Establishing the assets and liabilities of the bankrupt’s estate and the end of the bankruptcy

Determination of the bankruptcy estate’s assets

Determining the assets is necessary in order to establish what is available to satisfy the creditors.

The bankruptcy estate consists of:

• the assets and rights forming part of the debtor’s estate on the date on which bankruptcy proceedings begin; and

• any assets and rights that are recovered or acquired before the proceedings are closed, except for those assets and rights which, although concerning property, may not legally be attached.

The bankruptcy receivers must draw up the inventory of assets and rights as at the closing date, which is the day before the date of the report. This must contain the list and valuation of the debtor’s assets and rights included in the bankruptcy estate. The following must be added to the inventory:

1. a list of all legal proceedings in which the outcome may affect the content of the inventory;

2. a full list of the actions which, in the opinion of the bankruptcy receivers, should be brought to reinstate assets into the bankruptcy estate.

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Determination of the bankruptcy estate’s liabilities

Once bankruptcy proceedings have begun, all the debtor’s creditors, whether ordinary or otherwise, whatever their nationality and domicile, become part of the bankruptcy estate’s liabilities, without prejudice to the exceptions provided for by law.

For the purpose of determining the bankruptcy estate’s liabilities, it is in principle necessary to distinguish between:

• claims against the bankruptcy estate; and

• bankruptcy claims.

The latter are classified by the Act as privileged claims (with special or general privilege), ordinary claims and subordinated claims. Claims against the bankruptcy estate are not part of the bankruptcy estate’s liabilities.

Bankruptcy claims (which are included in the bankruptcy estate’s liabilities) are part of the bankruptcy proceedings, subject to two requirements:

• they must be claims against the common debtor; and

• they must not be treated as claims against the bankruptcy estate.

Claims against the bankruptcy estate are characterised primarily by being claims caused by the bankruptcy proceedings, rather than claims causing the bankruptcy proceedings, since they necessarily arise after the proceedings begin or are ordered.

Claims against the bankruptcy estate are treated as predictable claims. Before proceeding to pay bankruptcy claims, the bankruptcy receivers must deduct from the bankruptcy estate the assets and rights not subject to payment of claims with special privilege that are necessary to satisfy claims against the bankruptcy estate.

The Act classifies bankruptcy claims as:

• privileged claims,

• special or general,

• ordinary; and

• subordinate.

Claims with special privilege are given priority in relation to specific assets or rights.

Claims with general privilege are provided for in Article 91 and, like claims with special privilege, they carry the right to abstain from voting on the debt restructuring arrangement.

Claims with general privilege must be paid once the assets and rights necessary to satisfy claims against the bankruptcy estate have been deducted from the bankruptcy estate. They are charged against assets not subject to special privilege, or against any remainder of such assets once those claims have been paid. Payment must follow the order established in Article 91 of the Bankruptcy Act (LC 22/2003) and, where appropriate, be on a pro rata basis within each category.

Ordinary claims are those which are neither privileged nor subordinated. Those claims must be paid out of the assets and rights of the bankruptcy estate that remains after claims against the bankruptcy estate and privileged claims have been paid.

Subordinated claims are listed in Article 92 of the Bankruptcy Act (LC 22/2003). Subordinated claims must not be paid until ordinary claims have been paid in full, and payment must be made in the order established in that provision.

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What happens after the joint supervision phase?

Once the bankruptcy receivers have submitted the final inventory and list of creditors, the judge will issue an order bringing the joint supervision phase to an end. The judge will order the opening of the arrangement phase or winding-up phase, as appropriate.

Debt restructuring arrangement

The Bankruptcy Act lays down the content which the debt restructuring arrangement proposal must contain, as well as the form of acceptances. It must always contain:

• proposals for a reduction of debt or deferral of payment;

• or for the conversion of debt into shares or holdings;

• or all of the above.

The Act also allows the arrangement proposal to contain alternative options for all creditors or for creditors in one or several categories, with the exception of public creditors.

Among the alternative options, the following may be included: offers to convert the claim into shares, holdings or equity interests, convertible bonds, subordinated loans, participating loans, loans with capitalisable interest, or any other financial instrument with a different ranking, maturity or characteristics from the original debt.

