What happens to companies in bankruptcy during the state of alarm

What happens to companies in bankruptcy during the state of alarm due to the pandemic caused by the COVID-19 virus, is a question that recurs in many businessmen that has generated an unprecedented situation, with a large number of consequences.

The most immediate, as we all know, is the health sector, collapsed by the wave of infected and limited by the lack of access to the security measures necessary to carry out its task properly.

However, the next blow has been taken by companies, especially SMEs, the corporate fabric of our country. Due to the state of alarm established on March 14, 2020 through the already famous Royal Decree Law 463/2020, very severe mobility limitations were set, which were aggravated by Royal Decree Law 10/2020, suspending all non-essential activities. .

For this reason, at Toro Pujol Abogados we have been advising companies for more than 40 years, and we have accompanied them through all their processes, from their incorporation to, in some cases, their declaration of bankruptcy. From our offices in Barcelona, Madrid and Montcada i Reixac we serve the entire national territory, do not hesitate and request information without obligation.

In this article we will explain from a legal point of view what happens to companies in bankruptcy in the state of alarm, declared by the health crisis generated by the COVID-19 pandemic.

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Many companies have had to stop their activity almost immediately, without a forecast or prior notice that would allow decisions to be made in this regard.

As a consequence, the forecast is that many of these companies will not be able to continue with their activity, due to being in a situation of insolvency, and the Bankruptcy Law obliges companies to request bankruptcy if they are in that situation.

Therefore, the government has taken a series of decisions that seek to alleviate, in a very limited way, the impact that the coronavirus will have on the Spanish economy, and more specifically on its companies,

Due to the whirlwind of new regulations issued quickly and quickly, it is essential to go to a lawyer specializing in bankruptcy law in order to be duly informed of what decisions to make, and thus avoid the consequences that an action contrary to due diligence can entail.
What happens to companies that are in a state of insolvency during the state of alarm?

The government, through various Decree Laws, has tried to partially alleviate the effects that the pandemic caused by the coronavirus will have on the Spanish economy, and through Royal Decree Law 8/2020, of March 17, on extraordinary urgent measures to deal with to the economic and social impact of COVID – 19, articulates a series of support measures for workers, families and vulnerable groups, the easing of temporary activity adjustment mechanisms in order to avoid layoffs, as well as establishing liquidity guarantee measures to sustain economic activity.

Of the previous sections, we highlight, because they directly affect the labor or business activity of natural or legal persons liable to file bankruptcy, the following:

Extension of the period granted to companies to complete the obligation to declare bankruptcy.
The postponement and suspension of the payment of tax obligations.
Aid and lines of credit.
The flexibility of the ERTE.
The application of the second chance law for natural persons.

Therefore, in this article, with the exception of section 5, which due to its particularity we will discuss in a new article, we intend to explain the most obvious consequences that companies may face during the state of alarm and afterward, and what tools are available to them. their willingness to try to overcome them.

What is the extension of the term of the obligation to request bankruptcy during the state of alarm?

Law 22/2003, of July 9, Bankruptcy, establishes in its article 5 the duty of a natural or legal person who is in a situation of insolvency, to judicially request the declaration of bankruptcy within a period of 2 months from who would have known or should have known of its insolvency.

What is considered insolvency according to the Bankruptcy Law?

The aforementioned Bankruptcy Law understands that there will be insolvency provided that:

There is a general dismissal in the current payment of the debtor’s obligations.
There are embargoes due to pending foreclosures that generally affect the debtor’s assets.
The hasty or ruinous lifting or liquidation of their assets by the debtor occurs.
The following obligations are generally breached:
The payment of tax obligations during the three months prior to the application for bankruptcy.
The payment of Social Security contributions during the three months prior to the bankruptcy application.
The payment of salaries and indemnities and other remuneration derived from labor relations corresponding to the three months prior to the application for bankruptcy.

All these situations will determine the insolvency of a natural or legal person, but there are more circumstances, not specified here, that have the same effect, being the debtor’s obligation to notify the bankruptcy situation, with very negative punitive consequences if that obligation is breached. What happens to the companies in bankruptcy in the state of alarm regarding the concept of insolvency?
What aspects of insolvency are modified during the state of alarm for companies?

