Urgent and extraordinary measures to support the most vulnerable tenants affected by COVID-19

Royal Decree-Law 11/2020, of 31 March, which takes additional urgent measures in the social and economic sphere to deal with COVID-19.

The measures aim to minimize the impact of this situation and to protect tenants who remain vulnerable, but also to articulate those actions necessary so that landlords, also sometimes in difficult circumstances, can also overcome the impact of this crisis.

More relevant measures

(1) Suspension of eviction procedure and releases affecting housing leases, in situations of vulnerability without housing alternative. In eviction procedures affecting the usual dwelling, launches without a housing alternative will be suspended for a period of up to six months.

In the event that the lessor concerned is also subject to vulnerability, it will be the Judge who determines the period of suspension or the measures to be established, taking into account the report issued by the competent social services.

(2) Six-month extension on leases ending in this period, at the request of the tenant. In those housing leases in which their validity (or extensions) ends within the period from the entry into force of this royal decree-law and until the day on which two months have elapsed since the end of the alarm status, an extension period of up to six months is established.

This extension shall be mandatory for the landlord if requested by the lessee, under the same conditions set out in the current contract, unless an agreement has been reached on this matter between the landlord and tenant.

(3) State-guaranteed line of guarantees, which will allow to cover the payment of up to six months of rent, for any tenant who is in a situation of vulnerability as a result of COVID-19.

A Transitional Funding Aid Programme is created for all households that may be affected in their income by the expansion of COVID-19, so that, through an agreement with the Official Credit Institute (ICO), these households are offered the possibility of covering rent payments for a period of up to six months, without any expenses or interest for the applicant, and can be returned within six years.

(4) In situations of vulnerability, where the lessor is a public entity or a large holder, 50% reduction in income, or moratorium of up to four months in the payment of rent.

In the event that the tenant is affected by situations of vulnerability arising from the expansion of COVID-19, and the lessor is a public entity or a large holder (natural or legal person holding more than 10 urban properties, excluding garages and storage rooms, or more than 1,500 m2 of constructed area), and in the absence of an agreement between tenant and owner, it is established that for the period that such vulnerability persists, the owner may grant during that period, and with a maximum of four months, a 50% reduction in rent, or a moratorium on the payment of rent during that period to be repaid for up to three years.

This moratorium would be suspended if the tenant agreed to the financial aid explained in the previous point.

(5) Additionally 100 million euros are provided for the State Housing Plan 2018-2021. A new aid Program is implemented that will allow the granting of direct rental aid to regular housing tenants who, as a result of the economic and social impact of COVID-19, have serious problems in meeting the partial or total payment of rent.

The management of the Plan is relaxed and streamlined, in order to provide direct coverage to the vulnerable tenant for the payment of the rent or for the payment of the financing through the Official Credit Institute (ICO) subscribed by the tenant with which the rent will have been satisfied.

The document verification process and requirements for access to the State Housing Plan’s rental assistance programs speed up. Taking into account the exceptionality of the situation, the requirements to be met by beneficiaries of any rental aid financed under the State Housing Plan 2018-2021, including those of the aid program to help minimize the economic and social impact of COVID-19 on regular housing rentals, may be verified by the Autonomous Communities after the resolution of granting the aid, which is conditional on the fulfilment of the requirements.

Fulfilment of contractual obligations and possible consequences

The exceptional circumstances caused by the declaration of the state of emergency as a result of the COVID-19 pandemic have opened up the possibility of applying force majeure and rebus sic stantibus clauses to contractual relations. Being the force majeure the option most easily accepted by the Spanish courts, the implementation of said solutions must fulfil certain requirements based on the good faith of the contracting parties and on the reduction of the damage.

  1. Introduction

Since on 11 March 2020 the World Health Organization declared COVID-19 as an international pandemic, a high uncertainty has arisen in the frame of commercial and civil contracting. This situation became aggravated in Spain as a result of Royal Decree 463/2020, of 14 March, declaring the state of emergency for the management of the health crisis caused by the COVID-19 (the “Royal Decree“),being one of the consequences the appearance of situations that make it impossible (or significantly difficult) to comply with the contractual obligations and which, contrary to the administrative and judicial deadlines, have not been suspended.

This legal note is intended to provide an initial overview of situations arising from the state of emergency and other measures adopted at both national and international level.

In this sense, our starting point is the mandatory nature of contractual obligations or pacta sunt servanda and, secondly, the review of mechanisms for contractual flexibility provided for in our legal system, in order to finalize with an extract of the general principles to be applied.

  1. Contractual obligations: pacta sunt servanda

From the beginning of these lines it should be noted that the general rule is that contracts have the force of law between the parties and bind the contracting partners in all aspects, a principle not modified, annulled or suspended either by the Royal Decree or by the other rules approved in the following weeks.

Spanish case law has traditionally interpreted broadly the application of this general principle in two ways: (i) first, in the event that a specific mechanism is provided for by the contract in question, this will be of preferential application (i.e., force majeure clauses) and (ii) the parties must make their best efforts to fulfil the contractual obligations.

