Law 25/2015 of July 28 on the Second Chance Mechanism, Reduction of Financial Burden and Other Social Order Measures

OFFICIAL STATE GAZETTE No. 180 Wednesday, July 29, 2015 Sec. I. Page 64479 I. GENERAL PROVISIONS HEAD OF STATE 8469 Law 25/2015, of July 28, on the second chance mechanism, reduction of financial burden and other measures of social order. FELIPE VI KING OF SPAIN To all who see and understand this. Know: That the General Courts have approved and I come to sanction the following law: PREAMBLE I The Spanish economy has already shown signs of hope for some months and is consolidating economic growth that, thanks to the structural reforms carried out in recent years, is having a beneficial effect on employment and the general perception of the situation of citizens, companies and different institutions. But this should not lead us to forget two things: the first is that the exit from the crisis is above all and foremost a success of Spanish society as a whole, which has once again shown its ample capacity to overcome difficult situations. The second is that there are still many Spaniards who continue to suffer the effects of the recession. And it is the duty of public powers not to cease in the effort to offer the best possible solutions to all citizens, through the appropriate reforms aimed at the common good, legal certainty and, ultimately, justice. In this context, the so-called second chance legislation fits in very specially. Its objective is none other than to allow what its name so expressively describes: that a natural person, despite a business or personal economic failure, has the possibility of getting their life back on track and even taking risks on new initiatives, without having to drag indefinitely a burden of debt that can never be satisfied. Experience has shown that when there are no second chance mechanisms, there are clear disincentives to undertake new activities or even to remain in the regular circuit of the economy. This obviously does not favor the debtor himself, but neither does it favor creditors, whether public or private. On the contrary, second chance mechanisms are disincentivizers of the underground economy and promoters of a business culture that will always redound to the benefit of employment. This purpose is the response of the first part of this Law, which regulates various mechanisms to improve the Extrajudicial Payment Agreement, introduced in our insolvency legislation by Law 14/2013, of September 27, on support for entrepreneurs and their internationalization, and introduces an effective second chance mechanism for natural persons destined to modulate the rigor of the application of article 1911 of the Civil Code. It is convenient to briefly explain what the inspiring principles of the regulation introduced in this regard are. The concept of legal person is one of the most relevant creations of Law. The fiction consisting of equating an organization of goods and people to the natural person has had important and beneficial effects in legal and economic reality. Through this fiction, legal persons, like natural persons, are born, grow and die. In addition, the principle of limited liability inherent to certain capital companies makes it possible for them to liquidate and dissolve (or die in a metaphorical sense), extinguishing the debts that result unpaid after liquidation, and without their promoters or partners having to face any pending debts once all assets have been liquidated. It can be affirmed that the principle of limited liability characteristic of capital companies is largely at the origin of economic development over the last three centuries. In the background, this principle of limitation of liability was configured as an incentive to business activity and investment. The legislator incentivized the risk of certain capitals by guaranteeing that such capitals would be the maximum loss of the investor, without possibility of contagion to their personal assets. But the limitation of liability is a limitation of the liability of the partners, not of the company, which must respond for its debts with all its present and future assets. The question that arises then is the ultimate foundation for the different regime of liability that occurs when a natural person decides to undertake a business activity through an intervening legal person and when that same natural person contracts obligations directly. If in the first case they can benefit from a limitation of liability, in the second they will be subject to the principle of universal patrimonial liability collected in article 1911 of the Civil Code. In addition, many situations of insolvency are due to factors that escape the control of the debtor in good faith, raising then the ethical foundation that the legal system does not offer reasonable exits to this type of debtor who, due to a totally unforeseen and unforeseen alteration of their circumstances, cannot fulfill the commitments made. It should not be forgotten with this that any ethical consideration in this regard must always be reconciled with the legitimate protection that the legal system must offer to the rights of the creditor, as well as with a premise that appears as hardly disputable: the debtor who fulfills must always be in better condition than the one who does not. Thus introduced the