Insolvency proceedings: Comparing key aspects between two systems

The lack of an universal bankruptcy system has lead a vast majority of jurists and legal scholars to compare those different procedures adopted in a broad range of countries to deal with insolvency states. Therefore, this article hereby, is going to approach an overview of the insolvency laws applicable in Spain and the Netherlands. The Dutch Bankruptcy Act took effect on 1 September 1986[1] and has been amended many times since then. Whilst the pioneer Spanish Insolvency Act was enacted on 10 July 2003 and despite of having been passed just eight years ago, it has also been mended several times by the Parliament.

To begin with, the fact that there is no special bankruptcy court in the Netherlands implies that, in order to initiate a bankruptcy proceeding, the petition has to be submitted to the district court of the debtor’s residence. In Spain, however, declaring bankruptcy must be filed to specialized courts –which have exclusive jurisdiction and competence over the territory where the debtor has the centre of its main interests– known as Commercial Courts.

The commencement of an insolvency proceeding in the Netherlands diverts into three different types of procedures: the bankruptcy proceeding, the suspension of payments and the debt reorganisation of natural persons, being the first two applicable to companies, other entities and natural persons.

Focusing on the former proceeding, the supervisory judge may declare bankruptcy when it has been established that the debtor has ceased to pay his debts, either on his own application or on the petition of one or more of his creditors[2], needing the latter to prove more than one debt in arrears to at least two creditors –this is known as “supporting claim”– as outlined in the Dutch Bankruptcy Act explicitly[3]. Furthermore, the confirmation of at least one of the debts is due and collectible.

Conversely, the Spanish Insolvency Act establishes a single insolvency proceeding applicable to both corporations and natural persons. This proceeding is divided into three mandatory phases: the first aimed to determine the debtor’s assets and organizing an inventory. In this first phase creditors are obliged to submit their credits to the appointed trustee or curator within a month since the publication of the bankruptcy declaration in the official gazette. The second phase intends to reach a binding settlement between the debtor and its creditors, implying the creditors to waive a certain percentage of their credit, or to suspend all enforcements and accrual of interest up to ten years, if decided with the required votes[4]. If that happens to be the final outcome, the debtor establishes a payment plan pertinent to the time frame, and a business viability plan if it is foreseen the continuation of the activity[5]. If an arrangement has not been reached, or if there has been a breach, this will trigger commencement of the liquidation of the debtors assets to satisfy the creditors. The third and final phase is a qualification stage where the bankruptcy is found out not guilty or guilty, having the latter certain consequences so as the liability of the debtor or directors.

In Spain, declaring bankruptcy can be instigated by court application on a voluntary or involuntary basis. In the former, debtors, or directors in case of corporations are obliged to commence insolvency proceedings within two months following the date on which the company knew or ought to know its present or immediate insolvency state, regardless having ceased to pay its debts whereas Dutch law requires it.

Being an explicit demand in the Spanish Act[6], it is the debtor’s duty to declare insolvency on a voluntary basis avoiding the proceeding to be qualified as guilty. If so, the directors might face a Civil liability. Notwithstanding, one or more creditors shall commence the proceeding on an involuntary basis, not needing the Dutch “supporting claim”. Moreover, filing the petition may be not compulsory in the Dutch system, therefore possible for an insolvent debtor to seek to restructure its debts, outside of a formal procedure as it is possible in the UK insolvency system[7]. Still, in the Netherlands, continuing the activity in an insolvency state and thus damaging third parties, might conclude with the directors being liable for those creditors losses.

As soon as the procedure has started, both jurisdictions establish that creditors must submit their claims to the appointed trustee. Those claims are set in a classified list, being in the Netherlands the pledgee and a mortgagee secured credits, whilst in Spain they are set as specially privileged debts. The pivotal divergence is that in the Netherlands those claims can independently be exercised and enforced as if there were no bankruptcy. Whereas in Spain security and enforcement over assets that are essential for the continuity of the debtor’s business cannot be done, unless an arrangement approves it or a year elapses since the insolvency declaration without the liquidation phase being opened[8]. Although this may be similar to the cooling off period for the enforcement of secured credits in the Netherlands up to two months, in Spanish insolvency procedures this suspension may last a year, as said.

To conclude, there exist a broad range of trivial differences, that lead to the same result. Some, being the prohibition of setting off claims in the Spanish system, so as the creditor’s suspended right of retention since the petition has been submitted, whilst in Netherlands it is a common practice even when bankruptcy has started[9]. A thesis could be written comparing key aspects in insolvency proceedings, even analyzing and comparing the debt reorganization of natural persons would be profitable, since in Spain the Act has undergone certain modifications so as to achieve a system in which natural persons who accomplish certain requirements, may have a fresh start within five years after concluding a bankruptcy proceeding. This benefit being within three years in the Netherlands, following a strict procedure in front of the court that demands a payment plan.

Some international experts have acknowledged the Netherlands as the “promised land”' for secured creditors[10], due to their higher protection. Meanwhile, Spain has an advantage over having one same proceeding, making mandatory for the debtor and creditors to try to reach an agreement. Albeit, it is certain that the Dutch Insolvency Act provides a more legal certainty in insolvency states, as it requires the debtor to be really ceased from paying his debts, whilst the Spanish Act pitfall is the establishment of undetermined concepts that may direct to confusion when a petition must be filed. The pivotal point, should be the countries to turn towards a rescue culture rather than the creditor’s satisfaction.

[1] Asa Nainggolan, E. (2013), “A Comparative of Indonesian Bankruptcy Law and the Netherlands Bankruptcy Law on the Conditions of Bankruptcy Petition from the Perspective of the Protection of Debtor’s Legal Interest” Retrieved from http://arno.uvt.nl/show.cgi?fid=133318

[2] Broeders, Michael (2015) “Restructuring & Insolvency In 46 jurisdictions worldwide. In association with Freshfields Bruckhaus Deringer LLP”. London, Law Business Research Ltd. Page 294

[3] Article 1 Dutch Bankruptcy Act

[4] Article 124 Spanish Insolvency Act.

[5] Gómez, Natalia and Gutiérrez, Teresa (2015)“Restructuring & Insolvency In 46 jurisdictions worldwide. In association with Freshfields Bruckhaus Deringer LLP” London, Law Business Research Ltd. Page 394.

[6] Article 5 Spanish Insolvency Act

[7] ICTF (2013) “Insolvency laws in Germany, U.K. and the U.S. A comparative law analysis for trade creditors” Retrieved from: http://www.slk-law.com/portalresource/DHC.Comparative%20Analysis%20of%20Insolvency%20Laws%20of%20US-UK-Germany

[8] Gómez, Natalia and Gutiérrez, Teresa (2015)“Restructuring & Insolvency In 46 jurisdictions worldwide. In association with Freshfields Bruckhaus Deringer LLP” London, Law Business Research Ltd. Page 394.

[9] Articles 53 and 60 Dutch Bankruptcy Act

[10] Viëtor, David (July 23, 2010) “Bankruptcy trustee's duty to supply information to holder of undisclosed pledge” Retrieved from: https://www.nautadutilh.com/PageFiles/7965/02_08_2010_Bankruptcy-trustees-duty-to-supply-information-to-holder-of-undisclosed-pledge-vietor-david.pdf