Consortium Legal - El Salvador
  February 27, 2020 - El Salvador

Universal Processes in El Salvador

When a debtor, natural or legal person, is constituted in serious circumstances of insolvency in the face of a plurality of creditors, the legislator has foreseen as a mechanism to solve said problem three alternatives of action, depending on the qualities of the insolvent person: the insolvency creditors, bankruptcy and suspension of payments.

In doctrine, reference is made to the fact that this type of process or procedures are of universal nature, since it affects the assets of the insolvent debtor, understand all the assets and obligations that may be subject to disposal, safe exceptions defined by law.

An essential element for the beginning of a universal process is insolvency, considered as a serious state, of relative stability over time, which places the debtor in a material impossibility of facing his obligations, in the face of a multitude of creditors. This plurality of insoluble obligations is extremely important, since if it were one or a few, it would generate the right of action for individual executions and not a universal execution, as in the case of the processes that concern us.

It has been analyzed in national jurisprudence, for example in the Protection Judgment (Sentencia de Amparo) reference 819-2018, pronounced by the Constitutional Chamber on the fourteenth day of October of two thousand and eleven, regarding the temporary stability of insolvency, the following:

“In regards to this permanent nature, the cessation of payments status is not configured against passing or temporary inconveniences such as cases of momentary illiquidity, but rather constitutes a projected state of insufficiency over time resulting in the impossibility of the patrimony The debtor is able to meet the required obligations.

Faced with this situation, through the bankruptcy process, the debtor’s assets are reorganized, so that, as far as possible, all creditors who attend the trial and credit the titles of their credits can receive payment of their debts, after, through the administration of the insolvency, the assets that were seized to the insolvent debtor have been liquidated ”.

With the above ideas, the concept of insolvency given by Juan Esteban Puga Vial can be resumed, which defines it as the “vicious and complex patrimonial state that translates into an imbalance between the debtor’s liquidable assets and its enforceable liability, in such a way which places its owner in the objective incapacity to fulfill, currently or potentially, the commitments that affect him”.

As already stated, in El Salvador, there are three legal mechanisms to deal with insolvency status as indicated: bankruptcy, bankruptcy and suspension of payments.

The bankruptcy is reserved for the civil debtor, and bankruptcy and suspension of payments, for the merchant.

In relation to what has been said, it is essential to clarify that according to our legislation, there are exceptions in which, despite being commercial companies, the bankruptcy is applied for them and not bankruptcy. These are the cases of companies that have been constituted as simple collective or limited partnerships, with fixed capital and that have one or more of the following purposes: i) the exercise of agriculture and livestock; ii) the construction and leasing of urban housing, as long as it is not with the intention of selling on a regular and constant basis; and iii) the free exercise of professions.

For the remaining types of companies of a commercial nature and natural persons that do not have as business the activities described above, the legislator provides for the figure of bankruptcy as a procedure for those merchants who have ceased to pay their obligations and that their assets are insufficient to face all of its liquid and past due debts, and the suspension of payments as a prior and preventive bankruptcy procedure.

As common characteristics of the bankruptcy and bankruptcy, we can mention that these are universal lawsuits and, at the same time, enforcement procedures by which the debtor avoids a series of actions of each of his creditors; and these receive, as soon as possible, their credits, using a collective procedure that guarantees and defends them.

The consequences that occur are:

  • The debtor is unable to manage his assets and any others;
  • All installment debts automatically expire;
  • On the contrary, all credits cease to accrue interest, with the exception of mortgage loans or pledges;
  • There is a judicial intervention in the debtor’s assets;
  • If an agreement is reached between the creditors and debtor, special relationships arise, depending on whether it is removable or waiting, mandatory for those and these.

In addition, the following procedural effects can be summarized:

  • The seizure and deposit of all the debtor’s assets;
  • The occupation of books, papers and correspondence;
  • The appointment of an administrator depositary;
  • The accumulation to the contest of the pending executions;
  • Citation of creditors;
  • Appointment of a Trustee;
  • Recognition, graduation and payment of credits; Y
  • Contest of bankruptcy.

In our country, universal processes are rarely used, probably due to ignorance of the same and their legal implications, or because the legislation that regulates them is the same as that of one hundred and thirty-five years ago.

However, the procedural regulations were completely reformed in 2010 with the entry into force of the Civil and Commercial Procedural Code, insolvency was not adequately regulated. Therefore, although the Civil and Commercial Procedural Code repealed the Code of Civil Procedures and the Law of Commercial Procedures, it was established that Title IV and V of the Second Book (arts. 659 to 777) of the Code of Civil Procedures and Chapter XI (arts. 77 to 119) of the Commercial Procedures Law, they remained in force “as long as a new legislation regulating the matter is not passed”.

These chapters contemplate the guidelines for proceeding in bankruptcy hearings, bankruptcy and suspension of payments, and although more than nine years have passed since the extension of the validity of the legislation in question was approved, to date there has not been an effective attempt to regulate these figures properly.

Given the complexity of the figures in question, it is necessary to issue a regulation according to the new national realities that seek in addition to the satisfaction (although incomplete) of the insoluble debts, so that these figures can be true options for solution that allows the rehabilitation of the insolvent.

Read full article at: