The commercial courts will be the ones who decide
A ruling recently handed down by the Supreme Court affects the contradictions of the Second Chance Law
The Supreme Court issued a ruling at the beginning of July in which it grants commercial courts the ability to decide whether to forgive up to 70% of the debts that the self-employed have contracted with the public administration. Furthermore, the amount that is not forgiven may be paid in installments. ATA had been demanding this measure.
The Supreme Court takes a new step forward in the second chance mechanism that should allow self-employed workers to recover after bankruptcy. And this step affects nothing less than the debts with the Treasury and Social Security, something that, until now, had only been claimed by the ATA Federation of Self-Employed Workers and which seemed an almost unattainable goal.
However. On July 2, the Supreme Court issued a ruling that expands the capacity of the commercial courts to decide whether to forgive up to 70% of the debts that the self-employed, in a situation of insolvency, have contracted with the Treasury. and Social Security. That is, the judge may release the self-employed from paying half the amount, plus the corresponding interest and surcharges, if they have not been able to comply with their tax obligations due to being bankrupt.
In addition, the ruling leaves in the hands of the courts the power that the amount left out of the reduction can be paid in installments over a period of up to five years, subject to agreement on a plan that takes into account the capacity economic of the affected person.
The ruling is being widely applauded by the self-employed group. “The Supreme Court had to come to say what we at ATA (National Federation of Self-Employed Associations) have been demanding for years. There cannot be a Second Chance Law without including public credits, which are what really sink the self-employed,” said Lorenzo Amor, president of the Federation upon learning of the ruling.
As drafted, the Second Chance Law explains in section five that “the benefit of the exoneration of unsatisfied liabilities granted to debtors […] will be extended to the unsatisfied part of the ordinary and subordinated credits outstanding on the date of conclusion of the contest, even if they had not been communicated, and except for public law and food credits.” Or what is the same, it does not affect the debts contracted with the Treasury and Social Security "which are the ones that truly suffocate the self-employed and prevent them from restarting and having a true Second Chance," Amor pointed out.
This is why since the Second Chance Mechanism and Financial Burden Reduction Law was approved at the end of July 2015, ATA has been demanding that it be rectified and reviewed. Even, on more than one occasion, the president of ATA has publicly stated that “since the law was implemented it has been of no use.” In this sense, in November 2017, the Federation submitted a proposal in this regard to the Subcommittee for the Reform of the RETA (Special Regime for Self-Employed Workers). This consists of developing a system of debt write-offs under public law for all self-employed workers - both corporate and individual individuals themselves. These reductions would be applied to the interest and surcharges generated on the principal.
With the ruling of last July 2, the Supreme Court goes one step further and opens the door for the 50% of the fee to be forgiven, to which interest, surcharges and penalties must be added (hence the total percentage can reach up to the 70%).
Contradictions and underground economy
As extracted from the high court ruling, the Second Chance Law has internal contradictions since, according to the Supreme Court, “on the one hand, a plan is foreseen to ensure the payment of those credits (against the estate and privileged ones) in five years and, on the other hand, it refers to the administrative mechanisms for the granting by the public creditor of the fractionation and deferral of payment of its credits.” This means that, once the roadmap to pay the debt has been agreed, it must be ratified by the Treasury or Social Security. Something that for the Supreme Court has no reason to exist because, "once the payment plan has been judicially approved, it is not possible to leave its effectiveness to a subsequent ratification by one of the creditors, in this case the public creditor," the Supreme Court quotes.
According to what is published in the newspaper El Confidencial, the Tax Agency (AEAT) admits the extension of powers. "Until now, for public credit the Agency would have to ratify (or not) the payment plan, which meant that there had to be a prior agreement with the Agency." Regarding the impact of the decision, it could "be limited" if the decisions of the commercial judges "are more or less coincident with the positions that the Agency had maintained" or they opt for what the Supreme Court says.
On the other hand, the ruling could contribute to the emergence of part of Spain's underground economy. Many self-employed workers who, due to the impossibility of paying their debts, have been forced to continue carrying out their activity irregularly and, if they see their debts with the administration forgiven, would be encouraged to reintegrate into the system and comply with their obligations.
It should be noted that, since the summer began, this is the second time that the Supreme Court has amended the Treasury plan. At the end of June, it annulled the modification of the Collection Regulation that empowered the Tax Agency to reject requests for debt installments if the suspension had previously been requested, since “it diminished the rights of taxpayers because the procedures (suspension and postponement) They are not incompatible with each other.”
The ordeal of the second chance
Accessing the second chance is not an easy path for the vast majority of self-employed people. Firstly, they can only benefit from debt forgiveness, and only from suppliers, who have declared bankruptcy and it has been concluded.
From that moment on, the request for debt relief must be submitted within the hearing period stipulated by the judge. Furthermore, it will only be admitted if the debtor is “in good faith.” This means that in the contest he has not been declared guilty; that in the ten years prior to the declaration of bankruptcy he has not been convicted in a final judgment for, among others, crimes against property, the Public Treasury and Social Security or against workers' rights...; that has entered into or at least attempted to enter into an extrajudicial payment agreement; that has fully satisfied the claims against the estate and the privileged bankruptcy claims and, if not, would have attempted a prior extrajudicial payment agreement of at least 25% of the amount of the ordinary bankruptcy claims; that you agree to submit to the payment plan; or who has not rejected, within the four years prior to the declaration of insolvency, a job offer appropriate to his or her ability.
Despite the limitations of the Law, initiatives have been launched to encourage relearning and put an end to the stigma of failure. In autumn 2017, the European Commission chose ATA and the Community of Madrid to launch the Early Wanrnig project. As a “business hospital”, it is an early intervention system aimed at those self-employed, entrepreneurs and small companies and businesses that are going through difficult times with the aim of, through tools such as training, innovation or internationalization, saving them from bankruptcy and avoid both liquidation and the economic and personal consequences that this entails.
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