SPAIN WILL FACE THE MASS BANKRUPTCIES OF THE COMPANIES

The recent calculations, made by the economists, show that the coronavirus crisis might lead to the insolvency of 50-60 thousand enterprises of Spanish in the next two to three months. The current state of affairs is just a prelude to the avalanche of bankruptcies that the country's judicial system should expect.

We should recall that in connection with the pandemic and the introduction of quarantine in Spain, a scheme of “temporary employment regulations” called ERTE was used (short for Spanish “expediente de regulación temporal de empleo”). It allowed the companies’ personnel to receive unemployment benefits until the force majeure period is finished. After that, as the analysts predict, the main role will be taken by the judicial authorities, involved in the bankruptcy proceedings and sales of property at tenders.

The losses, following the closure of numerous enterprises, will force the companies to go through bankruptcy proceedings because of their insolvency.

Due to the nature of the national structure of production, many corporations, and especially self-employed citizens, will not be able to safely go through this stage and simply disappear from the market. The experts agree that the largest degree of bankruptcy will affect small and medium-sized businesses, which have less liquidity and experience significant difficulties in working with taxes and social payments.

According to the calculations of the Quabbala research company, specializing in civil and commercial law, in Spain, the collapse of the judicial system, similar to the one in 2008, might take place. Therefore, it is necessary to take professional measures to prepare the judicial system in advance for what lies ahead, the experts say.

Given that at the moment the system is not technically or quantitatively ready for an increase in the number of bankruptcies, there is an acute shortage of human resources.

According to Quabbala’s managing partner Ruben Garcia Kismondo, there is no doubt that thousands of bankruptcies are ahead. He recalls that if the previous crisis of 2008 included from 50 to 60 thousand processes, then only in a few coming months, we should expect the same number of cases, or even more. Particularly, the acute crisis will affect the companies that are in the process of restructuring and those professionals, who have little experience in their field of activity.

Spanish experts warn that, despite the measures that were taken by the authorities (establishing a temporary moratorium on bankruptcy) and proposals from the professional lawyers and judicial associations (in particular, from CGPJ), the country's judicial system will have to undergo a very stressful period. It is already planned to open more than 20 new Commercial Courts, since the operating ones will be overloaded with a number of bankruptcies.