Financial difficulties - Spain
Businesses can be affected by a large number of internal but, above all, external variables, such as changes in market trends, periods of inflation/loss of purchasing power, or national or global crises, all of which can lead to periods of financial difficulty. It is therefore very important that businesses are prepared for such eventualities.
The Spanish legislative framework includes a series of measures to support and help businesses experiencing difficult times, such as allowing them to defer debts to public bodies, offering them the possibility of taking out credit insurance, accelerating debt recovery through the order for payment procedure (Code of Civil Procedure), etc.
Stabilising a business
Deferral of payments to the Tax Office and Social Security
In periods of particular financial difficulty, taxes can be paid in instalments, or even deferred in certain cases. As for Social Security payments (contributions etc.), the Ministry of Labour also offers the option of deferring these in cases of financial difficulty.
Access to different sources of finance can help overcome financial difficulties.
When filing for bankruptcy is the only option left for a business owner, it pays to cut your losses, initiate proceedings sooner rather than later, and move on to a new project.
Order for payment procedure
The 2000 Code of Civil Procedure introduced the order for payment procedure, facilitating recovery of debts (of less than EUR 30 000) by an individual or business. The creditor simply has to produce evidence of the debt (signed documents, invoices, etc.) to a court of first instance. There is no cost for this procedure and legal representation is not required. The debtor has 20 days in which to pay or appeal against the order.
A European regulation has created a procedure for European orders for payment, which simplifies, speeds up and reduces the costs of litigation in cross-border cases concerning uncontested pecuniary claims.
Deferral of payments
In the event of financial difficulties, various public tax collecting bodies offer businesses the opportunity to defer payments. The Tax Office therefore allows personal income tax and corporation tax to be paid in instalments. All the necessary procedures can be completed online.
With regard to Social Security , payments can also be deferred for a maximum of five years. The business must submit the relevant documentation to the Social Security General Payment Office.
When a business can no longer meet its payment obligations, and before taking more drastic measures such as reducing staff numbers, closing offices or winding up the business, it should first try operational and/or financial restructuring to ensure its viability and survival. The procedure can be formal (under the Bankruptcy Law) or involve simple private negotiation between the parties involved.
Suspension of contracts
Suspending a contract involves temporarily interrupting the work carried out, without breaking the contractual relationship between employer and employee. This is an alternative to layoffs.
The procedures and deadlines vary according to the type of dismissal in question:
- Dismissal for objective reasons: due to incompetence, lack of cooperation by the employee, etc. The employer must send a letter of dismissal to the employee 30 days in advance.
- Disciplinary dismissal: due to serious and culpable breaches of contract by the employee. A letter of dismissal stating the reasons for this action must be sent within 60 days of the date when the employer becomes aware of the breach of contract committed by the employee.
- Collective dismissal: in order to be regarded as collective, the dismissal must involve at least 10% of the workforce, or 10 employees if the business has fewer than 100 employees. The dismissal will be instigated through the corresponding redundancy process (labour force adjustment plan – LFAP), and the negotiation will last a minimum of 15 or 30 days, depending on the size of the business.
The dismissal pay usually amounts to 20 days per year worked, up to a maximum of one year's salary, except in the case of disciplinary dismissal, for which there is no entitlement to dismissal pay.
Once the dismissal has been finalised, the employer may de-register the staff online, through the RED system used by Social Security.
SMEs or sole traders can use credit insurance to protect themselves against unpaid debts of customers or purchasers. This type of insurance is contracted through private insurance companies, which means that you must check the rates and conditions offered by each company.
The website of the Directorate-General for Small and Medium-Sized Enterprise Policy offers personalised interactive services, which can be accessed through the SIE database (Sistema de Información Empresarial or Business Information System). This database lists help and support schemes and tools for businesses, as authorised and organised by the central and regional governments.
The Virtual Point of Single Contact for Businesses is a website providing information and support for businesses in Spain. It can help with online procedures, management, financing, etc.
The Spanish government has also appointed a 'financial facilitator '; to channel loan applications made by SMEs and sole traders, which have been rejected by financial institutions. As a result, businesses in difficulty have access to more ways of obtaining credit.
Check also the legislation on this topic in: