1. Introduction

1. Introduction

Given the situation of Spanish market generally —and the latest reforms on restructuring of the financial sector more particularly— it seems that cash flow shortage may be ongoing in the near to mid term future for some Spanish corporations. Upon this situation stressed or distressed companies may consider rescue financing alternatives in substitution —or in addition to— other traditional funding. Generally within a broadest restructuring deal, non-bank lenders may have an interesting role to play in providing for liquidity facilities.

In line with the trend of the first reform to the Spanish Insolvency Act of 2003 carried out on March 2009 (the 2009 Reform), new amendments to the Spanish Insolvency Act (the SIA) were approved on 4 October 2011 (the Amendment). This Amendment will enter into force on 1 January 2012.

The current economic recession has been particularly acute in one of the pillars of the national economy, the construction and real-estate sector. This sector, which had already been undergoing a slowdown in recent years following the so-called “real-estate boom”, now stands in a profound and particular crisis with sales coming to a standstill, caused not only by the overall market situation, but mainly due to the restrictions placed by banks on loans, which are putting an economic brake on entrepreneurs.  

The object of this article is to analyze a controversial issue which is considered in recent times by the Mercantile Courts as a current incident involved in the Bankruptcy Proceedings and more specifically, to analyze the Judgement issued by the Court of First Instance no. 9 and Mercantile Court of Cordoba dated April, 19th 2010, in which the aforementioned incident is involved.  

This incident is essentially based on establishing the treatment that should be granted to the additional guarantees provided by third parties in bankruptcy proceedings.  

Spanish insolvency law has been modified recently by Act 22/2003. This is the culmination of a long process aimed at including in Spanish Law an insolvency law that will rectify the failures of previous legislation and create a law that fits in with social, economic and legal reality. In order to incorporate the criminal sanctions available against insolvent companies, this Act has also modified various articles of the Penal Code.

As a consequence of the current situation of economic crisis and the sudden braking in construction, we observe that every day we are finding ourselves with fresh news of negotiations with financial institutions, and applications for declarations of bankruptcy from creditors.

Tax treatment in the hands of the creditor

The waiver of an outstanding debt by a creditor shall be treated as an extraordinary loss for accounting purposes. As taxable income for corporate income tax purposes is calculated from the company’s accounting results assessed upon accounting regulations, such loss is normally deductible unless income tax law provides for an adjustment.

With the current economic crisis significantly affecting global business, certain procedural remedies can be particularly useful in order to deal with unpaid debts.

The most common of these procedural remedies in Spain is the so-called 'proceso monitorio', which consists of a special payment procedure used for the recovery of specific monetary debts which:

Tax treatment in the hands of the creditor

In Sweden, debt is typically waived through either judicial settlement (Sw. offentligt ackord) (which will not be discussed here) or through private settlement (Sw. underhandsackord) between creditor and debtor.