Plurality of creditors as a requirement for the declaration of a bankruptcy procedure

A plurality of creditors is a mandatory requirement for the declaration of a bankruptcy procedure. A company with only one creditor cannot be declared bankrupt or in a bankruptcy procedure.

However, the articles of the Spanish Bankruptcy Law frequently refer to the plurality of creditors. This is why, in many cases, the Courts did not admit the bankruptcy procedure when only one creditor was involved.

This is the case of the Order of the Commercial Court Nº6 of Madrid, dated June 8^th 2009. This Order includes:

“The application for voluntary bankruptcy procedure made by (…) should be rejected. As it appears contrary to the provisions of Article 2.1 of the Bankruptcy Law (hereinafter LCo.). Since the existence of only one creditor of the applicant prevents the application of the bankruptcy process and its effects”.

Similarly, the Barcelona Provincial Court ruled on July 3^rd 2009. The declaration of bankruptcy procedure was not admitted. As there was no concurrence of creditors that would justify the bankruptcy treatment of the insolvency.

Under these precedents, can be admitted that, if there is only one creditor, the declaration of bankruptcy will be rejected?

We analyze the recent decision of the Barcelona Provincial Court. It was handed down by the 15th Chamber on September 28^th 2015.

Can the bankruptcy procedure be declared when there is only one creditor?

The above-mentioned judicial resolution states that the bankruptcy process presupposes a plurality of creditors. Without this circumstance there would be no possibility of declaring the bankruptcy procedure.

However, the case referred to in the decision leads the Court to interpret this assumption flexibly. The process is approached from the perspective of the bankruptcy procedure of a natural person. And that natural person wants to be exempted from debts.

The Plurality of Creditors and the Second Chance

Exemption from liability is recognised for the debtor once the bankruptcy procedure have been completed. This termination can be either by liquidation or due to insufficient assets. For this reason it is necessary to assume that a number of creditors will be present during the bankruptcy process.

Consequently, the resolution admits the declaration of bankruptcy procedure under the cover of the existence of creditors during the process. These creditors may not have had their claims paid at the time of the declaration.

Therefore, the Provincial Court assumes that plurality of creditors is present. Since the debtor will have obligations (e.g. supplies) during the bankruptcy process. This allows to consider that the implicit requirement of the plurality of creditors that we have been analyzing is fulfilled.

Si te ha interesado este artículo no dudes en leer:

Who is eligible to apply for a Bankruptcy Procedure?

In the bankruptcy there will be several people with standing to present a bankruptcy. These are included in article 3 of the Bankruptcy Law

And in the field of limited companies, can the bankruptcy procedure be declared when there are no multiple creditors?

At this point, we bring up a resolution of the DGRN dated August 22^nd , 2016. The General Directorate of Registry and Notaries analyses the extinction of a company with the existence of a single creditor.

This resolution analyses how the Spanish Bankruptcy Law does not expressly require a plurality of creditors. The DGRN considers that the plurality of creditors is a natural, but not essential, assumption. Therefore, is necessary to be able to declare the bankruptcy procedure, with one creditor, as a means of universal implementation.

Conclusions

The declaration of bankruptcy procedure requires, as an implicit requirement, the existence of a plurality of creditors.

Throughout its articles, the Spanish Bankruptcy Law refers to the existence of a plurality of creditors. However, it does not expressly establish this circumstance as an essential requirement.

In recent years, both Courts and DGRN have been in favour of declaring bankruptcy procedure. Even though there is only one creditor.

Below, we leave a link to other collaborations of interest:

How do you sue a liquidated company? 4 Judgments and 1 Funeral