Given a business crisis, the difference between survival and failure sometimes lies in the ability to anticipate insolvency and activate the appropriate legal mechanisms. A delayed intervention not only limits available options but can also trigger personal liabilities for the directors.
Among the available options, an out-of-court negotiation with the company’s various creditors stands out, with the goal of achieving a debt reduction or a payment extension. When debt refinancing with different creditors (generally, financial institutions) isn’t viable for the company, or only worsens its financing conditions, several legal strategies exist to protect business assets and preserve the continuity of the business.
If any of the creditors have sought to enforce their credit in court, there is a possibility of defending against potential foreclosures by negotiating a debt reduction that allows the company to survive. This strategy requires a detailed analysis of each creditor’s position and a realistic payment proposal that is more attractive to the creditor than the eventual liquidation of the company. The negotiation can include everything from payment extensions to significant reductions in the principal amount owed. In parallel, it may be necessary to implement measures to obtain liquidity, such as selling non-essential assets or seeking new sources of financing to meet all or part of the debt.
Another option, which can be done in parallel with the above, is to use the various insolvency instruments offered by our legal system. Among these, the pre-insolvency proceeding stands out. Regulated by the TRLC, it allows the company, without losing control, to request temporary protection from the courts while negotiating an out-of-court payment agreement with its creditors. This mechanism suspends foreclosures for a specific period, giving the company the chance to reach a viable agreement. The pre-insolvency proceeding can encourage different creditors to reach an agreement, thus avoiding more drastic solutions for the company.
If the pre-insolvency proceeding ends without an agreement, it is possible to declare the company’s insolvency, which allows for an orderly restructuring of debts under judicial supervision. During the insolvency process, the accrual of interest on the debts is stopped, and individual foreclosures are prevented, creating a stable framework for reorganization. This option may conclude with the liquidation of the company.
The success of any of these strategies may depend on having the best specialized legal advice. At Navas & Cusí, with over 40 years of experience in the legal sector, we are expert lawyers in business restructuring and asset protection. We analyze your company’s situation, define the legal strategy to follow, accompany the company throughout the entire process, and negotiate with the various creditors with the goal of achieving the company’s viability.
