The Latest Amendment of Spanish Insolvency Law (2 and Farewell to Spanish Guestblogging)

This post will be my last one, and I would like to start it thanking Bob and the rest of the Credit Slips team for inviting me again to guest blog. I felt flattered and excited to share my experiences with Spanish insolvency law the first time, and the feeling remained throughout my second blogging stint. The experience has been so interesting (and a bit challenging) that I would not mind returning for a third time in the future.

My previous post covered the basics of the recent amendment of the Spanish Insolvency Law regarding refinancing and restructuring agreements. I left for this final post the analysis of two specific issues: judicial authorization and promotion of debt for equity agreements. The changes introduced by this amendment are, for sure, of great importance.

The Latest Amendment of Spanish Insolvency Law (1), or a Guide to Run Away From Insolvency Procedures

As I mentioned in my previous post, in the final two posts in my stint as guest blogger detailing the latest amendment of the Spanish Insolvency Law, I’ll take a break from discussing personal insolvency to focus on another current issue in Spain that very recently led to a partial amendment to the Insolvency Law: out of court refinancing and restructuring agreements. I have a personal interest in sharing the situation here in Spain because I am deeply interested in hearing comments on the main issues I identify as regards the amendment. To begin, I will briefly outline the amendment’s main features. I’ll then identify four main issues with the amendment – two in this post and two in my final post.

What Happened to Mortgage Debtors?

In my first post I advanced some basic ideas on the situation of Spanish mortgage debtors. The Spanish situation following the housing crisis may be familiar to readers because it shares many of the same characteristics of problems in European countries. The U.S. media has covered these stories, for example here.

For different reasons, seemingly sociological, the situation of these debtors was a center of the Spanish discussion about the effect of the crisis on households and individuals (leaving aside unemployment, of course). Therefore, different legislative measures were adopted during these years trying to offer specific solutions to mortgage debtors. In this post I will try to outline, in a more detailed way, the present situation. 

Discharge, Yes...But, How Much?

In this post I will explain the extent of the discharge given to insolvent individuals under the new Spanish insolvency law. Different problems arise from the way it has been introduced, ranging from its extent to the differences depending on the nature of the debtor. As in other provisions, looking at the newly introduced discharge one receives the impression of some sloppiness in the amendment or, worse, window dressing. It is hardly believable that the discharge given could be a useful tool for individuals in difficulties, engaged in business activities or not. Some debts that should reasonably be excluded are included while others that should be rationally excluded are included.

If discharge is given, because it is the most effective way to achieve the rehabilitation of the debtor, which is the main purpose of any insolvency system for individuals (or, at least, one of the main purposes, see World Bank Report, par. 359), it should be one of its more carefully thought and drafted parts. I do not dare to decide whether it is the consequence of sloppiness or of window dressing, but the results are clearly inconvenient, in my opinion (and this opinion is shared by others, once again see CUENA, 2013).

Eligibility Conditions for Discharge Under the New Spanish Personal Insolvency Regime

My previous post announced my intention to focus on the new Spanish Insolvency Law’s differences between individual debtors with or without business activities. As I mentioned, the new model clearly differentiates between these two categories of debtors in terms of discharge, offering a more
extended debt remission to debtors engaged in business activities. I will explain in a later post the extent of the difference. In this post, I will focus on the eligibility requirements for discharge that, once again, might lead to differing treatment among insolvent individuals.

To understand the difference, it is important to remember that the extent of the discharge varies depending on whether pre-insolvency mediation has been sought or not. Recall also that eligibility for pre-insolvency mediation is limited to individuals with business activity. Considering that the access to this mediation procedure is, in its turn, conditioned to certain requirements, the net effect is that the terms of eligibility result in a difference in the discharges individual debtors receive.

Debtor, What Debtor?

The recent World Bank Report on the Treatment of the Insolvency of Natural Persons  highlighted in its first pages (13 and ff.) the alternatives regarding which debtors to be include in this special regime. Although the solutions to this question are not the same among different countries, the problem is identical: whether to include persons without any business activity—that is, “pure” consumers—or to limit its particular provisions to individuals engaged in business activity.

Although it has different grounds, the discussion reminds me of the classic insolvency/bankruptcy problem of limiting these proceedings only to businesses. As many of the readers know, this was a classical question when the old insolvency and bankruptcy procedures were part of a special set of

Nr. of personal insolvencies and debtor condition. Spain

norms for businesses (for instance, the mandatory accounting or a special public register). Seeing this question arise again in the context of personal insolvency brings back memories of the good ol’ times when I started studying our old quiebra and the discussions on the nature of the debtor and his eligibility for that procedure (a problem usually present in the old spanish suspensión de pagos). To avoid nostalgia for those times, and for the sake of our readers, I’ll turn my eyes to the present. How has the amendment of the Spanish Insolvency Law dealt with the problem of the nature of the debtors?

Spain, Six Years Later

First of all, I would like to thank the Credit Slips team and, in particular, Bob, for hosting me here again. I guess that after six years, memory is weak, and it is easier to believe that I could have something interesting to share with their readers. I hope that, at least, my posts will help to understand the present situation of Spanish Insolvency Law as regards personal bankruptcy. The latest amendments are said to be a dramatic change in our system. My personal view, however, is not so optimistic, as it looks more like window dressing.

Six, almost seven years ago, I wrote here:

The situation described above could change somehow, as the increment in individuals' indebtedness and the eventual problems faced in case of an economic downturn could push politicians to pass a law for consumer bankruptcy or a reform in the insolvency law. But if it were the case, the discussions will probably focus on mortgages, as it can be clearly seen in how trade unions or consumer associations speak about this question right now. That situation will undoubtedly be a test for the bank and credit industry power in our society.

What happened since then?