Novelties in the procedural and bankruptcy field introduced by RD Law 16/2020 on procedural and organisational measures to deal with COVID-19 in the Administration of Justice field

Written on 30 Apr 2020

On April 29 2020, the BOE published RD Law 16/2020 on "procedural and organizational measures to address COVID-19 in the area of the Administration of Justice", and, with regard to the measures adopted in the area of procedural and bankruptcy law, the following are noteworthy:

1. In the procedural field:

a) Measures relating to the entitlement to days and procedural time limits (arts. 1 and 2):

  • Habitation from 11 to 31 August —except Saturdays, Sundays and holidays— as well as the afternoon schedule in the Courts and Tribunals until three months after the lifting of the state of alarm (art. 27).
  • Deadlines that have been suspended as a result of the declaration of the state of alert are restarted from the beginning, i.e. the period of time will begin to be counted again from the day after the suspension ceases to have effect in the procedure in question.
  • It also extends the deadlines for the announcement, preparation, formalisation and lodging of appeals against judicial decisions that terminate the proceedings and that have been notified (i) while the procedural deadlines have remained suspended or (ii) within 20 working days following the lifting of the suspension. The extension shall be for a period equal to that provided for such appeals in their respective regulatory laws.

b) A special and summary procedure in family matters is established (arts. 3-5), given the special situations in this area that may have occurred and/or are likely to occur as a result of the crisis caused by COVID-19.

c) Preferential handling of certain procedures (article 7) In particular and with regard to civil jurisdiction, and apart from what may be provided for by specific laws:

  • Cases of voluntary jurisdiction in maintenance and family matters, as well as the special summary procedure created by the RD.
  • Processes relating to the moratorium on mortgage and rent payments in the last RDs approved as a result of the COVID-19 crisis.
  • Bankruptcy proceedings for individuals who are not entrepreneurs.

d) Security measures (arts. 19 to 23): a series of measures are planned that will continue for up to three months after the state of alarm is lifted: the preferential holding of hearings, appearances and declarations will be telematic whenever possible, dispensing with the obligation to wear gowns and restricting access and attention to the public by the judicial bodies to very specific cases and by appointment, with priority given to telephone and email attention.

e) Measures for the internal organisation of courts and tribunals (arts. 24 to 28): a series of internal measures are adopted with regard to working hours, assignments and reorganisation of the personnel assigned to the Courts in order to guarantee their correct functioning and the availability of sufficient personnel.

2. In the field of Insolvency and Bankruptcy:

Chapter II of the Royal Decree, which is probably the most important in legal terms, is devoted to the measures to be adopted in the field of bankruptcy. The following can be distinguished:

a) Measures to facilitate compliance with the Agreements, both those already approved and in force and those pending judicial resolution but which have already been approved by the legally established majorities, in order to avoid possible liquidations (arts. 8 and 9):

  • Amendments to Agreements in force: Within one year of the declaration of the state of alarm, the debtor may submit a proposal for amendment of the Agreement, which shall be governed by the same rules as those governing the approval of the original agreement, but shall be dealt with in writing in full. The amendment shall not affect claims accruing or incurred during the period of performance of the agreement or privileged creditors bound by the agreement unless they expressly join or vote in favour of the amendment.
  • Restrictions on applications for a declaration of breach of the Agreement and consequent settlement: Applications submitted during the 6 months following the declaration of the state of alarm will not be admitted for processing until three months later. However, the judge will transfer them to the debtor so that, within the same three-month period, he can present a proposal for the modification of the agreement, which will be processed in preference to the application for non-performance presented by the creditor.
  • Deferral of the duty to apply for a settlement: During the period of one year from the declaration of the state of alarm the debtor with an Agreement in force shall not be obliged to apply for a settlement even if he is aware of the impossibility of making the committed payments, provided that within the same period of time a proposal to amend the Agreement is requested and accepted. During the same period, the judge shall not issue an order opening the liquidation phase even if the creditor proves the existence of one of the facts that could be fundamental to the declaration of bankruptcy.
  • Facilities for obtaining financing: in the event of failure to comply with the Agreement adopted or amended within two years of the declaration of the state of alarm, claims arising from cash receipts obtained by the debtor as a result of credits, loans or other similar business, as well as claims arising from personal or real guarantees given in favour of the debtor, even if the third party financiers are persons specially connected with the debtor, shall be deemed to be claims against the estate, provided that the identity of the financier and the maximum amount of the financing or guarantee are stated in the Agreement or its amendment.

