In the practice of law specialising in civil and commercial litigation, one of the most complex and, at the same time, most frequent scenarios is that in which, following a lengthy and arduous judicial procedure culminating in a favourable judgment, the creditor is confronted with the apparent impossibility of enforcing the ruling. A declaration of insolvency by the debtor —whether an individual or a legal entity— is often received as an insurmountable obstacle. However, within our legal system, insolvency is not always an irreversible or absolute state of affairs.
The frustration of seeing a credit right recognised on paper without it translating into genuine financial satisfaction leads us to employ the various investigation and enforcement mechanisms recognised by law. Below, we analyse in detail what legal options exist when the debtor fails to meet their obligations despite a judgment having been issued against them.
1. Detailed asset investigation during enforcement proceedings
Once an enforcement title is available (a final judgment, an arbitral award, or an extrajudicial instrument meeting certain requirements), the enforcement phase commences.
Where the debtor resists payment of the debt, it is possible to request an investigation into their assets.
Judicial assistance is essential at this stage. Through the Judicial Neutral Point (Punto Neutro Judicial – PNJ), lawyers may request that the Court obtain information from public bodies that are not accessible through private channels. This includes:
- Spanish Tax Agency (AEAT): to identify pending tax refunds, bank accounts held in the debtor’s name, or financial assets.
- General Treasury of the Social Security (Tesorería General de la Seguridad Social): to ascertain whether the debtor is in employed work (and thereby attach the proportional part of their salary permitted by law) or whether they are in receipt of any form of benefit.
- Directorate-General for Traffic (DGT): to locate vehicles or vessels registered in the name of the debtor.
- Information on immovable property: we may discover land or real rights held by the debtor at any location throughout Spain.
It is important to note that the debtor has a duty to disclose their assets. Pursuant to Article 589 of the Spanish Civil Procedure Act (Ley de Enjuiciamiento Civil), the judgment debtor must produce a list of assets sufficient to cover the enforcement. If the debtor remains silent or provides incomplete information, periodic coercive fines may be imposed and, furthermore, they could incur criminal liability for serious contempt of court.
2. Attachment of future credits and contingent rights as part of enforcement proceedings
Current insolvency is a snapshot in time, but a debtor’s estate is dynamic. Enforcement proceedings may remain open for a considerable period, allowing the creditor to remain alert to any future inflow of funds:
- Attachment of wages and salaries: Whilst the national minimum wage (Salario Mínimo Interprofesional) is exempt from attachment, amounts exceeding it may be attached in accordance with a statutory scale.
- Attachment of credits owed by third parties: If the debtor is themselves owed money by clients, we may apply to the Court for an order requiring those third parties to pay directly to the Court rather than to the debtor.
- Inheritance rights: If the debtor stands to inherit, the creditor may seek the attachment of their hereditary share and, in certain circumstances, even accept the inheritance on the debtor’s behalf in order to recover what is owed.
3. Combating fictitious insolvency: fraudulent conveyance
One of the greatest challenges in legal practice is supervening, contrived insolvency. It is common for debtors who anticipate an adverse judgment to strip themselves of assets by selling or donating them to nominees, family members, or shell companies. In the face of such manoeuvres, Civil Law provides tools for “reconstructing” the debtor’s estate:
A. The Paulian action (acción paulina) or rescission action
Governed by Article 1,291 of the Spanish Civil Code, this action enables the creditor to challenge acts carried out by the debtor in fraud of their credit right. If it is shown that the debtor disposed of an asset gratuitously (by way of gift) or even onerously (by way of a sham sale), knowing that in so doing they were leaving their creditor without any prospect of recovery, the courts may declare the rescission of that contract. The effect is that the asset “returns” notionally to the debtor’s estate so that it may be attached.
B. Directors’ liability action
Where the debtor is a private limited company or a public limited company, the insolvency of the business does not necessarily mean that the creditor must write off the debt. If the directors of the company have breached their legal duties (for example, by failing to dissolve the company when losses have reduced the net assets to below half of the share capital), they may become personally liable with their own assets for the company’s debts. This is a highly effective avenue of pressure in commercial litigation, although it requires a significant evidential effort on the part of the creditor.
4. The criminal route: the offence of frustrating enforcement
In the most egregious cases, the concealment of assets ceases to be a purely civil matter and enters the sphere of economic criminal law. The offences set out in the chapter of the Spanish Criminal Code concerning the frustration of enforcement (Articles 257 et seq. of the Criminal Code) impose custodial sentences on those who carry out certain acts of asset disposal or incur obligations that delay, hinder, or prevent the effectiveness of an attachment order or enforcement proceedings.
The filing of a criminal complaint in such cases is not solely aimed at securing criminal punishment; it typically serves as an extraordinary means of pressure to prompt the debtor to “produce” the funds or assets necessary to satisfy the debt and thereby avoid criminal consequences.
5. The second chance law and insolvency proceedings
In recent years, many individual debtors have availed themselves of the Second Chance Law mechanism in an attempt to have their debts discharged (EPI – Exoneración del Pasivo Insatisfecho, or Discharge of Unsatisfied Liabilities).
As creditors, it is vital to participate actively in these insolvency proceedings. Not all debts are dischargeable, and not all debtors act in good faith. If it can be shown that the debtor has concealed assets, submitted false documentation, or recklessly aggravated their insolvency, we may oppose the discharge, keeping the debt alive indefinitely until the debtor’s financial circumstances improve.
Where the debtor is a legal entity, the applicable route is not discharge but rather the insolvency proceedings themselves. The classification section may determine that the insolvency be declared culpable, with all the consequences that entails. Furthermore, insolvency proceedings open the door to actions for the reintegration of the active insolvency estate, enabling the rescission of prejudicial acts carried out in the period preceding the declaration of insolvency.
In short, insolvency proceedings must not be approached passively. Properly managed, they can become a tool for maximising debt recovery and addressing conduct that is harmful to the insolvency estate.
6. Conclusion
Recovering a debt from a debtor who declares insolvency requires more than a simple administrative formality; it requires a sound litigation strategy tailored to each specific set of circumstances. At Marcello Caramés Abogados, we understand that obtaining the judgment is only half the journey. The other half lies in turning that judgment into an economic reality.
Exhausting all investigative avenues, challenging fraudulent acts, and, where necessary, extending liability to directors or pursuing the criminal route are essential steps in protecting our clients’ interests. Specialist legal advice is, in such cases, the difference between an unrecoverable debt and a complete judicial success.