Second Chance Act: A possible way out of the COVID19 health care crisis

The current pandemic by the COVID-19, has generated numerous situations of insolvency in Spain and with it, entrepreneurs have lost everything due to supervening circumstances that could not have been controlled or foreseen.In 2015, through the reform of the Bankruptcy Law, the so-called Second Chance Law was introduced, a benefit, which, in the situation in which we find ourselves, could be of great help. But in order to see if its application could be considered as a tool that could benefit the businessmen affected by this crisis, we will proceed to explain what this law consists of: The second chance law is the possibility of extinguishing or canceling the debts that the debtor has not been able to satisfy with the liquidation of its patrimony. With this, and with the intention of reaching an agreement, the person would be protected against the creditors, since the judicial execution processes that were initiated against him are suspended.From this moment on, the usual thing -and that we will develop later-, is the realization of a meeting to reach an agreement in order to renegotiate the conditions which will make the payment of the debt to be carried out.It is important to take into account an important fact that limits the use of this tool, and that is that only individuals (businessmen, self-employed or family units) who are in a situation of insolvency and who logically cannot face the payment of their debts with their income, being the value of their debts higher than their income, can enjoy this benefit of debt exoneration.The second opportunity procedure or mechanism, by way of summary, would consist of two phases: a first one consisting of an out-of-court agreement; and a second one, by which the consecutive bankruptcy appears on the scene.With regard to the out-of-court payment agreement, it is considered a fundamental step for the benefits of the Second Chance Law to be applied. This phase is initiated through a notary who will promote the negotiations between the debtor and the different creditors, in addition to appointing a bankruptcy mediator, an indispensable figure in the agreement since it restructures the debt by means of the known reductions and waits to obtain the payment of credits.The negotiations are limited in time with a maximum duration of two months, and during the same, the creditors at no time may initiate judicial execution procedures.If the proposal is accepted by the creditors, the agreement will be formalized in a public deed and the file opened by the notary or the commercial registry will be closed.if the proposal is not finally accepted, and the debtor continues to be unable to pay its debts, the second phase for obtaining the second opportunity will begin: the consecutive insolvency proceeding.Once the debtor's assets are liquidated, if any, or if not, once the judge issues the corresponding order declaring the insolvency proceeding and therefore the conclusion due to insufficient assets, it is at this procedural moment that the debtor must request the benefit of exoneration of the unsatisfied liabilities.Once we have made known the procedure to follow, it is necessary to determine what are the requirements for the enjoyment of exoneration of the debt: Well, the fundamental requirement to benefit from such tool, is that the debtor is considered a debtor in good faith, that is to say, that he has acted in good faith with the fulfillment of the following requirements:

• That the insolvency proceeding has not been declared guilty.
• That the debtor does not have a criminal record.
• That an out-of-court payment agreement has been attempted.
• That the debtor has paid the credits against the mass as well as the privileged bankruptcy credits.

Once it has been verified that the requirements to benefit from the Second Chance Law have been met, the competent judge will exonerate the debts if all the conditions established by Law are met, and finally a payment plan will be approved for the debts incurred in order to settle them within a maximum period of 5 years.In short, the application of such instrument established in the Bankruptcy Law to the crisis situation by Covid-19 is clearly possible although, of course, and like everything, we will have to see how events develop and if the Courts are prepared to face such challenge.

Pilar Mata (Lawyer T&L)