premises of the problem to be resolved regarding the scope and eventual limitation of the principle of universal patrimonial liability of article 1911 of the Civil Code, it is not superfluous to resort to the historical antecedents of said provision, as well as to the legislative context of the same. The complete intelligence of this article had to be completed with two other provisions of the same Civil Code systematically located in the same Chapter. We refer to the now repealed articles 1919 and 1920 of the cited legal body that pointed out respectively the following: "If the debtor fulfills the agreement, his obligations will be extinguished in the terms stipulated in it; but, if he fails to fulfill it in whole or in part, the right of the creditors to the amounts they have not received from their original credit will be reborn, and any of them may ask for the declaration or continuation of the bankruptcy" and "In the absence of an express pact to the contrary between debtor and creditors, these will conserve their right, once the bankruptcy is over, to collect, from the assets that the debtor may subsequently acquire, the part of credit not realized". According to these two provisions, two main ideas appeared: the exoneration of liabilities linked to an agreement between debtor and creditors and its fulfillment, as well as the principle of limitation of the exoneration in case the debtor comes to better fortune, but also circumscribed to the course of the agreement itself. But paradoxically there did not seem to be any provision regarding the exoneration of the debtor in the case that he had liquidated his assets, that is, in the case that he had simply lost everything. Article 1920 soon raised doctrinal controversies. Manresa, in his comments on the Civil Code, pointed out the following: "This provision, criticized by some for leaving uncertain the rights of the debtor derived from the agreement, is, however, extremely fair, if one takes into account the reasons and motives, by virtue of which the debtor is authorized to celebrate agreements with creditors inside or outside the bankruptcy trial (...) in consideration of the difficult circumstances in which the one who lacks sufficient assets to cover his liabilities (...) is located (...) cannot satisfy all his obligations punctually; (...) it is not strange (...) that disappearing said reason because the difficulties have ceased (...) the debtor comes to be obliged to satisfy the part of credit not realized by his creditors". And the same author continued pointing out that with this it had been achieved to dissipate "the doubts that the interpreters of our ancient law suggested the intelligence of Law 3rd of Title 15th of Partida 5th". But the truth is that article 1920 did not establish any gradation of the improvement of fortune nor any limitation of the right of creditors to collect, from what the debtor could subsequently acquire, the unsatisfied part of the credit. This entailed a manifest limitation of the debtor's capacity to improve his fortune and also a low incentive to actually attempt said improvement. And it is that the Law of the Partidas, which in Manresa's opinion had been superseded by article 1920 of the Civil Code, was in a certain way more favorable to the debtor by pointing out the following: "The abandonment that the debtor makes of his goods (...) has such force that afterwards the debtor cannot be summoned, nor is he held to respond in judgment to those to whom he owed something: except if he had made such great gain, that he could pay the debts all, or part of them, and that he remained from which he could live". Thus, the Law of Partidas already provided for the release of the debtor after a process of liquidation of his assets (which did not necessarily have to be an agreement with creditors) and also, in a certain way, established a modulation of the better fortune by not allowing it to play to the detriment of the debtor unless the latter could pay all his debts (or, in a certainly somewhat confusing expression, part of them) without prejudice to his own living conditions, all related to "such great gain" that in principle should be considered atypical. In 2015, exactly 750 years have passed since the end of the drafting of the great legislative work of Alfonso X the Wise, which has inspired for several centuries the Hispanic-American legal systems, but it is surprising to see how in this matter they had arrived in some aspects to more advanced provisions than the nineteenth-century codification. The second chance collected by this Law obviously responds to a more modern legislative technique but is inspired by principles already present, as just demonstrated, in our historical law. It must always be a reason for confidence in legal norms that their inspiring principles do not obey an improvisation, but rather the result of many years or even centuries of reflection on the matter. It is necessary that the legislator always flees from all demagogic temptation that in the long run can turn against those whom he intends to benefit. For the economy to grow, credit must flow and the applicable legal framework must give confidence to debtors; but without undermining that of creditors, because in such a case the opposite effect to that intended would occur: the withdrawal of credit or, at