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Guide To Anticipate Bankruptcy Moratorium

“Retreat on time is a victory”. The phrase, attributed to Napoleon Bonaparte, could well explain the reason why some companies knocked out by the coronavirus are voluntarily filing bankruptcy, despite the fact that they are not legally obliged to do so until March 14.

Teria Yabar, Dentix and many others have already started this process of which, according to statistics, only 10% of companies survive successfully. Although each case is different, there are a number of reasons why it may be wise not to wait another minute.

In the first place, because the moratorium can turn into a poisoned apple . As financial restructuring experts assure, businesses in difficulty should not take this time in relaxation, quite the opposite.

Using a medical simile, the sooner gangrenous parts of the business are removed, the more the risk of spreading to the entire business is reduced. You do need, yes, a good doctor. As Guillermo Prada, partner at PradaGayoso, explains, “ a business crisis cannot be resolved by ignoring the legal environment in which it will operate”.

What happens is that, now, they have had to surf in a scenario as exceptional as it is uncertain. Until March 14, 2021, the law has legally shielded companies from their creditors, so that they cannot force their bankruptcy.

The objective is that they have room for maneuver to get out of the quagmire, looking for exits such as, for example, ICO guarantees. According to the INE, there is a situation of chicha calm, since the number of bankrupt debtors has only increased by 1.6% compared to 2019.

However, there are some red lights that should be addressed immediately if they do come on . One of them is the non-payment of common items (such as wages or Social Security contributions).

“Or that the company has serious difficulties in obtaining financing,” adds Pedro Martín, president of the Martín Molina firm. In these circumstances, “the best way to try to save the company is to request the declaration of insolvency”. If you wait, it will be doomed to liquidation.

The reality is that, as Cristian Valcárcel, senior associate of DWF-RCD points out, in Spain there is no culture of going to the bankruptcy to reach an agreement with creditors. For this reason, most of the companies that are presented today are “those that no longer have any viability and those that depend on the sale of the production unit.”

In a situation of “illiquidity”, Prada also defends, “it makes no sense to delay the request to the court.” Above all, taking into account that, if the forecasts are met, from spring an avalanche of companies and entrepreneurs ruined by the covid will parade.

In this sense, getting ahead can be a good strategy to avoid being last in line, “avoiding the foreseeable collapse that is expected for the second half of 2021,” says Valcárcel. Likewise, he adds, there are those who seek to anticipate their creditors, or even buy some time.

Another option currently being considered by some companies is to start negotiations with their claimants in the pre-bankruptcy phase and thus obtain an additional deadline for filing beyond March 14.

For Martín, this route is gaining more and more prominence and can serve as a float for those businesses whose situation allows for restructuring and resizing “through particular agreements with the most representative creditors.”

Furthermore, if the expected result is not obtained, the bankruptcy administrator would be informed of the path taken to obtain an agreement that allows the viability of the business.

One of the common fears of the companies that are turning to these experts is not being able to return all the public and private financing obtained, in many cases personally endorsed by the employer.

They are also afraid of not being able to face the readjustment of the workforce when they incorporate workers into ERTE. Experts cannot agree on what is best in this context.

What cannot be said, Prada argues, is that “in case of crisis, you have to go directly to the contest; and much more now, that there is no legal obligation ”. Issues such as loss of opportunities must be assessed, for example, “of eventual investors or new hires,” says Valcárcel.

The second reason why the administrators of a company prefer not to exhaust the moratorium is to avoid risks to their assets. If the bankruptcy is declared guilty (that is, they accuse you of having unlawfully delayed or worsened it) they may have to face all or part of the unpaid corporate debts.

The bankruptcy law requires managers to respond personally if, directly or dangerously, they have had a role in aggravating the company’s insolvency. For example, for not requesting the contest when they had to.

In this sense, the commercial judge, Raúl García, explains that this duty “is currently in parentheses”, so it cannot be breached.

A different issue, he adds, is that the actions of those responsible have harmed the entity, but he believes that, in practice, it is a situation that “is unlikely to lead to convictions.”

However, as Martín warns, in the process the management of the last two years is reviewed, so the contest could be classified as guilty if they had to file insolvency before the covid. All a warning to sailors.

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