Non-compliance with the duty to file for insolvency proceedings

The debtor must file for insolvency proceedings within two months from the time he becomes aware or should have become aware of his insolvency. The insolvency proceeding will be presumed guilty, unless there is evidence to the contrary, when the debtor fails to comply with this duty. The Insolvency Law establish this sanction to ensure compliance with the duty to file for insolvency proceedings. The law establishes this duty to reduce the production of damages and the aggravation of the negative economic situation. Otherwise, the company would continue to operate in the traffic, contracting new obligations, when it is no longer able to comply with them regularly. This presumption extends to willful misconduct, gross negligence and causal incidence in the generation or aggravation of the insolvency.

When does the duty to file for insolvency arise?

The duty to file for insolvency does not only arise when the insolvency situation becomes known. It is also the debtor’s obligation to request the declaration of insolvency when he/she should have known about the insolvency situation. From that moment on, the debtor has a period of two months to file for insolvency proceedings.

What is insolvency?

The request for a declaration of insolvency must be based on the fact that the debtor is in a situation of insolvency. This legal concept is an economic state and, as such, requires permanence over time.  The debtor is in a situation of insolvency when it is unable to regularly meet its obligations. What defines insolvency is the lack of liquidity to assume the obligations due. This is what is known as current insolvency. In this case, the law provides for the obligation to file for insolvency proceedings.

The Insolvency Law also regulates the concept of imminent insolvency. This is when the debtor foresees that it will not be able to meet its due obligations on a regular and timely manner.

Si te ha interesado este artículo no dudes en leer:

Effects of the Bankruptcy Procedure Declaration on Contracts

The most decisive effects of the declaration of the concussion for the continuity of the bankrupt are those that fall on the contracts.

Is insolvency identified with qualified losses?

In the Insolvency Law, insolvency is not identified with imbalance or aggravated losses. Qualified losses are a mandatory cause for dissolution established in the Capital Companies Law. Insolvency is a state that forces the debtor to file for bankruptcy. The former is an accounting state and the latter an economic-financial state. Despite being two different concepts, both can coexist.

When does the insolvency situation arise?

The Insolvency Law includes a series of external facts that reveal a state of insolvency. These facts may serve as the basis for a declaration of insolvency. It is presumed that the debtor has become aware of its state of insolvency when one of the disclosing events has occurred. The concurrence of the disclosing event and the passage of two months without filing for insolvency proceedings, presume the guilt of the insolvency proceeding. However, we must remember that insolvency is a state. As such, it does not refer to a specific moment, but must be obtained by approximation. The revealing facts quoted are:

1. The existence of liens for pending executions that affect the debtor’s assets in a generalized manner.
2. The general dismissal in the current payment of the debtor’s obligations.
3. The hasty or ruinous liquidation of the debtor’s assets.
4. The general dismissal of:

• Tax obligations payable during the three months prior to the filing for bankruptcy;
• The social security contributions and other concepts of joint collection during the same period;
• The payments of salaries and indemnifications and other remunerations corresponding to the last three monthly payments.

How can it be proved when we are in a situation of insolvency?

1. By means of the Administration of Insolvency reports. It will have to be accredited, by other means, that in a certain lapse of time the debtor was in a situation of current insolvency.
2. By concurrence of the non-payment of tax obligations, of Social Security and salaries and compensations during three months.
3. By means of the list of creditors, verifying the beginning of the uninterrupted impossibility of payment .

If this article has been of interest, we also suggest you to read the following article published on our website: The 7 keys to file for insolvency proceedings