Differences between voluntary and involuntary insolvency proceedings.
The main conceptual difference between voluntary and involuntary insolvency proceedings is determined by whoever has initiated the proceedings. In this sense, if the application for insolvency proceedings has been made by the debtor itself, it will be considered such a voluntary insolvency proceeding (in Spanish, “Concurso Voluntario”), and the administrative body of the Company will be empowered to make the application to the Commercial Court. If, on the other hand, the first application is made by a creditor or the company’s own shareholders who are personally liable for the company’s debts, this insolvency procedure will be deemed involuntary (in Spanish, “Concurso Necesario”).
If the application for a declaration of insolvency is presented by a creditor, it must be based on the title by which the execution or compulsion has been carried out, without the seizure resulting in sufficient free assets for payment, or on the existence of one of the following cases affecting the debtor: (i) general cessation of current payment of obligations, (ii) the existence of seizure due to pending executions which generally affect its assets, assets stripping, or hasty or ruinous liquidation of the assets made by the debtor, or (iii) general failure to comply with obligations of any of the following types: a) those for the payment of tax obligations due during the three months prior to the application for bankruptcy; b) those for the payment of social security contributions, or c) those for the payment of salaries and compensation arising from employment relationships corresponding to the last three months.
In any case, the application must indicate the means of evidence used to the applicant to prove the indicated facts, being witness evidence alone not considered sufficient.
With that in mind, another difference lies in the fact that in the voluntary bankruptcy proceedings, the debtor retains the powers of administration and disposal over its assets, the exercise of which is subject to the intervention of the administrative body by means of its authorization or consent. On the other hand, in the case of involuntary bankruptcy, the debtor’s powers of administration and disposal under its assets are suspended and the administrative body is replaced by the bankruptcy administrators.
Finally, in accordance with the Bankruptcy Law, the credits held by the creditor who has requested the declaration of bankruptcy and which are not subordinate, are raised to credits with general privileges, up to a quarter of their amount. This privilege consists of a right of preferential payment.
Partner and lawyer in the Litigation area at Devesa & Calvo Abogados.