What is the order of collection in an insolvency proceeding?

First of all, it should be borne in mind that the first to be paid are the so-called anti-mass claims. Then, in this strict order, secured or mortgaged creditors, i.e. banks, would collect. Then workers, public administration and finally suppliers and partners.

The orders for payment to the guarantors are executed by the insolvency administrators according to the distribution of each deficit, paying their fees from the funds of the company declared bankrupt. If you are in insolvency proceedings and need help, it is best to seek advice from a good commercial lawyer.

Types of credits

1. Privileged claims
   When bankruptcy is declared, in the face of so-called mass claims, these so-called privileged claims must be assumed. Such a claim usually relates to debts secured by mortgage or pledge. As far as general privileged claims are concerned, this includes monthly payments and workers' compensation payments.
   These are debts that must be paid immediately after claims against the masses and fall into two categories; privileged claims and general privileged claims. A senior loan, also known as a replacement loan, is generally a debt secured by a lien or mortgage. The next order of repayment is general privileged loans. These include compensation owed to employees, although there are limits on the amounts.
2. Ordinary and subordinated claims
   Ordinary claims refer to the rest of the debt. These would be those who entered into contracts with creditors and suppliers without additional collateral before filing for bankruptcy. As for the secondary receivables, this is where they are collected from fines, penalties, debts to partners, etc. This group of debts is difficult to collect. This is because there are usually no official suppliers who require collateral or pledges to secure their business, unlike banks and financial institutions.
3. Credit to the Masses
   This type of credit has the highest priority for collection. In fact, they are debts that are paid first.

What is insolvency and how do I know if a company is involved?

To end up in this situation, the company or employer must file for bankruptcy, realising that it cannot pay its suppliers and employees. Those who are in debt are guaranteed unpaid invoices when the bankruptcy process begins.

It is very easy to find out if a company is bankrupt, as the information is listed on the website of the State Gazette and the State Insolvency Register, as all companies that declare bankruptcy and use this resource must be available to the public. A list of all bankrupt companies can be found on this page.

Are you considering filing for insolvency proceedings?

If you are considering insolvency proceedings, you must initiate legal proceedings. They can be claimed when natural and legal persons are in insolvency and consist of different stages of insolvency. The Bankruptcy Code provides for two types of bankruptcy:

• Current insolvency, which occurs when the debtor is no longer able to pay the agreed debt.
• Imminent bankruptcy, which occurs when the debtor foresees that it will not be able to meet its obligations on time.

Insolvency proceedings in Spain are an obligation that must be complied with by all persons in insolvency. When the obligation to declare bankruptcy is not complied with, there may be serious consequences for the debtor or its administrator and it is considered to be culpable bankruptcy.

When this happens, the debtor may be deprived of certain rights and may be obliged to assume all or part of the bankruptcy debt. Creditors may take action against the administrator of the company and he may be ordered to pay the company's debts out of his assets. If the debtor is a natural person, he/she will not have the opportunity to benefit from debt forgiveness. This is the alternative offered by the law on second chances.

Therefore, it is important to know that after the bankruptcy declaration, which may be necessary or voluntary, it is the trustee who decides whether to liquidate the bankrupt company and submits a report on the company's debts, sorted by category.

Debts to banks and workers

In addition to determining who gets paid first in bankruptcy, the truth is that nobody usually wins in bankruptcy proceedings. For example, in the process of financial restructuring of companies, it has become a common phenomenon that banks undertake and accept deductions of 10% to 50% of the money due, whereby financial institutions often put pressure on companies and engage in desperate negotiations. In this way, the company avoids bankruptcy. As for the workers, they are not only responsible for the limit of the amount they receive, but they often have to turn to the Wage Protection Fund (Fogasa) to collect it. In case of insolvency of the company, the state authority withholds the worker's salary for up to 120 days and the compensation for up to one annuity.