Last Friday the government approved a measure to avoid corporate bankruptcies by adding some flexibility to the bankruptcy filing procedure, and they did it with a very realistic and practical approach.
Now that the financial sector has been cleaned up more or less, this law aims to fix corporate debt. What could put the brakes on an anti-bankruptcy measure? Critically, it will not apply to small- and medium-sized businesses. The law gives big companies a fix for their liquidity problems, but it does not help smaller companies, because it overlooks public loans that originated at the Finance Ministry and through the Social Security system, which not only dictate the order in which creditors are paid back in case of a bankruptcy, but continue to allow debt remissions as if they were going to be granted to all creditors. The issue is that most of the debt held by small- and medium-sized companies comes from paying taxes and social security. When the law was first drafted, lawmakers considered allowing Finance and Social Security to forgive these debts. But will they?
The question is front-of-mind for Cristóbal Montoro. His stubbornness here makes sense, because the state is battling a larger deficit problem and he does not want to open the door to anything that could upset the national balance sheet. This is a reasonable argument, but masks the fact that the government's new bankruptcy law treats small companies unfairly.