The duty of cooperation and information in insolvency proceedings

One of the conditions for achieving the forgiveness of debts in an insolvency proceeding is that the debtor complies with his duties of cooperation and information. He must do so with respect to both the insolvency judge and the insolvency administration. What is more, non-compliance will not only prevent the debtor from being exonerated from unsatisfied liabilities, but the insolvency proceedings will also be presumed to be guilty.

The reform of the Insolvency Act requires an assessment of the good faith of the insolvent party in its cooperation with the supervisory agents of the proceedings. In practice, this translates into the provision of documents that faithfully reflect their economic situation and the reasons for insolvency. Documents such as annual accounts, company minutes…

Who must comply with the cooperation and reporting requirements

In the case of a natural person, the duties of collaboration and information are incumbent on the insolvent party itself. In the case of legal persons, they fall on the administrators or liquidators and those who have held these positions within the two years prior to the declaration of insolvency. This two-year margin has been added to prevent the insolvent party from evading the duty to provide information by claiming ignorance of the company’s past.

Article 135 of the revised text of the Insolvency Act specifies that these persons “have the duty to appear in person before the court and before the insolvency administration whenever they are required to do so and to collaborate and provide any information necessary or convenient for the interests of the insolvency”.

How to obtain debt relief

It is essential, even before filing for insolvency proceedings, to carry out a thorough analysis of all available documentation and of the causes that have led the debtor to become insolvent.

The debtor must provide truthful information from the very moment he applies for the declaration of insolvency proceedings. Even more so if he intends to opt for the exoneration of unsatisfied liabilities. Already in this first phase of the insolvency proceedings, he must provide all the documents that prove and justify his insolvency situation. It is better to err on the side of completeness than to omit information that may initially seem minor. Because later on they may prove to be transcendental in the insolvency proceedings.

It is the insolvency judge and the insolvency administrator, if appointed, who will assess the debtor’s good faith and ultimately consider whether the debtor deserves to be exonerated. For this reason, the insolvent party must adopt a fully collaborative and transparent attitude. To this end, it will provide the supervisory agents with as much information as possible.

Consequences of breaching the duties to cooperate and to inform

In the event that the judge and the insolvency administrator consider that there has been a lack of cooperation and information on the part of the debtor, they will not only prevent the debtor from being exonerated from his debts. In addition, they may also declare the insolvency proceedings guilty. This is an additional impediment. Because the administrator of the company may lose any rights it has in the insolvency proceedings, be ordered to cover the deficit and be ordered to pay damages.

At this point, it is worth remembering a change that occurred with the implementation of the insolvency reform. The judge now has to classify the insolvency proceedings as fortuitous or culpable in all cases. There is no longer any exception in this sense, which gives more weight to the creditors.

In order to bring the insolvency proceedings to a successful conclusion and obtain debt exemption, it is essential to have a consultancy firm specialised in insolvency law such as Confianz from the outset.