b) Measures to prevent the declaration of new insolvency proceedings and the obtaining of financing (arts. 11 and 12):

  • Until 31 December 2020, no debtor will be obliged to apply for bankruptcy, whether they have already presented the communication referred to in Article 5.bis of the LC (the so-called pre-competition) or have not yet carried out any action. If before 30 September 2020 the debtor submits the application referred to in Article 5.bis of the LC, the general rules established will apply.
  • The compulsory insolvency proceeding is the process originated by the creditors for the collection of their claims from a debtor when it is proved that he does not have the liquidity - cash - to pay his liabilities, that is to say, his debts and payment commitments.
  • In bankruptcy proceedings declared within two years of the declaration of the state of alarm, the following will be considered ordinary claims: (i) claims arising from cash receipts from loans, etc., granted to the debtor since the declaration of the state of alarm by persons specially connected to the debtor, and (ii) claims in which persons specially connected to the debtor have been subrogated as a result of having paid —since the declaration of the state of alarm— both ordinary and privileged debts on behalf of the debtor.

c) Measures to expedite and simplify bankruptcy proceedings (arts. 13-16):

  • The procedure for contesting the list of creditors and/or the inventory is simplified for those bankruptcies in which the provisional report of the Bankruptcy Administration has not yet been presented and those bankruptcies that are declared within two years of the declaration of the state of alarm: (i) the only admissible means of proof will be documentary and expert evidence, and must necessarily be accompanied by the respective writ of claim and defence, without the holding of a hearing being envisaged unless the judge so agrees, (ii) the failure to reply to the claim will be considered as an acquiescence on the part of the defendant.
  • A series of matters are established for preferential processing in bankruptcies, for a period of one year from the declaration of the state of alarm:

- Bankruptcy incidents in labour matters

- Sale of productive units or "balloon" assets

- Proposals for agreements or amendments thereto and incidents of opposition to their approval

- Reintegration actions

- Applications for homologation of Refinancing Agreements or modifications of these

- Precautionary measures and those aimed at preserving property and rights.

  • It is established that the auctions to be carried out in the liquidation phase of assets and rights of the active mass are carried out out of court. This provision will be applied to the auctions currently in progress (even if the Settlement Plan establishes otherwise), and to those that are declared within one year of the declaration of the state of alarm, unless the judge has already ordered the direct execution or dation in payment of goods or rights subject to special privilege, in which case this provision will apply. For the sale of the company as a whole or productive units, the judge will decide (judicial or extrajudicial auction or any of the means provided in the LC).
  • The immediate expediting of the judicial approval of the Settlement Plans that were pending when the alarm was declared is ordered.

d) Measures relating to Refinancing Agreements and out-of-court settlements (arts. 10 and 17):

These measures are along the same lines as those adopted in relation to the Agreements in force, i.e. their aim is to prevent non-compliance that could lead to the company going into bankruptcy and/or liquidation through the following:

  • Application for modification of the approved refinancing agreement (Art. 10): During the period of one year from the declaration of the state of alarm, the debtor may inform the court that he has started negotiations to modify an approved Refinancing Agreement that is already in force, regardless of how long the Agreement has been in force (i.e. one year need not have passed since the agreement was signed).
  • Restrictions on applications for declaration of non-compliance with the Refinancing Agreement (Art. 10): Within 6 months of the declaration of the state of alarm, creditors may submit applications for declaration of non-compliance with the refinancing agreement, but these will not be admitted for processing until one month after the end of this 6-month period. However, the debtor will be notified of these applications so that he can submit the communication during this period indicating that he will start negotiations with his creditors to modify the existing Refinancing Agreement, or to reach a new one, and he must formalise this modification or new Agreement within three months, after which without success the judge will admit the creditors' applications for processing.
  • Speeding up the processing of out-of-court settlement agreements (Art. 17): During the year following the declaration of the state of alarm, the debtor will be considered to have tried unsuccessfully to reach an out-of-court settlement agreement if he can prove two instances of lack of acceptance by the bankruptcy mediator; this is for the purpose of initiating consecutive bankruptcy proceedings.
  • Requests for modification of out-of-court payment agreements: the rules established in art. 8 of the RD apply to requests for modification of agreements in force.

The RD will enter into force on the day following its publication, i.e. 30 April 2020.