Bankruptcy Proceedings

Spain – Bankrucy of a temporary joint venture (UTE)

Additional problems in the event of bankruptcy of a temporary joint venture (Unión Temporal de Empresas – UTE).

In specific cases of bankruptcy of companies making up a Spanish temporary joint venture - UTE, irregularities have arisen causing direct damages to the creditors of the UTE. These may be summed up in the following two points:

1. Irregularities by managers/directors of the companies in the UTE due to failure to include sums payable to suppliers in main accounting books. Indeed, invoices are included in the UTE accounts but the amounts payable to creditors stemming from the UTE are not set out in the balance sheet.
2. Negligence is confirmed by the fact that on occurrence of bankruptcy, when the list of creditors is notified to the administrators of the bankrupcy, said list leaves out the creditors stemming from the UTE.Negligence by administrators in taking into consideration liabilities based only on the list of creditors handed over by the company, without giving thought to the existence of amounts payable to creditors of the UTE in the ancillary accounts of the joint venture.

As a result of the coincidence of both areas of negligence, the administrators do not send the UTE’s creditors notification in order to present the debt. In these cases, the creditor should act within the bankruptcy procedure and this type of action may bring about an advantage, as the debt will be deemed as an extreme privileged.

1. If the enterprise is economically viable, its continuance is facilitated, along with the payment of debts owed to the creditors.

2. If the enterprise is not economically viable, it is wound up in an orderly manner, allowing the creditors to repay their debts. As far as possible.