Law 25/2015, of July 28, 2015, on the second chance mechanism, reducing the financial burden and other measures of a social nature (originating from Royal Decree-Law 1/2015, of February 27, 2015)

This new legislation consolidates in the Insolvency Law (Ley Concursal or “LC”), following some amendments, the new legislation ushered in by Royal Decree-Law 1/2015, of February 27, 2015 (“RDL 1/2015”) concerning out-of-court payment agreements and the new rules on debt relief for individual debtors, known as the “second chance” mechanism.

In addition, the passage through parliament of RDL 1/2015 allowed some new changes to be added, such as the fee protection account for insolvency managers, limits on the remuneration of insolvency managers and the introduction of greater flexibility to a number of elements of the second chance mechanism.

Lastly, the creation of the “insolvency gauge” is confirmed. This is an IT application which can be accessed confidentially and for free on the website of the Ministry of the Economy and Competitiveness. The “insolvency gauge” enables any interested party to ascertain whether their personal financial position makes them eligible to make use of measures such as the “second chance” mechanism or a personal debt restructuring.

Below is a summary of the matters that have undergone reform (second chance mechanism, remuneration of insolvency managers and out-of-court payment agreements) and the current status of each.

1. “Second chance” mechanism or debt relief (new Article 178 bis LC)

• 1.1 Requirements to qualify for a “second chance”
• 1.2 Steps to be taken to secure a “second chance”
• 1.3 Effects of the “second chance”
• 1.4 Withdrawal of the “second chance”
• 1.5 Definitive debt relief
• 1.6 Transitional arrangements for application of the “second chance” mechanism

2. Amendments to the remuneration of insolvency managers

• 2.1 Limits on the remuneration of insolvency managers
• 2.2 Fee protection account: establishment and contributions
• 2.3 Transitional arrangements for the remuneration of insolvency managers

3. Amendments to out-of-court payment agreements and special features of “consecutive insolvency proceedings”

• 3.1 Debtors who may benefit from an out-of-court payment agreement
• 3.2 How to apply for an AEP
• 3.3 Appointment and remuneration of “insolvency mediators”
• 3.4 Convening of creditors to a meeting
• 3.5 Effects of commencing an AEP proceeding
• 3.6 Terms of an AEP
• 3.7 Meeting with the creditors
• 3.8 Majorities required for approval of an AEP
• 3.9 Binding nature of AEPs on creditors, including secured creditors
• 3.10 Contesting AEPs
• 3.11 Effects of AEPs on creditors
• 3.12 Performance and nonperformance of AEPs
• 3.13 Special features of “consecutive insolvency proceedings”
• 3.14 Special features of AEPs for individuals who are not traders