What is the role of the Insolvency Administration?

We explain the essential functions of this figure

Insolvency Administrators are assigned highly important duties (as explained below) which they must perform collectively, unless the judge assigns specific duties to individual members. When required due to the complexity of the proceeding, the judge may assign certain functions to assistant officers.

The basic functions of Insolvency Administrators are to participate in acts performed by the debtor in order to exercise its powers with respect to its assets, to replace the debtor when said powers have been discontinued and draw up the report issued by the Insolvency Administrators, to which the inventory of the assets of the estate, list of creditors and, where applicable, an assessment of the agreement proposals submitted must be attached.

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Insolvency Administrators must rule on the inclusion of all the claims involved in the proceeding, both as regards those that have been communicated within the term and under the format set forth by law, and those indicated in the debtor's ledgers and documents, or that are otherwise included in the insolvency proceedings. In accordance with the law, the list of approved claims will be classified into preferred (those of special or general preference), ordinary and subordinate categories.

How insolvency administrators operate

The way insolvency administrators operate is complex. Their duties comprise a range of functions that Article 33 of Law 22/2003 of 9 July on Insolvency divides into the following categories:

a) Procedural:

  • 1. Perform actions against the shareholder or shareholders who are personally liable for accounts payable prior to the insolvency declaration.
  • 2. Perform the insolvent legal entity's liability actions against its directors, auditors or liquidators.
  • 3. Where applicable, apply for the seizure or forfeiture of the assets and rights of de facto or de jure directors or liquidators, legal representatives and other parties that have held this role during the two year period prior to the insolvency date, and the shareholder or shareholders who are personally liable for the company's accounts payable prior to the insolvency declaration, under the terms provided for in Article 48, Section Three.
  • 4. Where applicable, apply for attachments to be lifted or discontinued if they seriously hinder the insolvent entity's ability to continue its professional or business activity. The above with the exception of administrative attachments that, in accordance with Article 55, cannot be lifted or discontinued.
  • 5. Defeat eviction actions filed against the debtor prior to the insolvency declaration and restore the validity of the lease agreement up to the date the eviction was effected.
  • 6. Perform rescission actions and other challenges.
  • 7. Request that an order be enforced in the event the judge orders directors, legal representatives or shareholders to cover the deficit.
  • 8. Apply for expedited proceedings to be changed to ordinary proceedings, or vice versa.
  • 9. Replace the debtor in ongoing legal proceedings.
  • 10. Perform actions of a non-personal nature.

b) Specific to the debtor or its governing bodies:

  • 1. Perform the acts of disposal considered necessary to ensure the viability of the company or cover the cash flow required to continue the insolvency proceedings until the agreement has been approved or the liquidation process started.
  • 2. Assist the professional bodies of the insolvent legal entity.
  • 3. Perform the acts of disposal that are not required to continue the activity when offers are submitted that are materially consistent with the value cited in the inventory.
  • 4. Apply to the insolvency judge to revoke the appointment of the auditor and to appoint a different auditor to verify the annual accounts.
  • 5. Assume, after legal assignment, the debtor's voting rights in other entities.
  • 6. Claim payment of deferred social security contributions.
  • 7. Revalidate loan and other credit agreements that were terminated early due to non-payment of installments or accrued interest when termination took effect during the three months preceding the insolvency declaration, provided the conditions of Article 68 have been met.
  • 8. Revalidate agreements for the acquisition of movable or immovable property with a deferred price or remuneration which were terminated within a three month period directly preceding the insolvency declaration, in accordance with Article 69.
  • 9. Request authorization for the disqualified director to continue at the head of the company.
  • 10. Call a shareholders' meeting or assembly to appoint individuals to cover the vacant posts of the disqualified individuals.
  • 11. Grant the debtor authority to file actions or appeals, accept charges, settle disputes or withdraw from actions if the issue at stake may impact on its assets, except as regards actions of a non-personal nature.
  • 12. In compulsory insolvency, replace powers to manage and dispose of the debtor's estate in accordance with Article 40.2, specifically as regards:
    • i) Adopting the necessary measures in order to continue the professional or business activity.
    • ii) Preparing and submitting annual accounts for audit.
    • iii) Asking the judge to terminate agreements involving outstanding mutual obligations if this is deemed to be in the interests of the insolvency proceedings.
    • iv) Submitting tax declarations and self assessments.
  • 13. In voluntary insolvency; manage powers of administration and disposal in respect of the debtor's assets in accordance with Article 40.1, specifically as regards:
    • i) Overseeing the preparation of accounts.
    • ii) Determining which business acts or transactions should be authorized in general in order to continue the activity.
    • iii) Authorizing or confirming the governing body's acts of administration or disposal.
    • iv) Granting the debtor authority to withdraw, fully or partially agree to and settle lawsuits when the matter at issue may impact on its estate.
    • v) Authorizing the filing of actions.
    • vi) Submitting tax declarations and self assessments.

