8 keys to understanding the Extrajudicial Payment Agreement

Undoubtedly, one of the most important novelties that the so-called “Entrepreneurs Law” (Law 14/2013 to support entrepreneurs and their internationalization) has introduced is the so-called Extrajudicial Payment Agreement.

The keys to understanding what this new legal figure consists of could be summarized as follows:

1) This is a modification (one more) of Bankruptcy Law 22/2003, the intention of which is to prevent, as far as possible, that companies with financial problems go directly to the Bankruptcy.

2) It is, therefore, an out-of-court procedure prior to the bankruptcy, whose fundamental mission is that the debtor reaches a payment plan with his creditors.

3) The figure of the bankruptcy mediator is created, a kind of "bankruptcy pre-administrator" who will ensure that positions are combined between the debtor and his creditors.

4) The bankruptcy mediator will be appointed, in each case, by the Mercantile Registrar or by a notary, depending on whether they are legal or physical persons (merchants), before whom the debtor will have previously submitted his request for an out-of-court settlement of payments.

5) With the initiation of the file, some effects similar to those established by the modification of the Bankruptcy Law introduced at the end of 2011 for the so-called “pre-bankruptcy” are automatically produced: paralysis of executions, impossibility of initiating the necessary bankruptcy against the debtor, etc.

6) The bankruptcy mediator will call a meeting to all creditors, to whom he will have previously sent a payment plan, whose moratorium may not exceed three years and the removal or forgiveness may not exceed 25% of the debt.

7) If the creditors representing 60% of the liabilities approve the proposal, a notarial deed of the out-of-court agreement is drawn up, which will close the file. From then on, the mediator himself will ensure the future fulfillment of said agreement.

8) If the plan is not approved, the mediator must immediately request the declaration of insolvency from the commercial judge.

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