Vol 4 (2007) - Issue 4

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Declaration of Insolvency and Effects on Debtor’s Patrimonial Capacities: Practical Scope

1. Introduction

One of the inspiring principles of the Insolvency Law 22/2003, dated 9 July (the ‘Insolvency Law’) is the unity and flexibility which now governs insolvency proceedings.
This flexibility, as explained in the Preamble of the Insolvency Law, may be also appreciated in the new provisions governing the effects of the declaration of insolvency on the debtor and, more specifically, on his capacity to manage his estate.
In this respect, and before examining the effects of the declaration of insolvency on the debtor’s capacity to manage his estate, it is important to highlight (although this is not the main object of this article) that for the application for insolvency to prosper in court, certain specific subjective requirements need to be met, such as the existence of a real debtor in an insolvent status (whether current or imminent). Some other formal requirements regarding the documents and procedure must also be fulfilled in accordance with articles 6 and 7 of the Insolvency Law.
If the court considers that the application for insolvency or the documents that need to be attached thereto are defective, it will grant a term of no more than five business days to cure this defect.

Notwithstanding the above, certain Commercial Courts (Juzgados de lo Mercantil) consider that there is an additional subjective requirement that, though not expressly mentioned in the Insolvency Law, may be inferred from certain articles. This additional require-ment is the existence of a number of creditors and not only one. In this sense, the Commercial Court no. 1 of Bilbao, by means of its resolution (Auto) of 3 December 2004 disregarded an application for ‘necessary’ insol-vency because it considered that the documents filed and the explanations of the creditor did not prove the existence of more creditors than itself.

However, it is our opinion that while insolvency pro-ceedings are aimed to reaching a solution to a debtor’s insolvency in an environment where a number of cred-itors are concerned, the fact is that when examining necessary insolvency (in which, for instance, a creditor may request the declaration of insolvency on the basis of a judicial resolution granting leave to the execution of debtor’s assets, when the product of such execution was not enough to pay its claim), the Insolvency Law does not order the creditor to prove the existence of several creditors.

So, the fact that the creditor had not proven the existence of a number of creditors does not mean, as opposed to what the referred resolution seems to declare, that the court should not consider the petition of insolvency. On the contrary, we consider that the court should have granted leave to the petition so that: (i) the debtor, as the case may be, could oppose to the petition on the grounds of the non-existence of a number of creditors or, (ii) other possible creditors could appear in the insolvency proceedings and communicate their claims.

2. General rule

Article 40, sections 1 and 2, of the Insolvency Law contain the general rules with regard to the debtor’s capacity to manage his estate.

2.1 Voluntary insolvency

When the insolvency proceedings are qualified as voluntary because the application for insolvency was filed by the debtor itself, the law states that the debtor shall remain in possession and continue exercising its management and administration powers, but these