Therefore, in case of exceptional situations that challenge the performance of contractual obligations, our legal system does not provide for automatic mechanisms of contractual modification, suspension or termination and, in view of the specific fact, the first thing to be checked is whether the relevant agreement contains a specific clause regulating the exceptional situation and, otherwise, whether it is possible to comply with the obligations, even with greater effort than usual.

  1. Mechanisms of contractual flexibility: force majeure and rebus sic stantibus

Notwithstanding the above, it is clear that we face an absolutely anomalous and unforeseen situation that leads us to wonder should the declaration of a state of emergency or the pandemic itself would constitute cases of force majeure because of their capacity to affect and alter the fulfilment of contractual commitments.

Here below are some considerations to keep in mind to determine whether we are faced with a situation for which contractual flexibility could be envisaged:

A) Force majeure

The concept of force majeure is specifically provided for by our Civil Code in article 1105: “(…) no one shall be liable for events which could not have been foreseen, or which, if foreseen, were unavoidable“.

As a result of the not very concise wording of said provision, the jurisprudence of the Supreme Court has established the following requirements for the application of force majeure: (i) unforeseeable or unavoidable event in the strict sense; that is to say, it does not apply if it is a remote event. For example, the Supreme Court does not grant this character to economic crises because it considers that they are cyclical in nature; (ii) event without a causal link to the parties, that is to say, that they have not intervened in any way; and (iii) that as a consequence of the event the parties cannot comply with their obligations by any means.

The question is therefore whether the above requirements are met in the case of COVID-19 and the restrictive measures taken in response to the exceptional situation arisen. A priori, without prejudice to the necessary analysis of the specific circumstances of each case, the situation arising from COVID-19 could lead to the application of force majeure.

Example: Contract for the provision of catering services. Requirements (i) and (ii) are met by the very nature of a global pandemic and (iii) also due to the state of emergency that prevents the holding of any type of event.

Thus, once the requirements have been met and being no longer possible to continue with the fulfilment of the contractual obligations, the order of action should be as follows:

  • Check if the contract in question contains a force majeure clause. If so, this will apply on a preferential basis to any other mechanism.
  • In the event that the contract does not contain a force majeure clause, the legal provisions must be complied with. In this regard, Article 1. 105 of the Civil Code mentioned above, stating that “no one shall be liable for events which could not have been foreseen or which, if foreseen, were unavoidable” and Article 1184 of the same legal text, providing that “the debtor shall be released from his obligations when performance is legally or physically impossible”, indicate the guideline to be followed: no one shall be liable if he cannot fulfil the obligations of a contract because he is in front of “events which could not have been foreseen or were unavoidable”, unless the law or the contract itself so provides.
    However, we deem necessary to note that the degree of foresight required with respect to the occurrence of events outside the normal course of events is not the same for a person considered from a personal or individual capacity as it is for a person from a business or professional perspective.
  • To act in good faith in the evaluation of the impossibility and, in the event of persistence, to communicate individually to the other contracting party the impossibility of carrying out the compliance, and evaluating (with diligence, transparency and good faith) the option to agree a modification of the conditions increasing terms, relaxing demands, reviewing alternative channels of compliance, etc.
  • In any case, the Royal Decree and other legislation in force must be complied with, being not offered alternatives in conflict with them.
  • Ultimately in response to the question whether force majeure is applicable to all types of contracts, it is important to highlight that our Supreme Court understands that non-compliance with a pure pecuniary obligation (i.e. regular payment of a price or amount in money) is not susceptible to be covered by force majeure assumption as the event of impossibility does not occur, since money always exists as such, which must be taken into account in those cases where the party’s obligation is exclusively pecuniary.

B) Rebus sic stantibus

Unlike the previous case, the rebus sic stantibus clause is a figure of doctrinal and jurisprudential construction, applicable when there is an imbalance or an excessive burden for any of the parties in the performance of the contract and which allows the terms of the contract to be unilaterally modified or even the call for its termination.

This remedy, undoubtedly radical in its effects and of very restricted application by the Spanish courts, is based on such an extreme alteration of the contractual circumstances that the obligations are de facto unbalanced for one of the parties.

Without prejudice to the subjective component that may impregnate the assessment of contractual decompensation, the case law emerged to date allows us to extract the following requirements: (i) the occurrence of a significant alteration with respect to the circumstances existing at the time the contract was signed and that said alteration responds to unforeseeable circumstances, which cannot by any means be attributed to one of the parties; (ii) that as a consequence of the foregoing a situation of major imbalance between the contracting parties occurs; and (iii) that it is impossible to act differently and in a less burdensome manner.

However, the jurisprudence is very restrictive to accept the rebus sic stantibus doctrine as a consequence of the radical nature of its consequences, which could lead to the unilateral termination of the contractual relationship. For this reason, Spanish courts do not admit that there is a simple imbalance between the parties, but require that such an imbalance put one of the parties in an extreme situation.

It is also important to note that this doctrine does not apply when the contract already provides, explicitly or implicitly, for mechanisms to assume risk, or when such assumption is of the essence of the relevant contract.

