Preliminary insolvency proceedings in the group of companies
Nerea Poza
by Nerea Poza
Preliminary insolvency proceedings are simply a notification to the court of the opening of negotiations or an attempt to approve a restructuring plan when a company is likely to become insolvent.
What happens if a company with which I have a contract informs me that it is in a pre-insolvency situation?
The main concern about this economic situation is for suppliers and private customers who still maintain relations with the company in a situation of current or imminent insolvency. In this sense, those affected should be aware that the declaration of insolvency is not a cause for early termination of any contract and any stipulations that establish the power of termination or extinction of the contract due to the debtor's declaration of insolvency are null and void. Therefore, this type of clauses introduced in the contract will be considered not to be in force, and those affected will be able to continue claiming in accordance with the general regulations.
We must remember that the essential principle in insolvency matters is continuity, in such a way that the pre-insolvency situation or the declaration of insolvency does not interrupt the continuity of the business activity, and therefore, neither does it suspend or render ineffective the contractual framework of the company.
What happens if the company with which I have a contract informs me that one of the companies of the group of companies to which it belongs is in a pre-bankruptcy situation?
Spain lacks specific regulations governing a group of companies, although we can deduce a definition of a group of companies from Articles 18 of the Capital Companies Act and 42 of the Commercial Code, whereby a group of companies exists when a company holds or may hold, directly or indirectly, the control of one or more other companies.
The insolvency of one of the companies in the group will affect the rest, especially when the cause of insolvency itself is the relationship with the group and when there is a common treasury of all the members.
Once the insolvency of one of the group members has been established, a key question arises: why have none of the companies, not even the parent company, avoided the insolvency of one of its members?
It may be a simple business decision, seeking the disappearance of that company, or it may be that the pre-bankruptcy of one of the group companies is a precedent for an asset crisis within the group, especially when there are asset and contractual relationships between them that determine that the insolvency of one of those companies will spread to the others.
In any case, the contract we have with the company, even if one of the group companies is in a pre-insolvency situation, will remain in force for all parties.
GGI member firmRuiz Ballesteros Lawyers and Tax AdvisorsMalaga, Marbella, SpainT: +34 952 77 98 74
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Ruiz Ballesteros Lawyers and Tax Advisors is a firm of lawyers, economists and tax advisors established over 15 years ago. Highly qualified professionals cover all areas of legal, tax, accounting and commercial requirements for clients. Continuous training, demonstrating excellence, taking care of every detail, and upholding high ethical standards are the guiding principles of the firm.
Nerea holds a Law Degree from the University of Malaga and has extensive expertise in Corporate and Bankruptcy Law. With a background in prestigious law firms, she joined Ruiz Ballesteros in 2022, strengthening the corporate and commercial department. Nerea's academic achievements include research work and presentations at national congresses in the field of Corporate Law. Contact Nerea.
