The Government has again extended the insolvency moratorium bound to expire on December 31 until June 30 2022 through Royal Decree-Law 27/2021 of November 23. Consequently, debtors who are in a situation of insolvency will not have the duty to request the declaration of insolvency for at least another half a year, nor will the necessary insolvencies filed by creditors be accepted.
As a matter of fact, this will count as the third extension of the insolvency moratorium which the Government initially set until December 31 of last year, during the toughest period of the pandemic, in order to avoid an avalanche of insolvencies. Nevertheless, before the deadline expired and as the health and economic situation remained unstable, the moratorium was extended until March, and extended later again until the end of the year.
The main aim of this new extension is for viable companies to have legal instruments that will allow them to keep their activity and employment going, as well as restore their equity balance while the European Directive 2019/1023, of June 20, 2019, is being transferred. This will involve a new reform of the Insolvency Law, where the idea that business continuity is in the general interest will be reinforced and that it would be even more prioritizing than tax collection being done by the tax agency, thus giving a second chance to insolvent or over-indebted entrepreneurs in good faith.
The foremost danger is that this new moratorium will cause many companies going through difficulties, which should have already overcome these for their survival, to worsen their state, favouring the proliferation of “zombie” companies.
The Bank of Spain has warned of the latter on numerous occasions. “The insolvency moratorium, if prolonged in time, can contribute to a higher survival rate of unviable companies, whereas in the absence of certain financial support measures (bank refinancing or new credit from their contractual counterparts), they would certainly disappear in short time term”.
Considering the number of tenders that have been filed this year, it is clear that the insolvency moratorium has given troubled companies a false sense that the decision on what measures to take for their survival can be postponed indefinitely.
The problem lies in the absence of requirements, which means that any company can take advantage of this moratorium, even when they do not really have the capacity to continue with their activity or even companies with chronic insolvencies long before COVID.
It seems, therefore, that the new moratorium will only serve to camouflage the reality of companies in our country and so that public bodies enjoy total freedom to collect (via execution) their credits, which would not happen in insolvency.
The foreseeable consequences of this new moratorium are:
1.Increased insolvencies with a possible collapse of the commercial courts.
2. False sense of security for entrepreneurs that can lead to postpone decision-making, causing their businesses to encounter an irreversible situation, when in a critical situation the survival of the company may depend on rapid decision-making.
3.The insolvency to be declared guilty with the serious consequences that said declaration entails for the administrators, when the employer, knowing that his company is not viable, prefers to keep the company in the market by speeding up the term granted by the insolvency moratorium without taking any action to restructure the company.
Palmira Cañete
Procedural Department