Example: Spanish courts considered that some financial products offered to consumers caused extreme imbalance at the height of the economic crisis in 2008.

  1. Conclusions

The exceptional circumstances caused by the COVID-19 and the impossibility or difficulty of continuing to fulfil contractual obligations have opened up the possibility of applying force majeure or rebus sic stantibus clauses.

However, after the above analysis, we can draw the following conclusions:

  • The declaration of the state of emergency and the approval of the regulations developing it do not imply the suspension or cancellation of contracts in force, which retain their full validity and effectiveness.
  • Notwithstanding this statement, there are sufficient circumstances to be able to allege force majeure.
  • Given the force of law of contracts between the parties, the first step should always be the complete analysis of the force majeure clause that the parties would have agreed to in the negotiation of the agreement.
  • In the absence of contractual provision, the Civil Code expressly indicates that no one shall be liable for the performance of contractual obligations the observance of which has become impossible because of “events that could not have been foreseen or were unavoidable”.
  • The rebus sic stantibus clause has a very restrictive application and will come into force not for situations of impossibility of compliance but for those of major imbalance for one of the parties, as a consequence of the occurrence of unforeseeable circumstances.
  • The duty of diligence and good faith is maintained in any case and, as a general rule, any action must tend to moderate and minimize damages.

Non-essential activities will stop in Spain until April 9th

Prime Minister Pedro Sánchez announced on Saturday the halt of all non-essential activities starting Monday March 30, until Thursday April 9, both inclusive. However finally the Government allowed a 24-hour grace period, giving businesses until Tuesday to prepare for the shutdown, where necessary.

The new measure, approved at a Cabinet meeting on Sunday, states that all workers affected must stay at home at least for the next two weeks. Their absence will be a form of paid leave, receiving salaries as usual from their employers, although the hours missed will have to be made up gradually up to the end of the year once normal activity resumes.

It does not apply to workers who are teleworking because what is intended is that the population does not leave their home except to provide essential services in related activities.

Which workers/activities are considered to be essential?

1- Those that participate in the market supply chain and in the operation of the services of the production centers of basic goods and services, including food, beverages, animal feed, hygienic products, medicines, health products or any product necessary for the protection of health, allowing the distribution of the same from the origin to the final destination.

2- Hotel and restaurant activities for home delivery services.

3- Those that provide sanitary technology, medical material, protective equipment, sanitary and hospital equipment and any other materials necessary for the provision of sanitary services.

4- Those essential for the maintenance of the productive activities of the manufacturing industry that offer the supplies, equipment and materials necessary for the correct development of the essential activities.

5- Transport services, both for people and goods, that continue to be developed since the declaration of the state of alarm, as well as those that must ensure the maintenance of the means used for it.

6- Those that provide services in Penitentiary Institutions, civil protection, maritime rescue, rescue and prevention and extinction of fires, mine safety, and traffic and road safety. Likewise, those that work in private security companies that provide security transport services, response to alarms, round-trip or discontinuous surveillance, and those that are necessary to use for the performance of security services in guarantee of essential services and supplying the population.

7- The indispensable ones that support the maintenance of the material and equipment of the armed forces.

8- Those of health centers, services and establishments, as well as people who (i) serve the elderly, minors, dependents or people with disabilities, and people who work in companies, R&D and biotechnology centers linked to COVID-19, (ii) the animal facilities associated with them, (iii) the maintenance of the minimum services of the facilities associated with them and the companies supplying the products necessary for said investigation, and (iv) the people who work in funeral services and other related activities.

9- Those of animal health centers, services and establishments.

10- Points of sale of the press and in the media or news agencies of public and private ownership, as well as in their printing or distribution.

11- Financial services companies, including banking, insurance and investment companies, for the provision of essential services, and the activities of payment infrastructures and financial markets.

12- Telecommunications and audiovisual companies and essential computer services, as well as those networks and facilities that support them and the sectors or subsectors necessary for their proper functioning, especially those that are essential for the adequate provision of public services, as well such as the non-attendance work of public employees.

13- Protection and care of victims of gender violence.

14- Lawyers, attorneys, social graduates, translators, interpreters and psychologists and who attend procedural proceedings not suspended by the previous Royal Decree 463/2020, of March 14, declaring the state of alarm.

15- Legal advisory services, administrative agencies and social graduates, and third-party and own occupational risk prevention services, in urgent matters.

16- Notaries and registries for the fulfillment of the essential services set by the General Directorate of Legal Security and Public Faith.

17- Cleaning, maintenance, urgent breakdown repair and surveillance services, as well as providing services in the collection, management and treatment of hazardous waste, as well as urban solid, hazardous and non-hazardous waste, collection and treatment of wastewater, decontamination activities and other waste management services and transport and removal of by-products or any of the entities belonging to the Public Sector, in accordance with the provisions of article 3 of Law 9/2017, of 8 of November, Public Sector Contracts.

18- Refugee Reception Centers and in the Temporary Stay Centers for Immigrants and public entities of private management subsidized by the Secretary of State for Migration and that operate within the framework of International Protection and Humanitarian Care.

19- Water supply, purification, conduction, purification and sanitation activities.

