Five (of ten) recommendations about insolvency law proposed by the UNCITRAL

UNCITRAL presented ten recommendations, which are still being studied. Now we are going to see five of these ten recommendations, probably the most important ones.

The first recommendation is focused on the director’s obligation, who have the obligation to due regard to the interests of creditors and other stakeholders. The obligation comprises: i) take reasonable steps to avoid insolvency and ii) where insolvency is unavoidable, to minimize the extent of insolvency.

Lately, many countries are trying (and achieving) to improve the regulation of the situation prior to insolvency. An example of this is the spanish regulation, that in recent times approved important amendments to the Insolvency Law 22/2003, these amendments regulate schemes of arrangement and other matters.

With reasonable steps UNCITRAL means to: ensuring they are fully informed about the affairs of the company, seeking professional advice, ensuring of the assets of the company are protected and permitting transactions that might be cancelled.

The second recommendation addresses the moment at which the obligation arises. The moment have to be determined using the knowledge or the obligation to know that insolvency is imminent or unavoidable.

Third recommendation is the issue about who owe the obligation. The obligated person include the defined as a director. In this blog we saw the concept of director according to the UNCITRAL in the entry: “Avances realizados en el derecho preconcursal por la UNCITRAL”.

The fourth recommendation is focused on the liability. The liability need to be applied when the people obligated break their obligations and the creditors’ interests have been harmed. Nowadays, the existence of damage is an important problem in Spain, as the need to prove or not the culpability. The liability should be limited to the extent to which the breach caused loss or damage.

Elements of liability and defences is the topic in the fifth recommendation. According to the UNCITRAL the insolvency law should specify the elements to be provided in order to establish a breach of the obligations. The law may also establish presumptions and permit shifts in the burden of proof to facilitate the conduct of proceedings for breach of the obligations. These presumptions in connection with the liability is one of the most important problems in Spain, as we have seen above in recommendation number four.

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