least, its expensive. Therefore, the second chance mechanism designed by this Law establishes the necessary controls and guarantees to avoid strategic insolvencies or facilitate selective dations in payment. It is about allowing that one who has lost everything by having liquidated the totality of his assets for the benefit of his creditors, can be freed from most of the pending debts after said liquidation. And it is equally about quantifying the improvement of fortune that, eventually, will allow revoking said benefit for reasons of justice towards creditors as accurately expounded by authors such as Manresa. Additionally, the second additional provision of the Insolvency Law is modified to specify that Law 35/2003, of November 4, on Collective Investment Institutions, Law 22/2014, of November 12, regulating venture capital entities, other closed-type collective investment entities and management companies of closed-type collective investment entities, and modifying Law 35/2003, of November 4, on Collective Investment Institutions, as well as the consolidated text of the Law on the Regulation of Pension and Fund Plans, approved by Legislative Royal Decree 1/2002, of November 29, constitute special legislation applicable in case of insolvency of certain types of entities. This provision does not affect the current regime, since, as provided in the first paragraph of said provision, in the insolvency of this type of entities, the specialties provided in their specific legislation will be applied, as is the case. With this, the due balance and the necessary justice that must inspire any legal norm are achieved. In addition to the regulation of the second chance mechanism and the improvement of certain pre- or pre-insolvency institutes, this Law contains other provisions of which a systematic detail is given below. II This Law is structured in ten articles, grouped in two titles, six additional provisions, four transitional provisions, one repealing provision and twenty-one final provisions. Title I, under the rubric "Urgent measures for the reduction of financial burden", contains three articles of a modifying character through which new wording is given to certain provisions of three other legal norms: Law 22/2003, of July 9, Insolvency, Royal Decree-Law 6/2012, of March 9, on urgent measures for the protection of mortgage debtors without resources, and Law 1/2013, of May 14, on measures to reinforce the protection of mortgage debtors, debt restructuring and social rental. Title II, "Other measures of social order", is structured in three chapters. The first of them collects in its four articles a series of measures related to the tax and Public Administrations scope, through the modification of concrete aspects of the following four legal norms: Law 35/2006, of November 28, on Personal Income Tax and partial modification of the laws on Corporate Tax, on Non-Resident Income and on Wealth; Law 7/2007, of April 12, on the Basic Statute of the Public Employee; Royal Decree-Law 20/2012, of July 13, on measures to guarantee budgetary stability and promote competitiveness and Law 27/2014, of November 27, on Corporate Tax. Chapter II contains two measures related to the promotion of employment in the scope of Social Security. Thus, on the one hand, a new incentive for the creation of stable employment is established, consisting of the fixing of an exempt minimum in the company contribution for common contingencies to Social Security for the indefinite hiring of workers. Secondly, Social Security benefits are established for those cases where the self-employed professional must attend to family obligations that may influence their activity. The dispositive part of the Law closes with Chapter III, "Measures related to the scope of the Administration of Justice", of its Title II, in whose only article Law 10/2012, of November 20, regulating certain fees in the scope of the Administration of Justice and the National Institute of Toxicology and Forensic Sciences, is modified, to adapt the regime of judicial fees to the concrete situation of the subjects obliged to pay the same. With regard to the final part of this Law, the first to fourth additional provisions complement the modifications introduced by its Title I, by regulating the functions of concursal mediation, the remuneration of the concursal mediator, the non-mandatory representation of the debtor in consecutive bankruptcy or the computer application intended to act as a solvency meter. All these provisions regulate issues that are directly related to those contained in Title I and that are necessary for their effectiveness. In the fifth additional provision, the impetus and coordination of collective bargaining is regulated and in the sixth the evaluation report on the functioning of the tariff guarantee account. With respect to the transitional provisions, the first of them establishes the transitional regime in insolvency matters while the second provides for the regime applicable to indefinite contracting formalized before March 1, 2015. In the third, reference is made to the tariff of rights of concursal administrators and in the fourth to the transitional payment regime from the tariff guarantee account. The repealing provision refers to any provisions of equal or lower rank that oppose what is established in