20- Meteorological forecasting and observation services and the associated processes of maintenance, surveillance and control.

21- The State designated operator to provide the universal postal service, in order to provide the collection, admission, transport, classification, distribution and delivery services for the sole purpose of guaranteeing said universal postal service.

22- Sectors or subsectors that participate in the import and supply of sanitary material, such as logistics, transportation, warehousing, customs transit (freight forwarders) companies and, in general, all those that participate in sanitary corridors.

23- Distribution and delivery of products purchased in commerce by internet, telephone or correspondence.

24- Any others that provide services that have been considered essential.

Granting of deferrals for some tax debts and other measures

Royal Decree-Law 7/2020, of 12 March, adopting urgent measures to mitigate the economic impact of COVID-19 (“RDL 7/2020”) includes the granting of deferrals for some tax debts, provided the following conditions are met:

(1) They must be debts with a total or partial guarantee waiver (i.e., amounting to less than 30,000 euros). The regulation sets this amount by referring to the Order on guarantee waivers. As a result, it is not clear if the latter is fully applicable or not (i.e., if said amount must be the aggregated sum of all deferred periods and taxes or if it refers to each individual tax and period).

(2) The measure touches on the withholding and prepayment of Personal Income Tax (“IRPF”), Value Added Tax (“IVA”) and on fractioned Corporate Tax (“IS”) payments (whose deferral and fractioning were, up until now, not generally allowed).

Only covers returns/liquidations that must be submitted and paid between 13 March and 30 May 2020. The following will be included:

  • Personal Income Tax/VAT: corresponding to February, March, and April, as well as those of the first quarter.

    (1) Corporate Tax: first fractioned payment and final statement (in certain split years).

    (2) This measure is only available to taxpayers who registered a turnover of less than 6,010,121.04 euros in 2019.
  • Deferrals will be granted for a six-month period and no interests for late payment will be accrued for the first three months.

In this context, we believe the following scenarios are possible:

A. The taxpayer is able to meet his/her tax obligations:

This is the ideal scenario, so there is no need to analyze it further.

B. The taxpayer does not have the means to meet his/her tax obligations but meets the requirements set forth in RDL 7/2020:

If the taxpayer meets the aforementioned requirements, he/she can ask for a deferral according to the terms and conditions mentioned above.

C. The taxpayer does not have the means to meet his/her tax obligations and does not meet the requirements set forth in RDL 7/2020:

In principle, the requirements set forth by RDL 7/2020 are clear. However, we believe taxpayers whose debt exceeds 30,000 euros and/or whose 2019 turnover exceeds the amount stated may also push for this sort of deferral.

We believe the granting of deferrals should include taxpayers who had a turnover of more than 6,010,121.04 euros in 2019, so as to avoid discriminatory stances that go against the very principles that govern our tax system. Following a similar line of reasoning, one might also call for the deferral of sums over 30,000 euros in certain cases.

We believe we could also fight the imposition of penalties, as well as of surcharges, for defaults caused by force majeure events.

It is worth noting that the following months will bring plenty of new scenarios. As a result, it is crucial to study matters on a case-by-case basis so as to plan the best possible strategy.

Other measures

Electronic certificates expiring soon

In its website, the Spanish Tax Agency has published a warning that reads as follows:

“The Spanish Tax Agency informs taxpayers whose electronic certificate is about to expire, or has already done so, that it will allow the use of said certificates in its site in accordance with the provisions set forth in Royal Decree 463/2020, of 14 March.

If you encounter problems with your regular browser, we suggest switching to Firefox (where you can carry on using it).”

Cadaster formalities

The time limit to reply to information requests and orders submitted by the General Directorate of Cadaster will be extended to 30 April 2020, provided this time limit had not already expired when Royal Decree-Law 8/2020, of 17 March, on extraordinary urgent measures to face the economic and social impact of COVID-19 (“RDL 8/2020”) entered into force (18 March 2020).

The periods to take appropriate measures regarding the launch of allegation procedures or hearings notified by the General Directorate of Cadaster from 18 March 2020 will be extended to 20 May 2020 (unless the general rule sets a longer period, in which case the latter shall apply).

If the taxpayer complies with the court order, supplies the information with tax significance requested or submits his/her allegations, the proceedings will be deemed fulfilled.

The period ranging from 18 March to 30 April 2020 will not be taken into account when setting the maximum duration for procedures launched by the authorities. However, during this period, the Administration can order, prescribe, or carry out essential formalities.

Exemptions from the Property Transfer and Certified Legal Documents Tax for certain mortgage operations

The first final provision of RDL 8/2020 modifies Royal Legislative Decree 1/1993, of 24 September, approving the consolidated text of the Law on Property Transfer and Certified Legal Documents Tax.

This way, a new number is introduced under article 45.I.B) to declare notarial documents and formalization deeds on credit contract novations and mortgages concluded under RDL 8/2020 are exempt from the gradual fee to be paid for Certified Legal Documents.

Customs formalities

Import customs formalities for the industrial sector shall be streamlined. To do so, the Customs and Excise Department of the Spanish Tax Agency can authorize the customs declaration and clearance procedure to be carried out using the computer applications available, without any amendments on the part of bodies or officials working for the Customs and Excise Department.

