The debtor’s duty of collaboration and information

Introduction

The figure of the Receivership is often seen as an enemy to the debtor. However, we must not forget that for the good development of the Bankruptcy Procedure, the debtor and the Receivership must cooperate. However, this is not just an advice. It is an obligation that is typified in the Bankruptcy Procedure Law (LC), the noncompliance of which can have serious consequences for the debtor.

What is the duty of collaboration and information?

The Bankruptcy Procedure ruling imposes on the debtor the duty to actively collaborate with the Bankruptcy Procedure Judge and the Receivership. This duty is established in Article 42 LC. During the development of the Bankruptcy Procedure it is necessary for the debtor to provide documents and clarify information on aspects related to the same, such as the preparation of the inventory and the list of creditors. This information request may even be directed at clarifying irregularities that the debtor may be hiding.

However, these duties of collaboration are defined in the Law in broad terms. These duties must be understood as everything that is convenient for the correct development and interest of the Bankruptcy Procedure. In addition, the debtor has the duty to appear in person before the Bankruptcy Procedure Judge and before the Receivership when required to do so.

Who has this obligation to collaborate? Before Whom?

If the debtor is a natural person, he is obliged to fulfill this obligation himself or his legal representatives.

If the debtor is a legal person, these duties must be fulfilled by those who are administrators or liquidators at the time of the Bankruptcy Procedure ruling. Those who had been administrators or liquidators during the two years prior to the Bankruptcy Procedure declaration also have this obligation. Article 42.2 LC extends this obligation to the debtor´s representative. However, this obligation must also be fulfilled by the administrators in fact, despite not being the legal representatives of the legal person.

When is this duty considered to have been breached?

Article 165.1.2 of the LC establishes the importance of the duty to collaborate in order to avoid a classification of the Bankruptcy Procedure as guilty.  The failure of the debtor to provide the necessary information to process the bankruptcy involves a breach of the duty to cooperate, but this non-provided information must be relevant. Non-compliance must be significant and affect elements that hinder the evolution of the insolvency proceedings. It is also considered to have been infringed when the duty to attend the Creditor Committee to negotiate and accept agreements is not fulfilled.

Our jurisprudence states that this duty has been unfulfilled when:

• The requirements made by the Receivership are not met.
• The information is difficult to understand.
• The lack of deposit of the annual accounts
• Making it inappropriately difficult for the Receivership to make the Bankruptcy Procedure report.

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When it is mandatory to apply for a declaration of insolvency?

To present the Contest we have to fulfill an essential prerequisite: to be insolvent. This insolvency, whether current or imminent, is characterized by the impossibility of satisfying creditors' credits.

Since we are dealing with a behaviour that occurred after the Bankruptcy Procedure ruling, it is not considered a previous insolvency but rather an aggravation of the insolvency situation. It must be an aggravation that comes with harmful consequences to the creditors.

Article 165 LC contains an iuris tantum presumption that extends to malice, gross negligence and its causal link in the aggravation of insolvency.

How can the debtor defend his position?

The Receivership must identify the facts that have aggravated the insolvency situation so that the debtor can argue his defence.

Should it be justified that these facts have aggravated the insolvency situation? No. Our Supreme Court states that it is not necessary for the Receivership to accredit the specific consequences of non-complying with this duty. This is as as long as it has been proven that the debtor has incurred in the situations stablished in article 165.1.2º LC (STS 4267/2017, December 1^st).

When the debtor’s conduct is classified as grossly negligent or malicient, he must rebut the presumption. The debtor must also prove that there is no causal link between the conduct and the result produced. He could also state facts that prove that he has actively collaborated with the Receivership, as well as proving that these facts do not lead to a worsening of the Bankruptcy Procedure situation.

It is therefore important that the debtor makes a written record of the fulfillment of his duty to cooperate. For example, by replying to the e-mails in which he is required by the Receivership, or by providing lists of telephone calls (SAP Pontevendra 192/2018, February 1^st). Thus, the debtor would show that he diligently complied with this duty.

Consequences of failing to comply with this duty of collaboration and information

The lack of cooperation by the debtor can lead to numerous consequences that result in an improper development of the Bankruptcy Procedure. For example, agreements that cannot be reached with the creditors or that it is less beneficial to them. Or that as a result of this non-compliance, the debtor makes it difficult to liquidate his assets, achieving a lower satisfaction of the credits.

The most important consequence, however, is the classification of the Bankruptcy Procedure as guilty.