Directors’ liability in insolvencies without assets

The rise of no-asset insolvencies and the liability of company directors are highly relevant issues in commercial practice today. Creditors need to stay alert and have the support of legal experts who can guide them and represent their interests effectively.

Business insolvency has become an increasingly common reality. According to the statistics of Spain’s General Council of the Judiciary, 1,255 corporate insolvencies were declared in Spain in the second quarter of 2023, more than 50% of which —654— were no-asset insolvencies. This trend raises a number of legal challenges for both creditors and company directors.

What is a no-asset insolvency?

No-asset insolvencies are those in which the company has no seizable assets or rights, or only assets whose cost of realisation is disproportionate to their market value. In such cases, assets may be encumbered by charges exceeding their value, which makes it hard to sell them to pay debts. Law 16/2022 of 5 September, which reformed the consolidated Insolvency Act, replaced the former “express” procedures with this new type of proceeding, intending to provide more control and transparency.

In practice, however, the expected oversight by creditors does not always materialise. The insolvency declaration is only published in the Official State Gazette and the Public Insolvency Register, so in practice only public authorities and financial institutions find out about the procedure, leaving many other creditors in the dark.

Directors’ liability

A judgment of Commercial Court No. 6 of Madrid of 8 September 2023 highlights a crucial point: company directors’ liability does not end when a no-asset insolvency is declared. Directors must maintain their duty of care towards creditors and carry out all the necessary winding-up operations, even after the proceedings have concluded.

The judgment stresses the importance of using the company’s residual legal personality responsibly until all its obligations have been fully extinguished. Directors who fail to wind up the assets in an orderly manner may face individual liability claims from creditors.

Protection and legal action for creditors

As no-asset insolvencies become more frequent, creditors need to be well informed and ready to protect their interests. The judgment sets an important precedent, allowing creditors to take legal action against directors who fail to meet their winding-up duties. This means directors could be held personally liable for the company’s outstanding debts.

It is essential for creditors to act promptly and seek specialist legal advice to navigate these complex procedures. At Rodian Abogados, an insolvency law firm in Valencia, we specialise in insolvency law and the Second Chance Law, and our team is ready to advise and represent creditors so that their rights are protected and the necessary legal action is taken against directors in breach.

Why specialist advice matters

As directors’ liability lawyers in Valencia, we understand how complex these cases are and are committed to providing our clients with a robust defence. If you are a creditor facing a no-asset insolvency, get in touch: our team will help you assert your rights and make sure directors meet their legal obligations.

At Rodian Abogados we will be honest and transparent with you, give your case the time it needs and, above all, we will not try to sell you anything.