Main recommendations about contract matters

Contracts that are currently in force

A procedure needs to be established to review these contracts, prioritizing those that are more financially significant or are strategically important.

Parties to contracts that present detailed regulations and provisions regarding inevitable or unforeseeable events (such as natural disasters or epidemics) must accept the consequences set forth at the beginning of the contractual relationship.

If the potential scenarios under the contract do not cover procedures or consequences linked to inevitable or unforeseeable events, the parties must refer to the applicable legislation. In this case, the Spanish legal framework allows parties to waive (totally or partially) their contractual obligations under force majeure or fortuitous events. A more detailed definition of these scenarios can be found in article 1105 of the Spanish Civil Code.

We must also mention that force majeure events can also exempt parties from extra-contractual obligations deriving from business relationships.

It is important to note that employers must meet the contractual obligations they have assumed using any means at their disposal (both ordinary, i.e., those used under normal circumstances, and extraordinary) and exercise the due diligence they are legally obliged to provide.

If the contract concluded does not mention any procedures or consequences linked to a force majeure event that greatly impacts the obligations assumed and agreed upon, we recommend signing an annex that is legally rigorous and details how to proceed in such circumstances.

Contracts that haven’t been signed yet

All contracts to be signed in the following days must contain a clause that expressly refers to force majeure events as situations in which parties cannot be considered liable for unfulfilled obligations. Moreover, force majeure events must be considered a valid reason to call off penalties, delays, etc. This clause will be adapted depending on the sector for which it is intended.

It is of the outmost importance to include COVID 19, or coronavirus, among these force majeure events (together with any mutations the virus may have).

International contracts

The legislation that is applicable to these contracts must be reviewed, since the definition of force majeure varies from country to country and the legal consequences foreseen by our legislation (or the guidelines set by the Spanish authorities) may not necessarily apply to contracts that are not subject to our legal framework.

Public procurement

Article 34 of Royal Decree-Law 8/2020 establishes a series of singular provisions related to the execution of public contracts. The legal solution offered varies depending on the type of contract, but will not be applicable in any of the following cases:

  • Sanitary supply or care provision contracts, be them pharmaceutical or not, related to the health crisis caused by COVID-19.
  • Contracts related to security and cleaning services, as well as the maintenance of IT systems.
  • Supply or service agreements that are necessary to guarantee the mobility and safety of transport services and infrastructures.
  • Contracts granted by public entities listed in official stock markets that do not derive earnings from the General State Budget.

As for all other contracts, some of the novelties introduced are detailed below.

A. The suspension of service and supply agreements that are impossible to execute is agreed upon, granting the contractor the right to claim the following damages from the Administration:

  • The salary costs effectively paid by the contractor, during the suspension period, to the staff that, on 14 March 2020, was employed to perform the contract.
  • The costs of maintaining a definite guarantee during the suspension period.
  • The rental or maintenance costs of machinery, facilities, and equipment during the suspension period, provided they were needed in order to execute the contract and the contractor can prove they were not used for any other purposes during the suspension period.
  • Costs corresponding to the insurance policies set forth in the specifications and linked to the purpose of the contract, provided they were taken out by the contractor and remained in force when the contract was suspended.

Once the impossibility to execute the contract is ascertained, the Administration shall have five natural days to quickly process the contractor’s request. If, during that period, no relevant notice is received, the request shall be deemed dismissed.

B. When it comes to public service and supply agreements that are different from the ones mentioned in the previous section, the execution period is extended (without any penalties for the contractor or the option to terminate the contract). To meet this extension, the contractor shall be entitled to receive any additional salary costs.

C. In the case of works contracts in force that, according to the «development and works plan», were meant to be completed between 14 March (first day) and the end of the state of alarm but that, given the COVID-19 situation or the measures adopted by the Spanish government, may not be delivered, the contractor can ask the contract to be suspended from the moment obligations could not be met because of the situation until works can be resumed. It is noted that the provisions set forth in section 2.a) of article 208 and under article 239 of the Spanish Public Sector Contracts Act (LCSP) will not be applicable to these suspensions.

D. When it comes to the granting of works and services through arrangements that were in force at the time this royal decree-law entered into force, the contractor shall be entitled to restore the contract’s financial balance by (as appropriate) extending its initial duration up to 15% or amending the financial clauses in the contract. However, in order to do so, the contracting body must be certain contract execution is impossible.

Litigation scenarios

Given the foreseeable avalanche of contractual non-compliances, jurisdiction-related clauses need to be revised. At the moment, relying on alternative conflict resolution methods (mediation or arbitration) seems more desirable as they are quicker and more efficient at solving trade disputes.

In any case, all potential evidence should be collected and every attempt to reach an agreement should be well-documented. The same applies to acts of good faith when exercising rights and showing the outmost due diligence when meeting obligations. All of this shall be incredibly valuable in the event arbitral or judicial proceedings are lodged against a counterparty.

