The declaration of bankruptcy proceedings, or pre-bankruptcy proceedings, do not entail the automatic termination of agreements, or pre-agreements, made with the Wage Guarantee Fund.
Recovery agreements—also called deferred repayment agreements—are private contracts through which the Wage Guarantee Fund can agree with a company declared legally insolvent (solely for the purpose of recognizing wage guarantee benefitsfor the workers claiming them) on the reimbursement or deferred and/or installment repayment of the wages and severance pay owed to its employees, following the corresponding administrative procedure. Pre-agreements, on the other hand, are simply recovery agreements subject to a suspensive condition, entered into before the Wage Guarantee Fund makes any payments. This suspensive condition requires the company to demonstrate to the Fund that it has fully met the requirements for granting these benefits.
The Insolvency Law (art. 67) does not establish the same effect of the declaration of insolvency for all contracts entered into with public entities, but provides for different effects depending on whether it is an administrative or private contract, stipulating that “the effects of the declaration of insolvency on administrative contracts entered into by the debtor with public administrations shall be governed by the provisions of their special legislation” (Public Sector Contracts Law), while for “private contracts entered into by the debtor with public administrations, the effects of the declaration of insolvency shall be governed by the provisions of this law” (Insolvency Law). Administrative contracts are understood to be all those that are directly related to the specific business or activity of the contracting Administration (works, management of public services, supplies, consulting and assistance, etc.), while the other contracts that the Administration may enter into are private contracts that are governed, in terms of their preparation and award, by the specific administrative regulations, and in terms of their effects and termination, by the rules of common or private law. Thus, while administrative contracts are subject to the Public Sector Contracts Law, in which the declaration of insolvency proceedings is provided as a cause for termination, private contracts of the Administration, on the other hand, are subject to the Insolvency Law, whose general rule is that of non-termination of contracts, contained in article 61, according to which "the declaration of insolvency, by itself, will not affect the validity of contracts with reciprocal obligations pending fulfillment, both on the part of the insolvent party and the other party", without prejudice to the fact that "the insolvency administration, in case of suspension, or the insolvent party, in case of intervention, may request the termination of the contract if they deem it convenient to the interest of the insolvency proceedings".
With regard to the aforementioned recovery agreements, it should be noted that the Wage Guarantee Fund is a public body with its own legal personality attached to the Ministry of Employment and Social Security, since such agreements constitute private contracts signed with a public entity, whose specific regulations (Royal Decree 505/1985, of March 6, on the conclusion of Agreements for the Return of Amounts paid by the Wage Guarantee Fund) do not expressly provide for the declaration of insolvency proceedings as a cause for the termination of such agreements, but only contemplate as such the breach of what was agreed, in which case the Wage Guarantee Fund would be empowered to exercise all actions that correspond to it in order to realize its credit, without needing to be subject to those derived from the guarantee constituted.
Consequently, the declaration of insolvency proceedings does not operate automatically or imperatively as a cause for the termination of recovery agreements signed with the Wage Guarantee Fund , and their effectiveness – like that of other private contracts – would, in principle, be subject to the decision of the jurisdictional body at the request of the insolvency administration or the insolvent party itself, although Article 71.5 of the Insolvency Law excludes them from this possibility by establishing that "guarantees constituted in favor of public law credits and in favor of the Wage Guarantee Fund in the agreements or recovery arrangements provided for in its specific regulations" are not rescindable.
And if the declaration of bankruptcy does not, in itself, entail the resolution of the recovery agreements that the bankrupt company may have entered into with the Wage Guarantee Fund, then the mere communication of the start of pre-bankruptcy negotiations provided for in Article 5 bis of the Bankruptcy Law could have even less of a resolutory effect, since it does not imply any alteration in the ordinary activity of the debtor, so that during the pre-bankruptcy phase the debtor continues to be obliged to meet all of his payment obligations according to their respective due dates, without any special provisions.
Finally, as previously concluded regarding recovery agreements entered into with the Wage Guarantee Fund, the same conclusion applies to the so-called pre-agreements entered into with the same body: neither insolvency proceedings nor the notification of pre-insolvency proceedings, in and of themselves, lead to their termination. This is because the only difference between these agreements and pre-agreements lies in the fact that—as stated earlier—the recovery pre-agreement is merely a suspended agreement, that is, subject to a suspensive condition. Therefore, if the suspensive condition of the pre-agreement is met, it will take effect between the parties, and neither the declaration of insolvency proceedings nor the mere notification of pre-insolvency proceedings will be an impediment.
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