• By Daniel ORGUÉ
• 02-04-2020

The arrangement with the creditors and COVID-19: Terms to consider per companies in crisis

During these last weeks, those who have children at home have been in the situation to try in putting imagination and creativity so to distract our children every day. In some cases, we may have tried some old tricks and games just to offer them entertainment and fun.

In my case, we have been playing to one of my favourite board games: Battleship.
Far from the games and fun, and the paradox used in this article, for loads of employers/businessmen, that already had their Companies “hit”, the apparition of the COVID-19 may have provoked extremely complicated economical situations, tensions of treasury, liquidity problems, defaults and in some others, the shipwreck.

In this sense, given the repeated questions of our questions related to their mercantile duties as businessmen/women, directors and administrators of the capital societies that could be in risk, we consider opportune to reply to these questions in this article so that we can also explain other essential aspects when looking towards the immediate future of a society.

The Real Decreto-Ley, 17th March 2020

 As the article 363.1.e) of the Capital Societies Law establishes, the company shall be dissolved when “For losses that reduce the net equity to an amount less than half of the share capital, unless it is increased or decreased sufficiently, and whenever it is not appropriate to request the declaration of insolvency”.

And according to the provisions of article 5 of the Insolvency Law: "The debtor must request the declaration of insolvency within two months from the date on which he had known or should have known his insolvency status."

Well, the first important and noteworthy issue is that through the Royal Decree-Law that the Government approved on March 17, 2020 of extraordinary urgent measures to face the economic and social impact of COVID-19, modified the deadlines to urge the insolvency and file the correspondent arrangement with the creditors application.

In this sense, through the referred Royal Decree, the debtor in an state of insolvency will not have to file the declaration of arrangement with the creditors during the validity of the declared State of Alarm.

Therefore, we understand that the period of two months indicated in article 5 of the Insolvency Law has been suspended from the moment the State of Alarm was decreed and the term will continue to run from where it was that day (which does not mean restarting), from the lifting of the Alarm State.

This allows some relaxation in this aspect, but, warning for navigators: this does not mean that an eventual Bankruptcy Administrator will not examine and analyse what has happened during this time of suspension, or if good management has been done, or if on the contrary, the administrator or administrators of the company have deliberately aggravated the economic situation of the company, which could lead to a guilty classification of the bankruptcy/insolvency, and the consequences that this may entail in their personal assets.

Notwithstanding this, and returning to the issue of deadlines, the same Royal Decree also establishes that the Judges may not admit any necessary bankruptcy application (the one urged by a third party who is not the debtor) until two months after the removal of the suspension, something that also allows a certain peace of mind for the administrators of the “hit” company, since during those two months the only one who can request the arrangement will be the company itself and not a third party.

Nor will the company that prior to the decreeing of the State of Alarm already had urged a Pre-arrangement of article 5bis of the Insolvency Law if they had the obligation to request the arrangement in a date within the validity of the State of Alarm, understanding that the term was suspended on the day the Alarm Status was decreed and will continue to run on the day that will be raised.

In conclusion, the deadlines have been suspended until the lifting of the Alarm State and this gives us some relaxation in this aspect, allowing us to save time, something that according to the current situation has more value than gold, but again, remember that the duty of diligence  is not suspended, and it is absolutely necessary that during this indeterminate period of time the administrator/s shall continue to be the good and exemplary businessman/woman that has always been.