this Law, and the final provisions establish certain legislative modifications, the competent title, the authorizations for the development, execution and application of the Law and its entry into force. III The initiatives contained in Title I of this Law to allow families and companies to reduce their financial burden, represent additional improvements to those already adopted during this Legislature destined to those who are in a situation closer to insolvency due to their economic and social circumstances of vulnerability, whether SMEs and self-employed, or natural persons in general. These initiatives can be summarized by grouping them into three blocks. First, it is proposed to flexibilize extrajudicial payment agreements and provide a real second chance mechanism. Secondly, the "Code of Good Practices for the viable restructuring of debts with mortgage guarantee on the habitual residence", introduced by Royal Decree-Law 6/2012, of March 9, on urgent measures for the protection of mortgage debtors without resources, is also improved, from which nearly 14,000 families have already benefited. Finally, the suspension of evictions on habitual residences of especially vulnerable groups contained in Law 1/2013, of May 14, on measures to reinforce the protection of mortgage debtors, debt restructuring and social rental, is extended for an additional period of two years, as well as the group that can benefit from this measure. With regard to the extrajudicial payment agreements regulated in Title X of Law 22/2003, of July 9, Insolvency, the modifications contained in this Law have the purpose of flexibilizing their content and effects, assimilating their regulation to that of the refinancing agreements of the fourth additional provision of the Insolvency Law. As main elements of the new regime are the expansion of its scope of application to natural persons who are not entrepreneurs, regulating also a simplified procedure for them; the possibility of extending the effects of the agreement to dissenting secured creditors, which represents an advance over the voluntary subjection regime in force prior to this; and the strengthening of the figure of the concursal mediator, introducing the possibility that Chambers of Commerce, Industry, Navigation and Services act as such, if the debtor is an entrepreneur, or notaries, if it is natural persons who are not entrepreneurs. As a fundamental novelty, a regime of debt exoneration is established for natural person debtors within the framework of the insolvency procedure. The exoneration system has two fundamental pillars: that the debtor is in good faith and that his assets are previously liquidated (or that the conclusion of the insolvency is declared due to insufficiency of mass). Meeting the above conditions, the debtor will be able to see his pending debts automatically exempted when he has satisfied in full the credits against the mass, the privileged insolvency credits and, if he has not attempted an extrajudicial payment agreement, 25 percent of the ordinary insolvency credits. Alternatively, when they have not been able to satisfy the aforementioned credits and always that they accept to submit to a payment plan during the following 5 years, the debtor may be provisionally exempted from all his credits, except public and alimony, against the mass and those that enjoy general privilege. For the definitive release of debts, the debtor must satisfy in that period the non-exempted debts or make a substantial effort to do so. With respect to the Code of Good Practices for mortgage debtors, the subjective scope is expanded, increasing the annual income limit of beneficiary families, which will be calculated based on the annual IPREM of 14 installments, including as a new case of special vulnerability that the debtor is over 60 years old and introducing a new way of calculating the limit of the price of acquired real estate assets. Additionally, the definitive inapplicability of floor clauses is introduced for those debtors located in the new exclusion threshold who had them included in their contracts. Finally, the period of suspension of evictions on habitual residences of especially vulnerable groups is extended until 2017, and it is made possible, in terms similar to those provided for the Code of Good Practices, that more people can adhere to the suspension. IV Title II of this Law contains various measures of social order. Thus, first of all, certain measures are undertaken in the tax scope destined to lower the fiscal burden of certain especially vulnerable groups. In this way, Law 35/2006, of November 28, on Personal Income Tax and partial modification of the laws on Corporate Tax, on Non-Resident Income and on Wealth, is modified, with the purpose of allowing new groups to apply the deductions provided in article 81 bis of this Law. In this way, the tax incentive is extended not only to ascendants who are part of large families but also to those who form a single-parent family with two descendants who, among other requirements, depend and live exclusively with that one. At the same time, the application of the new deductions regulated in said article will be allowed to taxpayers who receive benefits from the public unemployment protection system or pensions from the public social security regimes or assimilated and t