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“Delaying bankruptcy will only create zombie companies”

The coronavirus crisis has dealt an unprecedented blow to the Spanish business fabric, which continues to bleed to the proliferation of outbreaks and the increase in positive cases for covid-19. Faced with this scenario, the Government of Pedro Sánchez has extended the bankruptcy moratorium from December 31, 2020 initially established until March 14, 2021. However, the administrative managers warn that this measure will only help create zombie companies.

This has been explained by the president of the General Council of Associations of Administrative Managers of Spain, Fernando Jesus Santiago Ollero, in conversations with OKDIARIO: «Delaying the tenders will only help to mask the layoffs and create zombie companies, since two months of moratorium will not save companies that are in technical bankruptcy due to the serious effects caused by the crisis of the coronavirus in the Spanish business fabric. All it will do is delay the problem.

“Companies are waiting until the last minute to declare bankruptcy due to the possibility that Pedro Sánchez’s government will take new measures, since the Executive has once again used the technique of legislating at the last minute. It launches this moratorium just one month in advance, leaving no margin for companies that have already submitted the contest, “he criticizes.

Disappearance of the business fabric

However, Santiago Ollero warns that “businesses with small creditors will disappear without legal proceedings because it is more expensive for them to go to court than to lose the debt that has generated the impact of the coronavirus crisis on the company, since the companies’ funds can no longer bear the cost of the judicial processes.

A bankruptcy is a legal procedure that arises when a natural or legal person enters a situation of insolvency in which he cannot face all the payments he has to face, which includes bankruptcy situations and those of suspension of payments. A scenario that according to the president of the General Council of Associations of Administrative Managers of Spain “Could shoot defaults to historic levels”.

Government plans

The Council of Ministers has approved a Royal Decree-Law by which it extends the bankruptcy moratorium from December 31, 2020, initially established until March 14, 2021 so that viable companies, but affected by the pandemic, can continue their activity in the future and not be doomed to liquidation, has announced the Third Vice President of the Government and Minister of Economic Affairs, Nadia calviño.

The regulation extends until March 14, 2021, the suspension of the obligation of debtors to request bankruptcy -voluntary bankruptcy-, as well as the obligation of the judge to admit the bankruptcy for processing if the creditors request it before that date – contest required-.

Likewise, the rule approved this Tuesday extends until January 31 the judge’s obligation not to process the requests made by creditors due to the breach by debtors of the agreements of refinancing or agreements that have been reached. In the event that non-compliance requests had begun to be processed between October 31 – the previous time limit – and the date of entry into force of this rule, the judge must suspend their processing.

A measure that the Executive has launched despite the warnings of the Bank of Spain, which coincides with the administrative managers, and warns that the bankruptcy moratorium will cause a greater number of unviable companies, due to the impact of the coronavirus crisis.

Contests skyrocket

Families and companies that filed for bankruptcy due to the inability to meet their payments and debts rose 1.6% in the third quarter of this year compared to the same period in 2019, to total 1,678, in a context marked by the covid-19, and 51% in the quarterly rate, the highest quarter-on-quarter increase in almost eight years, according to the Insolvency Procedure statistics published by the National Institute of Statistics (INE).

Specific, families that filed for bankruptcy increased 6.7% in the third quarter of the year in annual rate, to add 652, while the companies bankrupt decreased by 1.4%, to 1,026 bankruptcy proceedings.