The goal of this is to facilitate that viable companies can maintain their activity or at least some sections, after the insolvency agreement. In , there were 4, companies applying for insolvency procedures. Moreover, it is the lowest figure recorded since the onset of the crisis in Some experts note that the causes behind insolvency procedures have recently changed.
While during the crisis these were mostly associated with the construction crisis and the lack of loans provided by the financial institutions, recently they are more closely linked to the business evolution competence among companies , lack of innovation of the products, etc. Eurofound, Wyattville Road, Loughlinstown, Co.
Ley 22/2003, Ley Concursal (Spanish Edition)
Eurofound is an agency of the European Union. Skip to main content. Rescue procedures in insolvency. Rescue procedures in insolvency Go to list page. The company must present a set of documents to the court: This rule creates more certainty about the fate of the contract for the non-debtor party, because the bankruptcy estate is obliged to pay the non-debtor party in full in either case: As explained above, the Spanish model creates the most efficient incentives for the bankruptcy trustee ex post.
However, this model may create other sort of problems, namely: The main objection against granting the damages claim for rejection as the administrative priority is that it is contrary to the principle of equal treatment among creditors.
Spain: Rescue procedures in insolvency | Eurofound
Granting the damages claim for rejection of an executory contract has already been analyzed as a solution for the distortions created by the ratable damages rule, which is the approach adopted in most bankruptcy systems. Legal scholars have acknowledged that forcing the bankruptcy estate to internalize in full the costs of rejection eliminates the distortions created by the ratable damages rule because it creates incentives for the bankruptcy trustee to choose rejection of the contract only when the cost of performance to the bankruptcy estate is greater than the benefit to the non-debtor party i.
However, it has been argued that this measure is problematic because it is contrary to one of the main bankruptcy policies: Since the administrative priority rule forces the bankruptcy estate to pay in full the damages claim for rejection rather than a proportionate amount according to the assets available in bankruptcy , it disregards the principle of equal treatment among creditors. However, this behavior makes creditors worse off as a group because only those who individually collect first from the debtor are paid in full, whereas the remaining creditors receive nothing.
ley concursal | Spanish to French | Law (general)
Nevertheless, bargaining costs are prohibitively expensive for creditors to enter into such agreement because creditors are dispersed and have an interest to maximize their claims individually. Hence, bankruptcy law provides the rules that creditors would negotiate if they could enter into a contract to distribute equally the value o the debtor among them according to their non-bankruptcy entitlements and, if possible, seek the rehabilitation of the debtor It is argued that when the damages claim for rejection of an executory contract enjoys an administrative priority some value is transferred to the non-debtor party at the expense of all other unsecured creditors.
Unlike all other unsecured claims, a claim that enjoys an administrative priority is paid first all other unsecured creditors and as such is usually paid in full. From an economic perspective, this is explained in these terms: For example, under the American Bankruptcy Code, the claims of tort creditors are in a higher priority position than all other general unsecured creditors.
The justification is that tort creditors become creditors of the debtor involuntarily. Moreover, even though the debtor can be forced to take insurance against tort damages, the debtor has incentives to undersecure. Thus, bankruptcy law intends to deter such behavior by granting tort claims an administrative priority s that the debtor internalizes the cost of its activities. Although equal treatment among creditors is one of the pillars of bankruptcy law, an exception to this principle should be valid on the grounds of efficiency, because in the end the purpose is to align the goals pursued by bankruptcy law with the social of maximization of total value.
It is important to notice that fairness concerns could be mitigated with a procedural solution as it is the case of the Spanish model. The Spanish Insolvency Act mandates that all executory contracts are deemed to be automatically assumed by the bankruptcy estate. By mandating automatic assumption of all contracts, all those parties to executory contracts become creditors of the bankruptcy estate these creditors are no more prepetition unsecured creditors of the debtor ; as a consequence, the non-debtor party is not anymore a prepetition unsecured creditor of the debtor but a post-petition creditor of the bankruptcy estate.
The second objection to a regime for the treatment of the damages claim for rejection that adopts the administrative priority rule is that it hampers reorganization. The traditional explanation of the rules on the treatment of executory contracts is that the duty of the bankruptcy trustee is the maximization of the bankruptcy estate.
