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Restrictions for prior notice under article 5 bis of the Insolvency Law (‘pre-insolvency’ mechanism)

Spain - 

On September 10, 2019, Madrid Commercial Court number 6 delivered a decision arguing that it was necessary to examine whether the prior notice under article 5 bis of the Insolvency Law stemmed from steps taken to prepare or perform serious and effective negotiations.

The court concluded that in this particular case the notice was unfair and must be considered not to exist because its only aim was to stop a mortgage foreclosure proceeding. The pre-insolvency notice was not found by the court to be a serious, solution-seeking and reasonable attempt to secure a refinancing of the debtor’s liabilities because the main financial creditor, owning more than 90% of the liabilities, was not amenable to a refinancing arrangement because it had initiated a mortgage foreclosure.