All about the Second Chance Act for entrepreneurs – LeQuid, Spain
After international claims by establishing a second real chance regime and effective enactment of the Second Chance Act in July 2015 (Law 25/2015, of second – chance mechanism, reducing the financial burden and other measures of social order it was achieved ). With the new regulation is possible that the debtor can see condoned outstanding liabilitiesfollowing the liquidation of its assets to avoid social exclusion.
Among other objectives, the law aims to:
- Increase private overindebtedness prevention and encourage responsible credit granting and;
- Reconcile the satisfaction of the interests of creditors, the debtor rehabilitation and recovery.
The debtor has two options:
- Undergoing a payment plan.
- Immediately meet the exonerable liability.
1. Who can benefit and requirements
The law is aimed mainly self – employed and private citizens who have failed in their enterprise business and until now had to cope with their debts with their present and future assets. The mechanism, in practice, is very beneficial for individuals, corporate debt guarantors of which are or were members and / or administrators.
The requirements to qualify for the exemption are:
A. Try a settlement payment and, if not reach an agreement, request voluntary tender creditors by the debtor. There are several conditions to be fruitful the AEP. Between them:
– That the debtor compensate its creditors with the transfer of assets not required for the exercise of their professional or shares of its own company activity.
– The entrepreneur propose a feasibility plan and a payment schedule to meet debts to its creditors.
B. That has occurred conclusion of the contest by mass liquidation or failure.
C. That it is a debtor in good faith. Exemption shall be refused if the debt overhang a disproportionate credit resource or negligent or malicious asset management must be [1] . Requirements to consider debtor in good faith:
– The contest has not been convicted (conforms to Articles 164 and 165 LC).
– No criminal conviction in the 10 years prior to the bankruptcy declaration [2] .
– Attempted previous settlement if not exceed a liability of 5 million euros.
D. That pays a threshold of minimum liability or accepts undergo a payment plan
Threshold minimum liability (payment of debts not exonerables)
1. Credits against the mass.
2. bankruptcy privileged credits.
3. 25% of ordinary insolvency claims.
Payment plan
It is the debtor who has to propose a feasibility plan and payment schedule. The maximum term is ten years.Plus good faith required for the payment plan:
1. That has not breached obligations collaboration within the contest.
2. That has not obtained this benefit within the last 10 years
3. That has not refused a suitable job offer within the previous four years the contest.
If any of the creditors do not agree with the exemption may request revocation. In this case, you must prove that the debtor has acted in bad faith or has defrauded money Hacienda entering “in black”.
2. exonerables Debts
We must differentiate between the two models which includes the standard
2.1 The debtor who pays a minimum threshold of liability (Article 178 bis.3.4º LC)
| Exoneration | no exemption |
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2.2 If the debtor is subject to a payment plan (Article 178 bis 5 . )
| Exoneration | no exemption |
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3. Effects: debt relief
Provisional Release 3.1 (for 5 years)
It will always occur that creditors have not objected to the granting of benefits within 5 days (bis.4 Article 178 LC). This means that in the period of 5 years, creditors may not initiate any action against the debtor to collect their debts and outstanding debts may not accrue interest.
3.2 Final Release
- For over five years
After a period of 5 years without the withdrawal of the benefit the judge issue an order recognizing the finality of exemption against which no action will occur.
- By partial fulfillment of the payment plan
You may exonerate the debt to the debtor but had not fully complied with the payment plan when it has meant at least 50% of their income that are not considered indefeasible.
You can also benefit debtors who have not reached any amount when they have not had attachable income (50% of revenue 0 is 0).
However, they are living the actions of creditors to demand not exonerables credits.
[1] For this, the judge will assess the following circumstances (among others): A. The financial information provided to the lender before the loan for the purpose d the assessment is the financial solvency; B. The sumptuary or necessary nature of the assets acquired in the previous 8 years after the declaration of insolvency; C. The socio-professional level of indebtedness; D. The personal circumstances of over-indebtedness; E. If the insolvency has been caused by foreseeable and avoidable circumstances.
[2] are taken into account final judgments for crimes against property, cons the socioeconomic order, forgery, against the Treasury and the Social Security or the rights of workers in the 10 years prior to the bankruptcy declaration.