The continuity of business activity after the declaration of bankruptcy proceedings
Articles 111 et seq. of Royal Legislative Decree 1/2020, of 5 May, approving the revised text of the Bankruptcy Law, regulate the continuation of the exercise of the professional or business activity after the declaration of bankruptcy.
Does the declaration of bankruptcy interrupt business activity?
Firstly, it is established that the declaration of bankruptcy proceedings will not interrupt the continuation of the debtor’s professional or business activity.
Specifically, until the bankruptcy administration is accepted, the insolvent party may carry out the acts that are essential for the continuation of its activity, provided that they are in line with normal market conditions, without prejudice to the precautionary measures adopted in this respect by the judge when declaring the bankruptcy proceedings.
In order to facilitate the continuation of the professional or business activity of the insolvent party, the bankruptcy administration, in the event of intervention, may authorise, in general, those acts or operations inherent to the business or trade of that activity which, by reason of their nature or amount, may be carried out by the insolvent party or by its managing director or directors.
How does the business activity continue in the event of suspension of the insolvent party’s powers of administration and disposal?
However, in the event of suspension of the insolvent party’s powers of administration and disposal, it will be the bankruptcy administration that will take the necessary measures for the continuation of the professional or business activity.
However, it should be borne in mind that the judge, at the request of the bankruptcy administration, after hearing the insolvent party and, if they exist, the workers’ representatives, may agree, by means of an order, to close all or part of the offices, establishments or operations owned by the insolvent party, as well as, when the insolvent party carries on a business activity, the total or partial cessation or suspension of this activity.
When the measures involve the substantial modification of working conditions, transfer, dismissal, suspension of contracts or reduction of working hours, provided that they are collective in nature, the bankruptcy administration must apply to the insolvency judge for the adoption of the decision, which will be processed in accordance with the provisions of the bankruptcy law.
How to formulate and audit the annual accounts of a company in bankruptcy proceedings
In the event of intervention, the legal obligation to draw up and submit the annual accounts for audit shall be incumbent on the insolvent party and the administrators of the insolvent legal person under the supervision of the bankruptcy administration.
In this regard, the bankruptcy administration may authorise the administrators of the bankrupt company to delay compliance with the legal obligation to draw up the annual accounts for the financial year prior to the judicial declaration of bankruptcy until the month following the presentation of the inventory and the list of creditors.
The accounts must be approved within three months of the expiry of the extension. This must be reported to the bankruptcy judge and, if the legal person is obliged to file the annual accounts, to the Commercial Register in which it is registered. Once this notification has been made, the delay in filing the accounts shall not result in the closure of the register page, if the deadlines for filing have been met since the expiry of the aforementioned extended deadline for approval of the accounts.
In the event of suspension of the powers of the administrators, the statutory obligation to draw up and submit the annual accounts for audit shall be incumbent on the bankruptcy administration.
In relation to the auditors of the insolvent company, at the well-founded request of the bankruptcy administration, the bankruptcy judge may decide to revoke the appointment of the company’s auditor and appoint another auditor to audit the annual accounts.
Finally, as regards tax returns and self-assessments, in the event of intervention, the legal obligation to file tax returns and self-assessments will correspond to the insolvent party under the supervision of the bankruptcy administration and, in the event of suspension of powers of the administrators, this legal obligation will correspond to the bankruptcy administration.
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