When a struggling company must dissolve or file for insolvency

Key rules

• Dissolution meeting: Administrators must call the general meeting within two months of learning of a dissolution cause.
• Insolvency filing: You must file for concurso within two months of knowing, or when you should have known, that the company cannot pay its debts.
• Court application: If the meeting fails to act, administrators must ask the commercial court to dissolve the company within two months.
• Personal liability: Missing these deadlines makes administrators personally liable for debts that arose after the cause.

The short version

Two separate duties can start a clock. One is a dissolution cause, such as losses that wipe out much of your equity. The other is insolvency, meaning you cannot pay debts as they fall due. Each has its own deadline. If administrators miss it, they can end up paying the company's debts from their own pockets.

This page applies to an SL, an SA and similar capital companies. It does not apply to partnerships-style companies (sociedades personalistas).

Causes that force a dissolution decision

A company must dissolve when one of these happens:

• Losses. Net equity (patrimonio neto) falls below half of share capital.
• Term expired. The term set in the articles has run out.
• Purpose. The corporate purpose is completed or can no longer be achieved.
• Paralysis. The company's organs are so blocked that it cannot operate.
• Minimum capital. Share capital falls below the legal minimum.
• Inactivity. The company has stopped its main activity for a year. Not holding a general meeting for a year is not, on its own, a cause.
• Your own articles. The articles may add further causes. Read them.

Some causes, such as an expired term, take effect automatically. Others need a general meeting resolution.

The equity test

Losses are the most common trigger. Compare net equity with half of share capital in the approved accounts. The cause can also arise from facts that clearly show the shortfall, even before the accounts are approved. The special Covid-era adjustments for 2020 and 2021 losses have expired, so equity is tested without them.

You can avoid dissolution by increasing or reducing capital enough to cure the shortfall. This works only if the company is not already in insolvency proceedings (concurso).

The clock after a dissolution cause

1. Call the general meeting within two months. The clock starts when the administrators learn of the cause. The meeting decides whether to dissolve or remove the cause. The agenda must include that item. Notice follows the normal rules in your articles and the law.
2. If the meeting is not held, passes no resolution, or votes against acting, the administrators must apply to the commercial court (Juzgado de lo Mercantil) for judicial dissolution. They have two months from the date the meeting was due or held.
3. If the cause is not cured and the company is also insolvent, file for concurso instead.

Any shareholder can ask the administrators, giving reasons, to call the meeting. A shareholder or creditor can also ask the court to dissolve the company if the meeting fails.

The insolvency clock

You must file for insolvency (concurso) within two months of knowing, or when you should have known, that the company cannot pay its debts as they fall due.

You can pause this duty by filing a notice of negotiations with creditors. It gives three months' protection, plus a further period, to negotiate a restructuring plan. If no agreement is reached, you have one month after that period ends to file for concurso.

Filing late presumes the insolvency was culpable when the court classifies it. It can also affect costs.

Personal liability

If administrators fail to call the meeting in time, or fail to ask for judicial dissolution or concurso in time, they become jointly and severally liable for the company's debts that arose after the cause. Each administrator can be pursued for the whole amount. This is liability for the debt itself, not for damages.

• Debts are presumed to come after the cause. It is up to the administrators to prove a debt came earlier.
• A creditor must still show the debt, that the cause existed, and the link between them.
• It covers de facto administrators too, meaning people who run the company without formal appointment.
• It ends when the cause is cured.

What to do now

Use the checklist below to test each cause against your accounts. If one applies, diary the two-month deadline immediately. To choose between dormancy, sale, dissolution and insolvency, use the decision tool below.

Keep dormant, sell, dissolve or file for insolvency?

Which exit route fits your company: dormancy, sale, dissolution or insolvency?

• File for insolvency (concurso): Choose this if the company cannot pay its regular debts as they fall due. The two-month filing deadline applies, and missing it risks director liability and a culpable classification.

• Dissolve and liquidate: Choose this if the company is solvent, has little or no debt, and equity has fallen below half of share capital without being restored. It is cheap and fast: a meeting, liquidation, a notarial deed, registry filing and tax clearance, usually low thousands of euros.

• Sell the company: Choose this if the company has value, contracts or licences a buyer wants. You pay tax on your gain, and the buyer takes on the company's liabilities.

• Keep it dormant: Choose this only if the company is solvent and equity is not below half of capital. You still file annual accounts and tax returns and pay an adviser and registry fees. If accounts go unfiled, the registry can close the company's page and the tax agency can put it on provisional deregistration (baja provisional), which stops invoicing. Debts and your liability stay.

Check first whether the company can pay its debts as they fall due, then whether equity is below half of share capital. After that, weigh debts and director guarantees, employees and contracts, tax on any gain, and running costs.

