Corporate insolvency and winding-up procedures. Types

Corporate insolvency and winding-up procedures

A company can cease trading in two ways:

• go into liquidation of its own volition, i.e. voluntary winding up;
• insolvency or bankruptcy, in a situation where it cannot satisfy all of its potential creditors.

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Voluntary winding up

What are the steps for winding up a company voluntarily?

1. Agreement to dissolve a company. If any of the grounds which the law designates as compulsory exist, the directors must convene the general meeting of shareholders so that it can agree the dissolution and authorise the deed for this purpose.

2. Settlement of property transfer tax and duty on documented legal acts . This must be forwarded to the treasury ministry of the relevant autonomous community.

3. Registration of the termination agreement. In general, an application is filed within one month of the general meeting and the corresponding entry is made on the commercial register .

4. Appointment of liquidators The liquidators may be appointed both at the time of the agreement to dissolve the company, and during the period of winding up, and whenever the general meeting decides.

5. Registration of liquidators’ appointments. Appointments are entered in the commercial register of the province of the company’s location and, in accordance with point 3, at the time of the resolution (if it appoints the liquidators) or later (whether by specific operation or as part of the dissolution agreement).

6. Process of winding up, distribution of corporate assets and notarised recorded instrument of termination. This is done either at a notary's office or before the company’s liquidators, who then have it notarised.

7. Settlement of property transfer tax (ITP) and duty on documented legal acts (AJD). Place of payment of these taxes: the economics ministry of the autonomous community of the company’s location. Term of settlement of tax: thirty working days from execution of the instrument before the notary.

8. Application for registration of termination of the company and cancellation of its register entries. This takes place at the commercial registry of the province of the company’s domicile.

9. Termination of contracts of employment This takes place at the Labour Inspectorate – part of the Spanish social security system) within the term prescribed in the collective bargaining agreement applicable to the company.

10. Deregistration of contracted employees and closure of their social security accounts It is necessary to go to the general treasury administration of social security in the province where the employees were registered.

11. Deletion from the roll of businesspersons and deregistration from economic activity tax . This must be done at the Tax Agency within one month of dissolution of the business.

12. Deregistration from the special scheme for the self-employed . This is done at the social security general treasury within six calendar days of the date of cessation of trading.

Before explaining what insolvency is, we should refer to the phase prior to this, known as the recovery plans. Law 16/2022 of 5 September, which is a reform of the recast Insolvency Act, provides for a thorough review of our pre-insolvency and insolvency system. The key focus of the new model are ‘recovery plans’, a mechanism aimed at preventing insolvency or overcoming it before it is necessary to file for bankruptcy.

What are recovery plans?

A recovery plan is a pre-bankruptcy instrument that replaces approved refinancing agreements and extrajudicial payment agreements, with greater flexibility.

What are they used for?

Recovery plans make it possible to modify the conditions or structure of the assets, liabilities and/or own funds of a company, so that debtor companies can avoid insolvency in the first place or come out of it.

More specifically, they make it possible to adopt debt write-offs, payment extensions and capitalisations, dations in payment, modifications or terminations of guarantees and to terminate various types of contracts. This may also involve selling a production unit in operation.

When can they be adopted?

Pre-insolvency proceedings may be initiated as soon as there is a likelihood of insolvency, which means a situation in which the debtor expects not to be able to meet obligations falling due within the following 2 years.

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Insolvency or bankruptcy

What is bankruptcy?

A procedure of universal scope, the essential purpose of bankruptcy is to satisfy multiple creditors when a debtor is insolvent.

The Spanish Bankruptcy Law configures bankruptcy as a corporate restructuring procedure, to be followed not only in the interest of creditors, but also for job preservation and business continuity.

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