Precisely this obligation to notify insolvency is the one that Royal Decree Law 8/2020 modifies during the state of alarm, in the sense of:

There is no obligation to declare bankruptcy during the state of alarm, even if we are in a situation of insolvency.
Until 2 months have elapsed since the state of alarm, the judges will not admit bankruptcy requests initiated by creditors for processing.
If a necessary bankruptcy request has been submitted during the first two months after the state of alarm and a voluntary bankruptcy request is submitted by the debtor in the same period, but later, preference will be given.
If we communicate the existence of a pre-contest, even if the term has expired, we will not have the obligation to request a contest.

The measures adopted by article 43 of Royal Decree Law 8/2020 are somewhat imprecise, so in their application we must always be advised by a lawyer specializing in the matter.
The procedural deadlines for company bankruptcies within the state of alarm

What happens to companies in the state of alarm regarding the deadlines related to bankruptcy proceedings? This will depend on the date on which said contest is communicated.
The procedural deadlines for communication of company bankruptcies

In our opinion, all those contests that have been requested before the entry into force of the State of Alarm must comply with the content of Royal Decree Law 463/2020 itself, which suspends the procedural deadlines.

Therefore, whether a contest request was made or the pre-contest was communicated, under the terms of art. 5 bis, this period will be suspended during the state of alarm, resuming when it ends, with the period that had not expired before the entry into force of the state of alarm.

However, if the situation of insolvency emerges during the validity of the state of alarm, the rules set forth in article 43 of Royal Decree Law 8/2020 will come into play.
Procedural deadlines in rights and interests in company bankruptcies

All of the above is conditioned by an exception, contained in section 4 of Additional Provision 2 of Royal Decree Law 463/2020. As we have previously anticipated, this Royal Decree suspends the procedural deadlines during the state of alarm, in a generic way. But it establishes a clear exception, if there is a risk of irreparable damage to the rights and legitimate interests of the parties in the process.

However, once again, given the lack of specification in the regulation and its non-existent direct relationship with the Bankruptcy Law, it is up to each judge to assess whether the lack of processing of the bankruptcy application -or of measures within a paralyzed contest – during the state of alarm belonged to that exception and has generated foreseeable irreparable damage to the parties in the process.

For this reason, we will not get tired of insisting that any doubt, whatever its nature, related to a company in an insolvent situation, must be consulted and supervised by an expert lawyer in bankruptcy law.

How have the tax deadlines been during the state of alarm?

Royal Decree Law 8/2020, of March 17, adds a section to the Third Additional Provision of Royal Decree Law 463/2020, of March 14, which refers to the suspension of administrative deadlines, and does so in the sense to complement its content, expressly exempting the tax deadlines subject to special regulations, with particular reference to the deadlines for filing tax returns and self-assessments.

In other words, all of the periodic deadlines for submitting and paying returns are unaffected, leaving the respective deferrals and installments as the only tool, in the event of solvency tensions.
The suspension of deadlines in the tax field during the state of alarm

What happens to the companies in bankruptcy in the state of alarm regarding issues related to the Tax Agency? Entering the content developed by Royal Decree Law 8/2020 of March 17, specifically in its article 33, whose title is the “suspension of deadlines in the tax field”, and which enables the following possibilities:

For the terms that have not concluded on March 18, 2020 and have been communicated prior to that date, they will be extended until April 30, 2020. We include in this category the payments of tax debt in the voluntary and executive period, the maturities of deadlines and fractions of postponement, or to meet the requirements and proceedings of embargo, among others
Paralysis of executions of guarantees on real estate in enforcement proceedings from March 18, 2020 to April 30, 2020.
If they are communicated after March 18, 2020, we will see the following deadlines extended until May 20, 2020 (unless the regulation offers a longer period):
Payment terms in voluntary and executive period.
Maturities of deferrals and installments.
Terms of development of auctions and adjudication of goods.
Deadlines to meet requirements, embargo proceedings, requests for information or any act of processing in the period of allegations or hearing. In any case, the norm enables the taxpayer to promote the procedure before the aforementioned deadlines if he considers it appropriate, considering the procedure as evacuated.
Paralysis of tax application, sanctioning and review procedures, processed by the State Tax Administration Agency.

Therefore, there is the possibility of deferring and suspending the deadlines to comply with tax obligations, which may allow the natural or legal person that is in a situation of insolvency to order their debt and try to get out of that insolvency before the deadlines offered by article 43 of Royal Decree Law 8/2020, of March 17, are exhausted.

In summary, companies will suffer a lot during this year 2020, we still do not know how much, and since the aid offered by the government is notable, they will not allow many companies to avoid insolvency, which must file bankruptcy proceedings in the legally provided manner.

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