At the Commercial Law Department of Belzuz Abogados, S.L.P., Madrid, we consider that this ruling represents a significant step forward in achieving the objective of full discharge for the debtor acting in good faith, as well as a decision of particular practical relevance for sole traders, self-employed individuals, company directors and natural persons whose insolvency is directly conditioned by the existence of public debt.
Introduction: the regulatory framework and the matter in dispute
The discharge of unsatisfied liabilities (EPI) constitutes one of the pillars of the second-chance regime introduced into Spanish law through Law 16/2022 of 5 September, which transposes Directive (EU) 2019/1023 on preventive restructuring frameworks, debt discharge and disqualifications. Its essential purpose is to enable a debtor acting in good faith, once their assets have been liquidated, to be released from their outstanding liabilities and to reintegrate into economic and social life.
However, Article 489.1.5 of the TRLC excludes — save within very limited quantitative limits — debts arising from public law claims. This exclusion has sparked intense debate regarding its compatibility with Article 23(4) of the Directive, which requires such exclusions to be ‘duly justified’. Order 708/2025 addresses this interpretative tension, drawing on the doctrine of the CJEU established in the Corván and Bacigán judgment (C-289/23 and C-305/23) and in the order of 28 April 2025.
The Judge’s view:
The crux of the ruling lies in the critical assessment of the justification provided by the Preamble to Law 16/2022, according to which the exclusion is based on ‘the particular importance of its fulfilment for a fair and inclusive society, founded on the rule of law’. The Judge considers that this reasoning does not satisfy the requirement for due justification under Article 23(4) of the Directive, basing his argument on points of considerable legal soundness.
Firstly, he notes that the Directive does not require a mere justification, but rather a due justification, that is to say, one that is complete and adequate in accordance with national law. The wording used by the Spanish legislature is based on entirely generic concepts, without reference to any constitutional, statutory or regulatory provision, which makes it — in the judge’s own words — a ‘hollow, laconic and ambiguous phrase’.
Secondly, the unjustified equal treatment of heterogeneous categories of debt is particularly problematic. It is not acceptable for the same reasoning to serve to exclude debts arising from criminal offences, non-contractual liability, maintenance and public claims, as the latter lack the element of culpability that is present in the former. The general exclusion of public claims, without any distinction as to the nature of the claim or the circumstances giving rise to it, is disproportionate.
Thirdly, the Judge highlights the breach of the principle of proportionality, noting that Article 20(1) of the Directive requires Member States to ensure that insolvent entrepreneurs have access, at the very least, to a procedure that may lead to full discharge of debts. Maintaining the general exclusion without due justification — he argues — condemns the debtor acting in good faith to “ostracism, marginalisation and the black economy”, thereby undermining the objective pursued by the European legislation.
Finally, a profound observation is made: the justification offered in the Preamble would serve, without altering a single comma, to defend the opposite solution, that is, the inclusion of public debt within the scope of discharge. A fair and supportive society, founded on the rule of law, could also — and, in the judge’s view, should — grant this exemption to the debtor acting in good faith.
Legal assessment and practical implications:
The judgment in question is notable for its interpretative courage in refusing to apply a national rule on the grounds that it is contrary to EU law. Judge Soriano Guzmán does not merely reproduce the doctrine of the CJEU, but fully assumes the role entrusted to him by the Court of Justice in Luxembourg itself: to assess, in accordance with the principle of proportionality, whether the exclusion of public debt is duly justified.
It is worth noting that this position contrasts with that held by the 28th Chamber of the Provincial Court of Madrid (judgment of 14 March 2025), which considers the justification in the Preamble to be sufficient, citing Articles 31.2, 103.1, 9.2 and 53.3 of the Constitution. The judge reasonably disagrees with this approach, pointing out that the Court fails to assess whether the justification is truly adequate, nor does it examine its formal and generic nature.
From a practical perspective, Order 708/2025 opens the door to full exoneration for debtors acting in good faith, which is particularly relevant in cases where public debt accounts for the majority of liabilities — a situation frequently encountered by sole traders or those who have conducted their business through commercial companies.
Conclusion:
Order No. 708/2025 of Madrid Commercial Court No. 19 constitutes a ruling of considerable significance in that it disapplies Article 489.1.5 of the TRLC due to its inconsistency with Article 23(4) of Directive (EU) 2019/1023; Judge Soriano Guzmán reinforces the principle of full exemption for debtors acting in good faith and provides an interpretation consistent with the ultimate purpose of European legislation. The ruling not only delves into the scope of the exempted perimeter but also challenges, with solid arguments, the adequacy of the generic justifications offered by the national legislator. In short, this is a judicial decision that invites us to rethink the balance between the protection of public credit and the right of the debtor acting in good faith to a genuine second chance.
At Belzuz Abogados, S.L.P., Madrid, we consider it essential to carry out an individualised analysis of each case, assessing the composition of liabilities, the existence of public debt and the real possibilities of defending a broader exemption in accordance with European legislation and the most recent developments in case law. Our Commercial Law Department is at the disposal of debtors, business owners, the self-employed, insolvency practitioners and creditors to offer comprehensive, strategic advice aimed at ensuring maximum legal certainty in the field of insolvency.