The Express Bankruptcy Procedure

What are the requirements for the Express Bankruptcy Procedure?

1. The Judge must clearly consider that the debtor’s assets are not enough to satisfy the credits against the estate and,
2. Nor shall it be foreseeable that reintegration, objection or liability of third parties actions can be filed.

If both requirements are met, the judge may, in the same ruling, order the beginning and the conclusion of the Bankruptcy Procedure without the intervention of the Receivership.

In the same Order, the Judge will rule the extinction of the legal entity and will order the cancellation of its registration, according to article 178.LC.

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What happens with the creditors?

The consequences of this Express Bankruptcy Procedure vary depending on whether we are dealing with a natural persono r a legal entity. On the one hand, article 178.3. LC establishes:

“The judicial resolution that rules the conclusion of a Bankruptcy Procedure due to liquidation or insufficient assets of the debtor will declare its extinction and cancellation of its inscription in the corresponding public registers, to which effect and order containing testimony of the final resolution will be issued”.

On the other hand, article 178.2. LC states that the debtor

“Will be responsible for the payment of the remaining credits. Creditors may initiate singular enforcements until the opening of the Bankruptcy Procedure is declared or a new Bankruptcy Procedure is declared.

The wording and interpretation of these two paragraphs in article 178. LC could reflect a lack of equity. However, Doctrine and Jurisprudence have been pointing out that:

“This does not mean that the company’s debt will be extinguished, nor that the assets remaining in the name of the Company will be res nullius (Resolution of the DGRN of December 2016).

The Supreme Court Ruling (STS) of July 25th, 2012 (RJ 1570/2009) sheds light son the issue. It states that:

“The cancelllation does not act as a healer of the possible defects of the liquidation. The definitive disappearence of the company will only happen when the cancellation corresponds to the real situation ; when the company has been liquidated in form and there aren’t any unsatisfied creditors, unpaid shareholders or assets to be distributed ».

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Imbalance as a cause of dissolution

An asset imbalance as cause of dissolution arises when, company’s losses within a financial year reduce equity below the company's share capital value.

Then,

When does the legal personality of a company expire?

Order of the Provincial Court of Barcelona, February 9th 2012, states that the extinction of the legal personality mentioned in article 178.3. LC

“Must be understood as a presumption of extinction of the company in favour of or as a guarantee for third parties in good faith (thus preventing the debtor and insolvent company from continuing to operate in business), but, on the one hand, it is inoperative with regard to the remaining creditors, since they will be able to initiate singular enforcements against the legal entity debtor” “and therefore it must retain its legal personality to support those claims on the passive side” “and to raise or mantain on the active side legal claims against other third parties due to credits against them that it holds or believes to be held, and thus to be able to deal precisely with the claims of unstatisfied creditors”.

Thus, there is no problema for the creditor to initiate or continue singular enforcements to claim its debts.

Otherwise, the debtor (legal entity) would be exonerated as a result of the extinction, which would be to the detriment of the creditors and to the benefit of the shareholders, since the latter would receive assets and rights still included in the assets free of debts.

However, the benefit of the exoneration from unpaid debts is only available fort he natural person. (DGRN Resolution, March 10th, 2017).

Finally, what happens if new assets or rights appear ? In this case, there will be a reopening oft he Bankruptcy Procedure according to article 179.LC.

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