c) In employment matters:

  • 1. Comply with court rulings issued at the date of the insolvency declaration with respect to proceedings to materially amend conditions governing collective working practices, collective relocation, collective dismissal, contract cessation and reduced working hours.
  • 2. Apply to the insolvency judge for a material amendment to working conditions and the collective termination or cessation of employment contracts featuring the insolvent entity as the employer.
  • 3. Participate in proceedings to materially amend conditions governing collective working practices, collective relocation, collective dismissal, contract cessation and reduced working hours that commenced during the insolvency proceedings and, where applicable, agree the same with workers' representatives.
  • 4. Extinguish or discontinue the insolvent entity's agreements with senior executives. 5. Apply to the judge for payment of indemnities deriving from agreements with senior executives to be deferred until a final and unappealable ruling has been issued.
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d) Relating to the rights of creditors:

  • 1. Amend the order of payment for claims against the estate when deemed appropriate under the terms provided for in Article 84.3.
  • 2. Compile a list of creditors, determine whether or include or exclude the claims cited in the proceedings from the list of creditors, decide on the inclusion of new claims in the final list of creditors and report on the same before the proposed agreement is approved.
  • 3. Request that the liquidation phase be opened in the event the professional or business activity ends.
  • 4. Communicate to holders of preferred claims that payments may be charged to the estate without affecting assets and rights. 5. Petition the judge for the lien to remain in effect in the event preferred assets are sold.
  • 6. Petition the judge for ordinary claims to be paid early when payment of said amounts is deemed to be sufficiently covered by the estate and preferred creditors.

e) Reporting and assessment functions:

  • 1. Submit the report provided for in Article 75 to the judge.
  • 2. Prepare the inventory of the assets of the estate with the content of Article 82.
  • 3. Ask the judge to appoint independent experts.
  • 4. Assess the content of the advance agreement proposal.
  • 5. Draw up a final list of creditors and an inventory in accordance with Article 96.5.
  • 6. Assess the content of the agreement in connection with the payment plan and, if applicable, in relation to the accompanying Viability Plan.
  • 7. Provide information on the sale of the debtor's company as a whole.
  • 8. Submit quarterly reports to the insolvency judge on the status of the liquidation transactions and submit a final report justifying the transactions performed during the liquidation process.
  • 9. Submit a reasoned and documented report to the judge on the material events on which the insolvency proceedings are based, in addition to a proposal for a culpable or accidental insolvency ruling.
  • 10. Submit a report before the judge agrees to end the insolvency proceedings due to the fact that all claims have been paid or because all recognized creditors have relinquished their position.
  • 11. Update the inventory and list of creditors drawn up during the proceedings in the event the case is reopened.

f) Valuation and liquidation functions:

  • 1. Replace administrators or liquidators when the liquidation phase opens.
  • 2. Submit to the judge a liquidation plan for the assets and rights included in the assets of the insolvent entity's estate.
  • 3. Petition the judge for preferred assets to be sold directly.

g) Secretarial functions:

  • 1. Electronic communication of the insolvency declaration to the State Agency for Tax Administration [Agencia Estatal de la Administración Tributaria] and the Social Security General Treasury [Tesorería General de la Seguridad Social].
  • 2. Communicate the insolvency declaration and the obligation to provide information on claims to creditors.
  • 3. Communicate the provisional list of creditors provided for in Article 95 to creditors.
  • 4. Receive claims communications from creditors.
  • 5. Assist the Court Clerk at the meeting of creditors or preside over the same when ordered to do so by the judge.
  • 6. Attend the meeting of creditors.
  • 7. Report the insolvency declaration to known creditors that have an established address or office abroad.
  • 8. Request that the insolvency order and other procedural acts be registered abroad when such action is deemed to be in the interests of the insolvency proceedings.
  • 9. Request that claims submitted by foreign creditors be translated into Spanish.
  • 10. Perform the online communications provided for by law.

h) Any other functions provided for by this or any other law.

The above functions shall be performed in accordance with the specific provisions for different types of insolvency proceedings and phases of the insolvency process.

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