Businessmen who are considering liquidating their companies operating in Spain should verify the legal conditions regarding this procedure. Companies in Spain can be liquidated under certain circumstances, which can be detailed by our team of Spanish lawyers. At the same time, our attorneys can provide legal representation in this matter.
What are the main situations for company liquidation in Spain?
The manner in which a company can be liquidated in Spain is prescribed under the stipulations of the Law on Corporations. As a general rule, most of the companies are closed down due to the losses incurred during a certain period, which reduced the company’s assets to an amount lower than half of the company’s share capital. Other situations that determine the liquidation of a company are the following:
if the company has a limited duration and the shareholders no longer want to continue the activity;
through the shareholders’ decision which must be consented in a general meeting,
through the decision of acourt in Spain, which can be determined by various legal issues;
in the case ofbusiness entitiesregistered aslimited liability companies, the liquidation can be started when the businesses have assets with a total value less than half of theEUR 3,000 threshold, which represents the minimum share capital in this case.
Our team of Spanish lawyerscan provide legal representation to those liquidating a local business, regardless of its company type. A local lawyer can assist with advice on all the steps involved in the liquidation of a company. Not knowing the Spanish legislation on liquidation could lead to legal problems and even criminal charges and this is why it is crucial to receive professional assistance.
What is the law regulating company liquidation in Spain?
The basic rule of law which regulates the manner in which company liquidation can be made in Spain is given by the Spanish Insolvency Act (also known as Law 22/2003). The legislation has been amended several times since it became applicable in Spain, the latest modifications being brough in 2015.
This rule of law provides the legal framework under whichinsolvency proceedings can be started against natural persons and legal entities and it also stipulates the procedures for settlement between the creditor and debtor. Besides this rule of law, company liquidation in Spain can also fall under the regulations of the following: the Civil Procedure Act, the Securities Market Act, the Recovery and Resolution of Credit Institutions and Investment Services Firms Act, the Companies Act and the Supervision and Solvency of Insurance and Re-insurance Companies Act.
The voluntary liquidation of a limited liability company in Spain
The most common type of company that is liquidated in Spain is thelimited liability company (as this is the most common business form registered in this country). The procedure for voluntary liquidation can be done as long as the respective business does not have debts, but also if the company’s objects of activity were achieved.
The procedure can also be applied in the case of dormant companies. Voluntary dissolution must be decided during a general meeting and once the shareholders have agreed upon the procedure, a liquidator will be nominated to oversee and carry out the liquidation. The liquidator has as a responsibility to make sure that the debts are paid to the company’s creditors. The rest of the assets or amounts of money will be distributed among the shareholders.
The voluntary company liquidation is started by the company’s directors, who have a set of legal obligations during this procedure. Thus, the directors must organize the general meeting of the shareholders, in which the company’s investors will pass a resolution with regards to the dissolution of the company.
In the case in which the shareholders do not reach a resolution during the general meeting of the shareholders or if the directors are not able to gather all the company’s shareholders for the purpose of organizing the general meeting, the directors can then apply to the Commercial Court, where they can initiate the liquidation of the company.
After the directors have successfully managed the beginning phase of the compulsory liquidation procedure in Spain, they will lose the right to manage the company throughout this process, which will fall under the supervision of the appointed liquidators. Some of the main responsibilities of the liquidators are presented below:
they will assess the company’s current assets and will collect debts;
they will pay the company’s creditors and will conclude the company’s financial transactions;
they can also enter new financial transactions, as long as they are concluded for the purpose of liquidating the company;
once the liquidator completes the balance sheet, the company’s shareholders can challenge the results of the financial document.
Once the dissolution is completed, a Spanish public notary will draft a deed of liquidation which will contain the final balance of the company and a list with all theshareholders and their liabilities. A stamp duty must be paid in a term of 30 days after issuing this document.
The procedure stipulates that the company’s representatives have to provide a set of financial documents when applying for voluntarily liquidation, such as the last three annual accounts, taxand audit reports and, depending on the company’s business form – subsidiary or branch, additional documents can be requested.
Those who have the possibility of starting the voluntary company liquidation process must know that this is generally the most cost efficient option; our team of Spanish lawyers can present any additional information regarding the legal procedures that should be concluded when entering the voluntary company liquidation.
Compulsory liquidation in Spain
According to the Spanish Insolvency Act, compulsory liquidation must be requested by a creditor when a company can no longer pay its debts. In order to file for compulsory dissolution, the outstanding debt must be at least six months old. Compulsory liquidation will start as a debt collection proceeding ordered by a court.
This type of liquidation may also be enforced under certain circumstances, for example, the company has defaulted and the debtor’s assets are held as a guarantee for unpaid debts, the debtor has failed to pay the taxes for a period of at least three months or the debtor has sold his/her assets in a negligent manner.
The creditor must submit evidence of the statements when lodging the application for compulsory liquidation. Based on the proof, a judge may issue a court order for the debtor to appear before the court within maximum five days. Based on the evidence submitted by the plaintiff and the defendant, the Spanish court will rule in favor or against the liquidation. If ruling for dissolution, an officer of the court will be appointed to carry out the proceedings.
Compulsory liquidation is started by the company’s creditors, in accordance with the Article 3.1 of the Law 22/2003. The procedure may also be requested by thecompany’s shareholders or theboard members of the business, who are liable for the respective debts, as perArticle 3.3of the above mentioned law.
If you are interested in other details related to the liquidation of your company, you may address to our lawyers in Spain who will provide assistance during the whole procedure of dissolution. Our law firm in Spain is specialized in offering consultancy services and legal representation for any type of liquidation procedure.
We can also represent investors in all the formalities for starting a business, register for taxation purposes or completing various procedures available in the case of those involved in trading activities -- for example, obtaining the import-export identification code, known as EORI in Spain.
What is the data on bankrupt companies in Spain?
Compared to the overall number of legal entities registered with the local institutions, the number of companies which became bankrupt is rather small. The number of bankrupt Spanish businesses varied in the last decade, the peak being registered in the period of 2012-2013. Considering that the Spanish business market is comprised of more than 3 million companies, the data on bankrupt businesses presents the following:
prior to 2007, there were less than 1000 bankrupt companies per year (927 in 2005 and 916 in 2006);
the number of bankrupt businesses increased at a rapid pace between 2008 and 2011 (in 2008 there were 2,894 bankrupt businesses and in 2011, there were 5,910 bankrupt companies);
the peak of companies that declared bankruptcy was in 2012 (8,095 companies) and in 2013 (9,143 companies);
starting with 2014, the number of companies entering bankruptcy began to decrease, from 6,564 businesses in that year to 4,297 in 2016;
in 2017, the Spanish market accounted for 4,095 bankrupt businesses;
There are several legal procedures through which creditors can recover their debts. The procedures can be explained by our law firm in Spain but, as a general rule, most of the cases will be handled through ordinary proceedings. These refer to legal actions through which the debtors are required to repay a debt. The ordinary proceeding is completed by the ruling of a court resolution.
Creditors can also apply other legal measures, such as monetary proceedings, special proceedings for bills of exchange or proceedings established for the purpose of executing unpaid mortgages. Our team of Spanish lawyers can present more information concerning these legal actions. We invite you to watch a short video on how you can liquidate a company, helped by our law firm in Spain:
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Federico Richardson is a lawyer experienced in dealing with international clients interested in doing business in Spain especially in corporate and real estate sectors. He is a graduate of the University of Navarra, took part in various businesses and now he coordinates the engagements at Lexidy Law Boutique SLP. Contact us for details
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