Article 43 of RD-Law 8/2020, of 17 March, on extraordinary urgent measures to face the economic and social impact of COVID-19

Article 43 of RD-Law 8/2020, of 17 March, on extraordinary urgent measures to face the economic and social impact of COVID-19, modifies the deadlines set by the Spanish Bankruptcy Act to request a declaration of bankruptcy.

Current legislation

Article 5 of the Spanish Bankruptcy Act specifies the debtor (be it a natural or legal person) must file for bankruptcy within two months since becoming aware of the situation. This realization will be deemed to exist when one of the following situations occurs:

  1. The general cessation of obligation-related payments.
  2. Seizures or repossessions that generally affect the debtor’s equity.
  3. Ruinous clearance or asset stripping.
  4. The non-payment, during the last three months, of tax obligations, social security contributions and labor debts.

The consequences of not meeting the obligation to request a bankruptcy declaration within the deadlines set are that, in the event the debtor is finally declared bankrupt, said person can be blamed for the situation. As a result, the members of the board may be banned from exercising these duties again and can be made personally responsible for the company’s debts (whether partially or totally).

Extraordinary regulations

The RD-Law suspends, while the state of alarm is in force, the need to request a declaration of bankruptcy (even if the conditions that make such request compulsory are met). The norm, however, does not clarify if, once the state of alarm is over, a new two-month period is launched in which to submit that request or whether said period needs to be calculated on the basis of the time lapsed until the Royal Decree-Law entered into force.

The new norm, however, does specify that new requests for bankruptcy declarations will not be processed by judges (even if the debtor is insolvent) for as long as the state of alarm lasts plus the two following months. If the debtor requested a voluntary insolvency process after an involuntary process was launched, the voluntary request will be processed first.

The RD-Law does not prevent any voluntary insolvency requests from being filed while the state of alarm is in force but notes that their processing will be suspended for as long as it lasts.

If the debtor was already in the first stages of an insolvency situation (article 5 bis of the Spanish Bankruptcy Act), the RD-Law suspends, while the state of alarm is in force, the obligation to request a declaration of bankruptcy if, within the four-month period specified by the Bankruptcy Act, no agreement is reached or the number of necessary endorsements has not been obtained to process an early agreement proposal.

Flexibilization of temporary adjustment mechanisms to prevent dismissals

Royal Decree-Law 8/2020, of 17 March, on extraordinary urgent measures to face the economic and social impact of COVID-19 (“RDL 8/2020”).

Exceptional procedural measures related to the termination of contracts and reduction of working hours in the event of force majeure

Force majeure events: Contract suspensions and working hour reductions directly deriving from the loss of business activity as a result of COVID-19 (including the declaration of the state of alarm). Said losses shall imply the suspension or cancellation of activities, the temporary closure of establishments open to the public, restrictions on public transport and the free movement of people and goods, a lack of supplies that puts great strain on ordinary activities, or extraordinary and urgent situations caused by the infection of staff members or the adoption of measures calling for pre-emptive isolation (issued by the relevant health authorities).


  • The company shall file a request and attach a report detailing the loss of business activity caused by COVID-19, as well as any supporting documentation (where available). The company must notify workers of its request and submit the report and any supporting documentation to their representatives (if any).
  • Labor authorities, regardless of the number of workers affected, must corroborate a force majeure event.
  • The decision taken by the labor authority shall be issued within five days from the date of the request, following a report (where applicable) of the Labor and Social Security Inspection Body.
  • The Inspection Body decides on the application of measures related to contract termination or the reduction of working hours, effective from the moment the force majeure event takes place.
  • The report drafted by the Labor and Social Security Inspection Body, as requested by the relevant labor authorities, will be looked at within a non-extendable period of five days.

Exceptional procedural measures related to the termination of contracts and reduction of working hours for financial, technical, organizational, and production-related causes

  • In the event no legal representation exists, the main trade unions in the company’s sector will make up the commission in charge of representing the workers. They shall lawfully negotiate the applicable collective agreement. The commission shall be made up of a member of each trade union that meets the abovementioned requirements. Decisions will be taken on the basis of the representative majorities established. In the event the commission cannot be constituted this way, it shall be made up of three workers from the company, elected in accordance with the provisions set forth in article 41.4 of the Workers’ Statute. The representative commission must be constituted within a non-extendable period of five days.
  • The consultation period between the company and the abovementioned workers’ representatives shall not exceed seven days.
  • The report drafted by the Labor and Social Security Inspection Body, as requested by the relevant labor authorities, will be looked at within a non-extendable period of seven days.

Extraordinary contribution-related measures related to the termination of contracts and reduction of working hours in the event of force majeure due to COVID-19.

  • In temporary lay-offs caused by a force majeure event, the company shall not have to pay corporate contributions for as long as contracts are suspended or working hours reduced for said cause, provided that, on 29 February 2020, the company was making social security contributions for less than 50 workers. If, however, the company had 50 or more employees for whom social security contributions were being paid, this exemption will cover 75 %of the contributions made by the company.
  • This waiver will have no effects for the worker, since contributions will be deemed to have been regularly paid during this period.
  • The Social Security Treasury will apply these contribution exemptions upon the request of the employer. Said person must have previously identified the workers affected and notified the duration of the suspension or reduction of working hours.

