The declaration of insolvency proceedings within a company has significant consequences that must be taken into account in terms of labour law and industrial relations for the workers employed by that company.
At Belzuz Abogados, S.L.P., as employment lawyers specialising in insolvency proceedings, we will specifically analyse three issues of particular interest: these are employees’ outstanding wages, compensation arising from the termination of employment contracts that may occur, and the role of the Wage Guarantee Fund (FOGASA).
The analysis, handling and management of the three aspects mentioned require the coordination of the relevant provisions set out in the Consolidated Text of the Insolvency Act (TRLC), approved by Royal Legislative Decree 1/2020 of 5 May, with the provisions of the Workers’ Statute (ET).
Wage claims: classification and priority of recovery
Within the framework of insolvency proceedings, it is essential to determine the nature and classification of claims against the insolvent company, as the order of priority and payment applicable to them will depend on this.
In this regard, a distinction must be made between insolvency claims, which are, generally speaking, those arising prior to the declaration of insolvency, and claims against the insolvency estate, which are those to which insolvency legislation expressly attributes such status; these may have arisen either before or after the declaration of insolvency, although in principle they will be of a subsequent nature.
Claims against the estate do not form part of the insolvency estate and, as a general rule, enjoy a priority payment regime over insolvency claims.
Now, in accordance with Article 242.1.2 of the Consolidated Text of the Insolvency Act (TRLC), claims for wages corresponding to the last thirty days of actual work performed prior to the declaration of insolvency are deemed to be claims against the estate, provided the amount does not exceed twice the national minimum wage (SMI).
Consequently, wage claims of employees falling within this category enjoy priority over insolvency claims, although this priority is limited to the legally established amount, without prejudice to the relevant classification under insolvency law for any excess amount.
It should also be noted that, in accordance with Article 245.1 of the TRLC, these wage claims must be settled immediately, without prejudice to the special rules applicable in the event that the estate’s assets are insufficient to meet claims against the estate.
Finally, it is the responsibility of the insolvency administrators to recognise claims against the estate, in accordance with Article 246 of the TRLC, without prejudice to the fact that disputes relating to such recognition or their payment may be brought before the insolvency judge by means of the relevant insolvency proceedings, in accordance with Article 247 of the TRLC.
Employment compensation: termination of contracts and treatment under insolvency proceedings:
The declaration of insolvency does not, in itself, entail the termination of employees’ employment contracts. However, the company’s insolvency may necessitate, amongst other measures, the collective termination of employment contracts, the procedure for which must comply with the regime set out in Articles 169 et seq. of the Consolidated Text of the Insolvency Act (TRLC), in conjunction with the applicable provisions of the Workers’ Statute.
In this context, the nature and classification of compensation claims to which employees may be entitled as a result of the termination of their contracts will depend, fundamentally, on the point in time at which such termination occurs and the corresponding right to compensation arises.
Thus, in accordance with Article 242.1.11 of the TRLC, compensation arising from the termination of contracts occurring after the declaration of insolvency shall, as a general rule, be regarded as claims against the insolvency estate and shall therefore enjoy priority over insolvency claims, without prejudice to the special rules applicable in the event of insufficient assets in the estate.
Conversely, compensation arising from the termination of contracts prior to the declaration of insolvency shall be treated as insolvency claims and may enjoy general privilege, in accordance with Article 280(1) of the TRLC, up to the amount corresponding to the statutory minimum calculated on a basis not exceeding three times the national minimum wage (SMI), without prejudice to the classification applicable to any excess.
Consequently, compensation arising from contract terminations occurring after the declaration of insolvency generally benefits from a more favourable payment regime than that applicable to earlier terminations, insofar as the former may be classified as claims against the estate, whilst the latter form part of the insolvency estate as insolvency claims, even though they may enjoy general priority. This distinction has a direct impact on the order of payment and on the actual prospects of recovering the compensation awarded to employees.
The Wage Guarantee Fund (FOGASA): coverage of wages and compensation
Within the framework of insolvency proceedings, the role of the Wage Guarantee Fund (FOGASA) is particularly significant; this public body is responsible for guaranteeing, within the limits established by law, the payment of certain outstanding wages and employment-related compensation arising from the employer’s insolvency or insolvency proceedings.
Thus, in accordance with Article 33.1 of the Workers’ Statute, FOGASA guarantees the payment of outstanding wages, up to a maximum of 120 days and a daily amount not exceeding twice the national minimum wage (SMI), including the proportional share of special payments.
Furthermore, in accordance with Article 33.2 of the Workers’ Statute, FOGASA covers certain compensation arising from dismissal or the termination of employment contracts, generally up to a limit of one year’s salary, calculated on a maximum daily basis equivalent to twice the SMI, without prejudice to the specific limits applicable to certain cases.
Consequently, FOGASA’s intervention constitutes an additional mechanism for protecting employees of the insolvent company, by guaranteeing the payment of certain wage and compensation claims within the legal limits, without prejudice to the employees’ right to claim amounts exceeding such coverage.
At Belzuz Abogados, S.L.P., as employment lawyers specialising in insolvency matters, we recommend carrying out appropriate monitoring and review should a situation of insolvency arise, in order to ensure that the procedure is followed in accordance with current employment and insolvency legislation.
Below, we provide a summary of the main issues:
| ÍTEM | SUMMARY |
| Main topic | Treatment of wage claims, employment compensation and FOGASA cover in insolvency proceedings. |
| Wage claims | Wages for the last 30 days of actual work prior to the insolvency proceedings, up to twice the minimum wage (SMI), are considered claims against the estate and have priority for payment. |
| Employment severance pay | Those arising from terminations following the insolvency proceedings are generally claims against the estate; those arising prior to the proceedings may enjoy general priority. |
| FOGASA protection | This guarantees the payment of certain outstanding wages and severance pay, within the legally established limits. |
Frequently Asked Questions (Q&A)
1. What happens to outstanding wages when a company enters insolvency proceedings?
Wages for the last 30 days of actual work prior to the insolvency proceedings, up to a limit of twice the minimum wage (SMI), are considered claims against the estate and are given priority for payment.
2. What happens to severance pay in insolvency proceedings?
Severance pay arising from terminations occurring after the commencement of insolvency proceedings is generally treated as a claim against the estate, whilst severance pay arising from terminations prior to the commencement of proceedings may be subject to a general privilege.
3. What role does FOGASA play in insolvency proceedings?
FOGASA guarantees the payment of certain outstanding wages and severance pay when the company is insolvent, within the limits established by law.