KudoZ™ translation help
When a firm enters bankruptcy, it is common that some of the contracts remain unperformed and some of these contracts impose a burden to the bankruptcy estate. Because one of the underlying goals in bankruptcy is reorganization of the debtor, it is desirable to allow the bankruptcy trustee to reject those contracts that are unfavorable to the bankruptcy state. It is regarded as necessary to enable the bankruptcy estate to unburden itself from unfavorable contracts in order to maximize the bankruptcy estate value; once the bankruptcy estate is released from those contracts, the bankruptcy trustee can seek to enter into contracts with third parties in more favorable terms for the bankruptcy estate, and even if the bankruptcy estate does not enter in new contracts with third parties, rejecting burdensome contracts benefits the bankruptcy estate as it releases the bankruptcy estate from loosing some value.
In this sense, reducing the costs of rejection is justified on the basis that it facilitates rejection of burdensome contracts, which in turn facilitates the maximization of the bankruptcy estate value.
Conversely, a regime that forces the bankruptcy estate to fully internalize the costs of rejection is regarded as undesirable because it makes it more difficult for the bankruptcy estate to unburden itself from unfavorable contracts due to the asset constraints in bankruptcy. Notwithstanding, the administrative priority granted to the damages claim for rejection is unlikely to affect the rehabilitation of the debtor, because payment damages claims can be deferred until the reorganization plan is confirmed.
In this sense, although the amount of the damages claim for rejection of executory contracts are larger under the expectation damages rule, such claims are paid out at the end of proceeding. This article has examined the main approaches to the treatment of executory contracts used around the world for the treatment of executory contracts in bankruptcy focusing on the ability and incentives of the bankruptcy trustee to reject executory contracts. After classifying such regimes into three models, this article has described the rules on the treatment of executory contracts under each model.
Based on previous studies on executory contracts from an economic perspective, this article has analyzed the incentives that these regimes create ex post for the bankruptcy trustee. This article has demonstrated that the American model, which adopts a regime in which the damages claim for rejection of executory contracts is treated as a general unsecured claim, creates inefficient incentives for the bankruptcy trustee to reject value-creating contracts.
As for the German model, this article has shown that it adopts a regime in which the damages claim for rejection is treated as a general unsecured claim, produces the same inefficiencies as those generated by the American model. Last but not least, this article has found that the Spanish model is likely to create the most efficient incentives ex ante and ex post for the debtor and the non-debtor party to make decisions on performance, investment and filing for bankruptcy.
Unlike the American and German models, the Spanish model adopts a regime in which the damages claim for rejection enjoys administrative priority which forces the bankruptcy estate to internalize the costs of rejection. This article has also analyzed several objections to the Spanish model, namely that it is contrary to the principle of equal treatment among creditors and that it hampers rehabilitation of the debtor.
This study has concluded that these objections are misplaced and that an exception to the principle of equal treatment should be allowed. Based on the results of this study, this article argues that the Spanish model is superior to the American and German model and advocates for its consideration as a model for other bankruptcy systems to improve the treatment of executory contracts. Accounting for Performance Creditors 55 Vand. Bankruptcy Law Stories 55, 68 Robert K. Inzolvenzordnung , 70 Am. The United States and Germany 10 Am. Andrew, Executory Contracts in Bankruptcy: An Economic Analysis 22 Berkeley Tech.
Richard Craswell, Contract Remedies. Renegotiation, and the Theory of Efficient Breach, 61 in S. Section , 3 Bank. Vern Countryman, Executory Contracts in Bankruptcy: Part I 57 in Minn. But such definitions are so confusing that it is unpredictable whether a contract will be regarded as executory or not in bankruptcy.
Thus, legal commentators have advocated for the inclusion of a clearer definition such as the one proposed by Michael T. Some other studies have demonstrated that the current regime under the Bankruptcy Code is undesirable because it distorts the incentives for the debtor and the non-debtor party to make investment and performance decisions ex ante and ex post. Peter Menell focused on the detrimental effects of rejection of intellectual property licenses in bankruptcy. For recent general studies about rejection of executory contracts in bankruptcy, see George G.
Termination Rights in Bankruptcy: The Story of Stephen Perlman v. It should be noticed that, under the American bankruptcy law, liquidation and reorganization are two separate proceedings, but section covers the treatment of executory contracts regardless of the type of bankruptcy proceeding. For the purposes of this study, however, only reorganization cases are analyzed.
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