Extraordinary measures in terms of unemployment benefits, based on the application of the procedures mentioned in articles 22 and 23

  • The recognition of the right of workers affected by this situation to receive unemployment benefits, regardless of whether they have met the minimum contribution requirements or not.
  • The period of time a person spends on unemployment benefits as an immediate result of these extraordinary circumstances will not be taking into account when calculating the total benefits the worker is entitled to based on his/her contributions. The goal is for workers to be covered by unemployment benefits for as long as possible.

Temporary limitation of the effects caused by submitting extemporaneous unemployment benefit requests.

  • During the period extraordinary measures are in force, the submittal of first-time unemployment benefit requests (or those of a continuous nature) outside the deadlines legally established will not reduce the duration of the benefits period.

Sixth additional provision. Employment safekeeping. The extraordinary employment measures set in the present royal decree-law shall be subject to the company’s commitment to guarantee employment during the six months that follow the resumption of business activities.

Tenth final provision. Term of validity. The measures foreseen shall remain effective for one month from their entry into force (18 March 2020). However, after a careful assessment of the situation, the Government can extend their duration by means of a royal decree-law. Notwithstanding the foregoing, the measures foreseen that do have a specific period assigned will be valid for the term detailed.

Measures adopted regarding the functioning of the governing bodies of companies

Some measures adopted by Royal Decree-Law 8/2020, of 17 March, on extraordinary urgent measures to face the economic and social impact of COVID-19 (“RDL 8/2020″), articles 40 to 42, regarding the functioning of the governing bodies of companies during 2020 are detailed below.

On the convening and holding of General Meetings and the decision-making process

  • In the event General Meetings were convened before the state of alarm was declared but they were supposed to be held after such notice, the company’s governing body may modify the time and place of such meeting (or suspend its celebration) by publishing a note on the company’s website at least 48 hours in advance, or publishing said note in the Spanish Official State Gazette (in the event the company has no website). If the General Meeting is suspended altogether, a new one must be convened within a month after the state of alarm ends.
  • Sessions can be held telematically, in real time. Under these circumstances, sessions will be deemed to have taken place in the company’s registered address.
  • Agreements can be adopted by written votes without a meeting, if the chairperson so decides and at least two members of the governing body request it.

On the submittal of financial statements and other compulsory documents

  • Generally speaking, the deadlines currently in force for the drafting of financial statements and the submittal of reports and other compulsory documents are suspended. Once the state of alarm ends, these deadlines shall be reinstated, and companies will have three months for the drafting and submittal.
  • The period to approve the financial statements, once drafted, shall be three months from the moment the drafting period ends.
  • In the event of a mandatory audit, the period to verify the financial statements that were formulated before the state of alarm was declared will be of two months after it ends.

Other corporate provisions applicable during the state of alarm

  • Partners may not exercise their right of withdrawal until the state of alarm ends.
  • The reimbursement of contributions made by cooperative partners is suspended until six months after the state of alarm ends.
  • If the term for which the company was constituted ends, or the latter is the subject of a dissolution of some kind, the automatic dissolution shall remain on hold until (i) two months after the state of alarm ends (preferred option) or (ii) the deadline to adopt a dissolution agreement expires, from the date the state of alarm ends.
  • Administrators will not be liable for the corporate debts contracted while the state of alarm was in force, provided the cause for dissolution also falls within this period.
  • The expiration of registry entries is cancelled and will be reinstated the day after the state of alarm ends.

Provisions related to listed companies

  • The publication and submittal of their annual financial report to the Spanish National Stock Market Commission (CNMV), together with that of the audit report, may be done up to six months after the financial year ends.
  • The General Shareholders’ Meeting can be held within the first ten months of the business year.
  • When convening the Meeting, the Board of Directors can call for its online celebration and the remote casting of votes. The Board can also pick any place within the Spanish territory for its celebration, even if these options are not included in the company bylaws.
  • If, however, the measures imposed by the authorities prevented the General Shareholders’ Meeting from being held at the place specified in the call but the Meeting was validly constituted, another place in the same province could be chosen instead (provided the Meeting was held that same day and attendees were given reasonable time to reach the new destination).
  • In the event the Meeting had not yet been validly constituted, a call for another Meeting that has the same agenda and notice requirements as the one not held may be given (i.e., at least five days in advance).
  • Furthermore, the agreements telematically adopted by the Board of Directors shall be considered valid, even if this option is not part of the company bylaws.

Periods of administrative suspension and their extent

Since the publication of Royal Decree 463/2020, of 14 March, declaring the state of alarm to manage the health crisis caused by COVID-19 (“RD 463/2020″), these past few days have been marked by a debate regarding the interpretation of its third additional provision, by which “the terms and deadlines to process procedures by public sector entities are suspended or interrupted”.

The debate focused on the scope of this suspension (i.e., if its effects were applicable to deadlines linked to fiscal obligations, such as the filing of tax returns or the payment of debts settled by the Tax Authorities).

