When a business finds itself unable to meet its ordinary commitments, whether to its distributors, workers, the Tax Authority, banks, etc., the procedure known as Insolvency Proceedings or culpable insolvency will need to be triggered. This seeks to maintain the continuity of the company, while the owner meets their debts or, in the worst case, allows for an orderly liquidation of the estate.
At BBMabogados we are specialists in this type of commercial procedure, so do not hesitate to contact us for advice on your situation.
What is culpable insolvency?
When a company (understood in a broad sense, that is, large companies, SMEs, professional firms and even the self-employed) finds itself in a situation of insolvency; that is, it cannot meet its ordinary payments, the Insolvency Act allows the triggering of court proceedings known as insolvency proceedings. Thus, with this mechanism, the aim is for the company to survive and pay its debts.
During this procedure, it is for the judge to determine the classification of the insolvency. In this respect, they will assess whether the company’s officers (directors) have caused its insolvency or not. That said, the judge may classify the insolvency as accidental, in which case the directors are not considered to have caused the business’s situation and are free of liability.
On the other hand, the judge may also classify the insolvency as culpable, in which case it will be shown that there has been wilful misconduct or gross negligence on the part of the company’s directors, which has caused or worsened the state of insolvency of the entity they represent.
What the culpable insolvency process is like in Santander
The company’s officers, on becoming aware of the company’s possible insolvency or of its actual insolvency, will have a maximum period of two months to apply, in writing, for insolvency before the commercial judge. The application must be accompanied by all the documentation set out by law.
Once the application and its supporting documents are admitted, the judge will classify the debts and how they will enter the insolvency process, and will also appoint an administrator. The latter will be the one responsible for negotiating with suppliers the possibility of extending payment times or reducing debts. This will give rise to the signing of the arrangement with newly agreed deadlines and amounts.
At this point the liability of the directors is determined. The classification of the insolvency must be made by ruling, containing: the determination of the persons named as responsible for the classification and their accomplices. This may extend to the directors or liquidators, general attorneys, and those who held these positions during the two years prior to the date of the insolvency declaration.
In any event, it should be stressed that this procedure is entirely commercial, but its consequences may also extend to the criminal field, in which case the corresponding ordinary criminal procedure will be applied.
Financial and criminal consequences
As we can already see from the above, having the insolvency classified as culpable brings with it quite significant consequences. These consequences are particularly serious for those who operate in the business world, since they will be disqualified for a considerable time from carrying out the activities they used to perform in a commercial company. However, this is so in order to protect the economy and prevent bad practices from spreading through the productive fabric.
SPECIAL CASE OF THE DIRECTOR
As we have been hinting, the immediate financial and criminal consequences for the directors of companies are several and severe. Let us look at the most notable ones:
❎ They will be disqualified from managing the assets of others, as well as from representing any person, for a period that may range from two to fifteen years.
❎ The directors and liquidators will be removed from their positions, unless, in the case of an arrangement, the ruling authorises the disqualified person to continue running the company or as a director.
❎ Loss of any right that the affected persons or those declared accomplices held as insolvency creditors, that is, they will not be able to claim anything from the estate to be liquidated of the respective company.
❎ An order to return the assets or rights they may have improperly obtained from the company’s estate, as well as to compensate for the harm caused.
In addition, it is understood that these penalties are imposed without prejudice to the criminal rules that may apply, in the event that the conduct of any of those involved constitutes an offence defined by the aforementioned rules, such as punishable insolvency offences, favouring creditors and falsification of the financial statements filed for deposit at the Commercial Registry.
LAWYERS WHO EMPATHISE WITH THEIR CLIENTS IN DIFFICULT MOMENTS
We protect our clients’ rights with the utmost dedication and diligence, placing special emphasis on personal attention.
