Bankruptcy moratorium: its end will have negative consequences for companies and courts

The current insolvency moratorium ends on 30 June, unless an extension is granted. It is expected that factors affecting courts and companies may arise at the end of this measure. 

Since the state of emergency was declared in March 2020, insolvent companies have been "exempted" from filing for insolvency proceedings even though they are legally obliged to do so. "With the end of the moratorium and the failure of our economy to fully recover, it is expected that many companies will simultaneously file for insolvency proceedings, many of them already zombie companies, i.e. de facto unviable companies that have artificially maintained their activity due to public support measures, thus producing an inefficient allocation of resources," explains a lawyer.

In view of this situation, it is maintained that "what in principle was a logical measure adopted in most of the countries around us, with the passage of time, the successive extensions and the lack of any requirement for eligibility, has become a measure with counterproductive effects for the future of the Spanish productive fabric".

In view of the number of insolvency proceedings filed since the entry into force of this measure, "it is clear that the insolvency moratorium has had a sedative effect on companies in difficulties, giving them a false sense that the decision on the measures to be adopted for the survival of the business can be postponed almost indefinitely".

When a company enters into economic conflict, it is not easy to implement the measures that make it possible for the company to survive, but "the moratorium on bankruptcy has not helped to this end, but rather the opposite, artificially postponing the solution to the problem".

Many companies in difficulty should have faced complex measures that were necessary for their survival, have continued to operate in the same situation complicating their status, and with the end of the moratorium they will have to face the reality of a possible critical situation for their survival.

A possible judicial collapse?

Although insolvency proceedings have continued to be filed, many companies and entrepreneurs have continued to take advantage of the successive extensions of the insolvency moratorium, delaying the filing of their insolvency proceedings under legal cover.

Therefore, it is considered foreseeable that "all the companies and entrepreneurs affected, in order to try to avoid the liability of their administrators, will have no other option but to file for insolvency proceedings in the coming months". "If we add to this effect the forthcoming change in the regulation of insolvency proceedings and the second chance, this could lead to a real collapse of the commercial courts, which have not seen their resources strengthened during this period of default", it warns.


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