The arrangement proposal must be accompanied by a payment plan and, where appropriate, a viability plan.

Winding-up

Winding-up (or liquidation) is an option available to the debtor as soon as they file for voluntary bankruptcy, or once the order for involuntary bankruptcy proceedings is issued, and during the course of the joint supervision phase (provided that no early arrangement proposal has been submitted).

Provision is also made for cases in which winding-up is initiated of the court’s own motion, where:

• no arrangement proposal is submitted;

• or none is admitted;

• or no proposal is accepted at the creditors’ meeting;

• or the arrangement is rejected by a final court decision;

• or the arrangement is declared void by a court;

• or the arrangement has not been complied with.

Once the winding-up phase has started, the bankruptcy receivers must draw up a winding-up plan in order to realise the assets and rights that are part of the bankruptcy estate.

When the winding-up phase starts, the bankrupt’s powers to administer and dispose of their assets are suspended, these powers then being exercised by the bankruptcy receivers, unless such an arrangement had already been ordered earlier.

If the bankrupt is a legal entity, the order for the winding-up phase will require that the legal entity is dissolved, if not already agreed, and the directors or liquidators will cease to hold office and be replaced by the bankruptcy receivers.

As regards the effects on claims, the opening of the winding-up phase results in the conversion into money of claims consisting of other forms of performance, and the early maturity of deferred bankruptcy claims.

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How does the arrangement come to an end?

The Act lays down the grounds for the closure of bankruptcy proceedings. Those grounds arise for various reasons:

• some relating to the unlawful opening of the proceedings (revocation of the order for bankruptcy proceedings);

• others relating to the purpose of the proceedings (performance of the arrangement or full satisfaction of creditors);

• or because the proceedings have failed (absence of assets and rights, or because the bankruptcy estate is insufficient to pay the claims against it);

• or through the exercise of the parties’ right to decide to do so, once the joint supervision phase has ended, when the decision accepting the withdrawal of proceedings becomes final;

• or where all recognised creditors waive their claims.

The Bankruptcy Act allows the closure of bankruptcy proceedings to be opposed within the period granted to the parties for a hearing; any such opposition will be dealt with in accordance with the procedure for bankruptcy cases.

Likewise, after an order for conclusion of bankruptcy issues for lack of assets and rights it is foreseen that it may be reopened.

In 2025, the most significant reforms in the field of insolvency, set out in Organic Law 1/2025 of 2 January on measures to improve the efficiency of the Public Justice Service, were as follows:

Limitation rule on administrators’ remuneration: The maximum total amount that insolvency practitioners may receive for their involvement in insolvency proceedings will be the lower of the following amounts:

• EUR 1 000 000

• EUR 1 500 000

• The amount resulting from multiplying the value of the insolvent party’s assets by 4%

Having heard the parties, the judge may, giving reasons, approve remuneration exceeding the above limit where the complexity of the insolvency proceedings justifies the costs incurred by the insolvency practitioners. Under no circumstances may this limit be exceeded by more than 50%.

Classification by registrars: When any document relating to a transfer of assets and rights from the estate, carried out by the insolvency administrators during the liquidation phase, is submitted for registration in the property registers, the registrar will check the public insolvency register to see whether the judge has imposed any special conditions on the liquidation.

It may require the insolvency administrator to prove the existence of those rules only where there is no reference to them either in the court decision or in the public insolvency register itself.

Special rule on the appointment of an insolvency administrator: The judge may appoint an insolvency administrator, either of their own motion or at the request of a single creditor, where:

1. The debtor has provided insufficient or inadequate information.

2. The court has observed behaviour that gives rise to reasonable doubts as to whether it would be advisable for the debtor to directly perform the winding-up operations.

3. The following are present:

• objective circumstances justifying such a decision, as assessed by the judge in a reasoned judgment

• and its designation has not been applied for in accordance with the provisions of Article 713(1) of the Bankruptcy Law.

In this case, the insolvency administrator’s remuneration will be borne by the debtor. The appointment of the insolvency administrator and the determination of their remuneration will be carried out in accordance with the provisions of Chapter II of Title II of Book I of the Bankruptcy Law.

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