The matter has already been resolved by Royal Decree 465/2020, of 17 March, modifying Royal Decree 463/2020, of 14 March, declaring the state of alarm to manage the health crisis caused by COVID-19 (“RD 465/2020″), which adds the following new content to the aforementioned third additional provision:

“6. The suspension of the terms and the interruption of the administrative deadlines mentioned in paragraph 1 will not be applicable to tax periods, which are subject to special regulations, and shall not alter the deadlines set for the submittal of tax returns and self-assessments.”

As a result, it is obvious that the suspension or cancellation of deadlines brought by the state of alarm (RD 463/2020) is not applicable to the periods established for the submittal of tax returns and self-assessments (despite parties having the right to request their postponement, as detailed further on).

Notwithstanding the Royal Decree-Law 8/2020, of 17 March, on extraordinary urgent measures to face the economic and social impact of COVID-19 (“ RDL 8/2020″) does include a whole section on the suspension and/or extension of tax-related deadlines, which we shall analyze below.

Suspension and extension of fiscal-related deadlines

First of all, it is worth noting that RDL 8/2020 entered into force on 18 March 2020 for a period of one month.

Article 33 RDL 8/2020 regulates some events links to the suspension or extension of tax-related deadlines and renders them more flexible, as summarized below:

A. The following terms are extended until 30 April 2020, provided they had launched before RDL 8/2020 entered into force (18 March 2020) and had not expired by then:

  • The terms for tax collection related to liquidations (ii) during the voluntary period, and (ii) during the enforcement period, once orders for recovery were sent.
  • The expiry of full and partial terms on deferment and fractioning agreements already concluded.
  • Terms related to auctions and foreclosure of assets.
  • The periods to comply with court orders, enforcement proceedings or requests for information with tax significance, to lodge pledgings in any actions or proceedings for the enforcement of tax-related matters, sanctions, nullity statements, the return of sums unduly paid, and to correct revocation and material errors.
  • When it comes to orders for recovery, between 18 March and 30 April 2020 no collateral enforcements involving property will be carried out.

B. The following terms are extended until 20 May 2020, provided they are notified at a later date than that in which RDL 8/2020 entered into force (and unless the deadlines that appear in the regulations are broader, in which case the latter shall apply):

  • The terms for tax collection related to liquidations (ii) during the voluntary period, and (ii) during the enforcement period, once orders for recovery were sent.
  • The expiry of full and partial terms on deferment and fractioning agreements already concluded.
  • Terms related to auctions and foreclosure of assets.
  • The periods to comply with court orders, enforcement proceedings, information requests or opening acts involving allegations or hearing procedures.

C. In addition, article 33 also contains the following provisions that are worth mentioning:

  • The taxpayer can meet the abovementioned obligations (i.e. court orders, requests for information with tax significance, allegations) within the initial deadline set, in which case these formalities will be deemed performed.
  • The special terms and deadlines under custom regulations to lodge pleadings and comply with court orders remain untouched.
  • The period ranging between 18 March 2020 and 30 April 2020 will not be taken into account:

    When calculating the maximum duration of tax application procedures, sanctions or reviews launched by the Spanish Tax Agency. However, the latter may order, prescribe, and carry out any essential formalities during the aforementioned period.

    When it comes to the prescription periods for Administration and taxpayer rights, including limitation periods.
  • With the sole intent of calculating the prescription periods in appeals for reversal and economic-administrative proceedings, final resolutions will be deemed notified when an attempt to deliver them between 18 March and 30 April is duly accredited.

    The period to lodge appeals or claims of an economic-administrative nature involving taxes, as well as to appeal (through administrative channels) the decisions adopted in economic-administrative proceedings, will not start until the abovementioned term is over (or until the relevant notification is sent, provided this is of a later date).
  • In accordance with the criteria followed by the Spanish Tax Agency, if the act or resolution was notified before RD 463/2020 entered into force (14 March 2020), and the deadline to lodge an appeal or claim was not over on that date, the period to lodge an economic-administrative claim or appeal will be one month from 1 May 2020 (or from the day following the end of the state of alarm, whichever is later).

Measures to mitigate the negative economic impact in the tourist sector

Advancement and extension (February to June 2020) of the rebates available for the tourist sector. Royal Decree-Law 7/2020, of 12 March, adopting urgent measures to mitigate the economic impact of COVID-19 (RDL 7/2020)

Beneficiaries: companies whose corporate activities fall within the framework of the tourist sector, as well as the retail and catering industry (provided they are linked to tourism and excluding those belonging to the public sector): as long as they generate productive activity during February, March, April, May and June, and that they keep workers with permanent seasonal contracts employed throughout these months.

Benefit: a rebate, during those months, amounting to 50 % of the company’s contributions for common contingencies, as well as for the joint collection of these workers.

Period: from 1-1-2020 to 31-12-2020.

Scope of application: across Spain, except for the Balearic and Canary Islands, during February and March 2020. In the aforementioned months, the rebate that appears under art. 2 of Royal Decree-Law 12/2019 (urgent measures to mitigate the effects of Thomas Cook’s insolvency) shall be applicable.