To whom correspond the legal costs for the assistance and representation of the insolvency administrator?

Introduction

As is already known, the purpose of the insolvency administrator (AC) is to look after the interests of the insolvent party. This implies that, throughout the insolvency proceedings, he/she can act in the incidents both as plaintiff and defendant. However, does it also imply being a beneficiary and condemned to pay the costs? Certainly not.

However, in practice, we have seen enforcement claims against the administrator’s assets. Specifically, in those cases in which, the AC being sued, there has been a condemnation in costs. This cannot be accepted in the light of the applicable legislation, as we will see below.

Thus, ordering judicial execution against the AC’s assets would be the same as ordering it against the assets of a lawyer in any judicial proceeding.  And in which he has also been ordered to pay costs. Because it is evident, that the costs of any procedure are in favor and against the interested parties in the lawsuit.And not of their legal representatives.

Although it is an issue that seems quite obvious, in practice there is usually a lot of confusion. For this reason, we are going to talk in this article about who bears these costs. And we have already advanced that it is not the AC.

The insolvency administrator does not act as a party in the insolvency proceedings.

First of all, it must be borne in mind that the AC does not act as a party in the bankruptcy proceedings. Also, there is no personal interest of the AC. Apart, of course, from representing the insolvency estate, since he was appointed for that position. The foregoing, by provision of Article 184.5 of the Insolvency Law (LC). In it, it is stated that the technical management of incidents shall be understood to be included in the functions of the lawyer member of the AC.

These considerations were already made by the Supreme Court (SC) in its Ruling of November 11, 2015.  In it is stated that the AC is not actually a party. It acts in representation and defense of the real party, which is none other than the insolvency estate. And therefore, as it is not acting in its own interest, it can hardly be enforced against it in its personal capacity.

However, it seems that the sentence for costs is confused with the personal liability that a AC may have (for example, for acting to the detriment of a creditor or of the insolvency estate). Scenarios that have a completely different regulation and that we will see below.

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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.

Articles that should not be confused when there is an award of costs in bankruptcy proceedings and appeals.

Article 394.1 of the Civil Procedure Law (LEC) provides that the costs shall be imposed on the party whose claims have been rejected.  Unless the Court appreciates and reasons that there are serious doubts of fact or law. Therefore, the costs are for the plaintiff or defendant. Not for their representatives.

On the other hand, article 36 LC states which are all the responsibilities of the AC. And in its point nº 3, which is the procedure to be followed in the case of concurrence of any of them. Specifically, it must be substantiated through the procedures of the corresponding declaratory judgment. And, before the Judge who knows or has known the insolvency proceeding. It follows that the AC will only respond with its assets when so ruled by a Judge.

It is for this reason that the winner of an incident in which the other party is the AC cannot claim the costs from the latter. Since there is no personal liability dictated by a Judge.

Therefore, the scenario of condemnation in costs of article 394 LEC and the one included in article 36.1 LC, cannot be more different.

Any resolution on the judicial costs, whether in favor or not, are always either in favor or against the insolvency estate.

Having stated that the AC will only be liable if it is judicially declared as such, we end the article with a final clarification. The costs are integrated or extracted from the insolvency estate depending on who has been condemned.

Article 84. 3º LC, provides that the legal costs and expenses are considered as a credit against the estate. Specifically, those incurred for the assistance and representation of the debtor and the bankruptcy administration. Or of creditors legitimized in lawsuits that, in the interest of the estate, continue or are initiated in accordance with the provisions of this Law.

Conclusions

The AC acts exclusively in the interest of the insolvency estate. As the SC has already said, it is not a party to the proceedings. Nor, therefore, is he obliged to pay the costs even if he acts as a defendant in a bankruptcy proceeding.

The agreement of judicial execution against the assets of the AC would be equivalent to ordering it against the assets of a lawyer in any judicial proceeding.

However, in practice, the sentence to pay court costs under Article 394.1 is confused with the personal liability of the AC. This liability is provided for in Article 36 LC and has nothing to do with it. For they are totally different procedures.

Any decision on costs will be either in favor or against the insolvency estate.

If this article has been of interest, we also suggest you to read the following article published on our website:

Necessary Insolvency Proceedings and the hasty or ruinous liquidation of assets by the debtor.