Understanding Insolvency in Spain
In Spain, insolvency (estado de insolvencia) arises when a company:
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Can no longer pay its debts consistently
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Has liabilities that exceed its assets
Spanish law imposes a strict two-month deadline for company directors to act once insolvency becomes evident. Failure to comply can lead to personal liability, disqualification, or criminal charges.
⚖️ The governing framework is based on Spain’s Commercial Code and Insolvency Law (Ley Concursal), updated in line with EU Directive 2019/1023.
👨💼 Immediate Responsibilities of Company Directors
Once insolvency is identified, directors must:
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🗓️ Declare insolvency before the Commercial Court (Juzgado de lo Mercantil) within 2 months
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📚 Provide full financial disclosure
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🛡️ Avoid actions that could worsen the financial position of the company or harm creditors
⚠️ Delays or inaction can result in:
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Personal liability for company debts
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Charges of wrongful trading
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Civil or criminal penalties
🧑⚖️ Role of the Insolvency Administrator (Administrador Concursal)
Upon court approval, an insolvency administrator is appointed to:
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📊 Review the company’s financial records
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🏦 Control bank accounts and operations (in full or in part)
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🔍 Investigate transactions made prior to insolvency
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🤝 Represent and protect creditor interests
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📑 Guide liquidation or restructuring
💡 Directors must fully cooperate with the administrator and court throughout the proceedings.
🔄 Administration During Liquidation vs. Restructuring
🏚️ Liquidation (Liquidación Judicial)
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Assets are sold to satisfy debts
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Directors lose all administrative powers
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Company ceases operations permanently
🔧 Restructuring Plan (Plan de Reestructuración)
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Initiated to avoid bankruptcy
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Directors may retain limited operational control
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Overseen by the court and insolvency administrator
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Requires approval by a majority of creditors
✅ Restructuring must be proposed before entering full insolvency to be valid.
🛡️ Legal Liability of Company Directors
Spanish law enforces strict accountability during insolvency:
❌ Wrongful Trading (Administración Desleal)
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Continuing operations knowing insolvency exists
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Results in personal financial liability
⚠️ Negligence & Fraud
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Failure to act diligently or hiding liabilities
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May lead to criminal prosecution
📉 Asset Mismanagement
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Directors must not favor one creditor over another
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Any attempt to hide, transfer, or undervalue company assets is illegal
✅ Best Practices for Directors Facing Insolvency
✔️ Monitor cash flow and balance sheets monthly
✔️ Seek legal advice at first signs of distress
✔️ Maintain open communication with creditors
✔️ Document board decisions and financial actions
✔️ Do not delay court filings or restructuring plans
📝 Proactive compliance is the best defense against personal liability and penalties.
🌐 Legal Support for Insolvency in Spain
At Borderless Lawyers, we assist local and foreign company directors with:
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📄 Voluntary and compulsory insolvency filings
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🤝 Director representation in court
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🔁 Pre-pack restructuring strategies
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🛡️ Liability risk management
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📑 Communications with administrators and creditors
We guide you through every phase—protecting your legal rights and corporate responsibilities.
💬 Client Case Study
Case: A South African–owned subsidiary in Barcelona faced insolvency after a major client defaulted. We filed a pre-pack restructuring plan that allowed continued operation while repaying debts under judicial protection. The director avoided liability and kept partial control of the company.
🚀 Schedule a Confidential Consultation
Whether your company is facing financial pressure or is already insolvent, our international legal team provides tailored solutions that comply with Spanish and EU law.
📞 Speak to a Spanish insolvency lawyer today
🔒 100% confidential advice | Multilingual support available