The file for insolvency may be made by the undertaking itself or by creditors who have claims over it. However, regardless of the entity making the request, a situation of insolvency occurs when a company is unable to meet its financial obligations. Such a situation is analysed by applying two different criteria.
The first criterion will be the cash flow, i.e. whether the income of the company is not sufficient to pay all its debts and essential expenses. The second criterion suggested by the law is the asset criterion, i.e. when the asset-liability is greater than the asset. In practice, one of the following situations will have to occur:
- Generalized suspension of debt payment;
- Non-fulfilment of debts which, by their amount or by the circumstances of the non-fulfilment, reveal the impossibility of the company to fulfil its obligations;
- Failure in the last months to pay contributions to the finances, social security, employees’ remuneration, rents, among others;
- Dissipation, abandonment or hasty liquidation of assets;
- Other situations that lead to believe with some degree of certainty that the company is in a very unfavourable economic situation.
Regarding companies’ responsible bodies (managers or board of directors), they ought to file for insolvency. What happens in practice is that they have 30 days to file for insolvency, counting from the moment they are aware of the unfavourable economic situation, i.e. from the moment they are aware of one of the scenarios listed above. Failure to comply with such duty may lead to serious consequences for those subject to civil and criminal proceedings. It may result in the payment of compensations, fines and even a custodial penalty.
With the current situation, several measures have been approved regarding the declaration of insolvency:
- The deadline for the debtor to file for insolvency is suspended;
- The deadline for approval of accounts has been extended until 30 June 2020;
- The deadlines for the fulfilment of some declarative obligations have been extended.
As a personal note, we would like to demonstrate our concern regarding the issue of special revitalization processes that have not yet been subject to legislative intervention by the Government. If on one hand, we consider essential that the Government acts now, helping companies with immediate support, on the other hand, we consider essential to look at the future and support companies that are going to face an imminent insolvency situation or, at least, a very difficult economic situation. This is the only way to truly avoid future and possible insolvencies.