruptcy Law, if a company is unable to meet its daily debts or does not expect to meet them in the near future, then it must file for bankruptcy itself.
Failure to duly file for bankruptcy, the directors may face debt responsabilities.
How do I file for bankruptcy?
Bankruptcy should be filed with the commercial court (Juzgado de lo mercantil) where the company is located. The court receives the application and decides whether to start the bankruptcy process after examining the reasons for the application. The judge will then appoint a receiver or insolvency administrator to oversee the bankruptcy proceedings. The receiver will perform the duties of the company’s legal representative or supervise the actions of the legal representative.
After a series of judicial proceedings, the company may try to reach an agreement with the debtor to delay payment or to forgive part of the debt. If no agreement is reached, then the court will order the liquidation of the company.
Liquidation means listing the company’s assets and putting them up for auction. The amount obtained from the auction is repaid to the creditors. The liquidation phase is carried out by the receiver.
The shareholders of the company are not liable if the amount obtained after the liquidation cannot pay all creditors.
According to the Spanish Bankruptcy Law, the application for bankruptcy must be made through a lawyer and a procurador. The legal representative of a company cannot file on his own.
Bankruptcy must be filed within two months
The company must file for bankruptcy on its own within two months when it becomes aware of its financial situation and knows that it cannot meet its debts. If you file for bankruptcy after that time, the company’s legal entity will be held liable.
Related article: Company bankruptcy: responsabilities of the general manager
Can a company continue to operate during bankruptcy?
In the event of a judicial proceeding, the company can choose to continue operating or simply cease operations. If there is hope that the company will survive the financial crisis and reach an agreement with the creditors, then it should continue to operate. If the company does not want to continue operating, then it can simply close down. In this case, the court will order the company to be liquidated directly.