Timeline and deadlines

• Call the general meeting to decide on dissolution or on removing the cause: within two months of the administrators becoming aware of the cause

• File for insolvency if negotiations with creditors fail: within one month after the negotiation period ends

Checklist

• Check whether the term set in the company's articles has expired.

• Check whether the company's organs are so paralysed that it cannot operate.

• Check whether share capital has fallen below the legal minimum.

• Read the articles for any extra dissolution cause the company set for itself.

• Increase or reduce share capital enough to cure the equity shortfall, if the company is not in insolvency proceedings.

What to watch out for

• Administrators can pay the company's debts personally: If administrators do not call the meeting within two months, or do not ask the court for dissolution or file for insolvency in time, they become jointly liable for the company's debts that arose after the cause. Liability is for the debt itself, not for damages, and it ends when the cause is cured. Call the general meeting within two months of learning of the cause, and act on the court or insolvency step within the next deadline.

• Debts are presumed to come after the cause: A creditor does not have to prove the debt came after the cause. You must prove it came earlier, so unclear records work against you. This also applies to people who run the company in practice without being formally appointed. Keep dated records of every contract, invoice and debt, and write down the date you learned of the cause.

• Late insolvency filing counts against you: Failing to file for insolvency in time presumes culpability when the insolvency is classified, and it also affects costs. File within two months of knowing, or when you should have known, that the company cannot pay its debts, or use the creditor negotiation notice.

What if your company's equity falls below half its capital?

If your company's net equity (what it owns minus what it owes) drops below half of its share capital, the company must be dissolved unless you fix it. The administrators then have two months to act, and missing the deadlines can make them personally liable. This applies to SL, SA and other capital companies, not to partnerships.

When the problem starts

The cause can show up in the approved annual accounts or in facts that make the situation plain, such as heavy losses during the year.

What the administrators must do first

Call a general meeting of shareholders within two months of becoming aware of the cause. The meeting decides whether to dissolve the company or remove the cause. The agenda must include that item.

• Any shareholder can ask the administrators to call the meeting, as long as they give their reasons.
• The notice follows the normal rules in the company's articles and the law: usually the company website or individual written notice, with the legal notice period.
• The same duty applies when the cause comes from the accounts.

If the meeting fails

If the meeting is not held, passes no resolution, or passes a resolution against fixing or dissolving, the administrators must ask the commercial court to dissolve the company.

• If the company also meets the grounds for insolvency proceedings (concurso), the administrators must file for those instead.
• Any interested party, including a shareholder or creditor, can also apply to the court.

Ways to cure it

You cure the problem by bringing net equity back above half of share capital. The main routes are:

• Capital increase with new cash. Shareholders or new investors put money in.
• Capital increase by offsetting debts. Shareholders turn debts the company owes them into capital. The debts must be due and for a fixed amount.
• Capital reduction. The company cuts its capital to absorb the losses. It cannot go below the legal minimum.
• Non-repayable shareholder contributions. These add to equity and do not have to be paid back.

Ordinary shareholder loans do not count. Participating loans (préstamos participativos) can count as equity for this test under some conditions, so check yours with an accountant or lawyer.

Each fix needs a general meeting resolution, a public deed signed before a notary, and registration in the commercial registry. Do it before the company enters insolvency proceedings, and within the two-month meeting period if you want to avoid personal liability.

Personal liability for administrators

Administrators who miss the meeting deadline, or the deadline to ask the court for dissolution or file for insolvency, become jointly and severally liable. This means a creditor can claim the whole debt from any one of them. It covers the company's debts that arise after the cause appeared.

• Debts are presumed to arise after the cause, so the administrators must prove a debt came earlier.
• A creditor still has to prove the debt and that the cause existed at the time.
• It applies to administrators who act in practice even if they were never formally appointed.
• It stops applying to new debts once the cause is cured.

If you are an administrator, write down the date you became aware of the problem and call the meeting at once. Get an accountant or lawyer involved before the first two-month period runs out.

Frequently asked questions

Does a company that has not held a general meeting for a year have to dissolve?

No, a year without holding a general meeting is not by itself a cause for dissolution. A year without carrying out the activity that forms the company's purpose (inactivity) is a separate cause, so check which of the two applies to you.

Can a shareholder force the administrators to call the dissolution meeting?

Yes, any shareholder can ask the administrators to convene the meeting, as long as the request gives the grounds. The agenda must then include the item on dissolving the company or removing the cause.

Who can ask the court to dissolve the company if the meeting fails?

The administrators must apply to the commercial court within two months of the date the meeting was due or held, but any interested party can also apply. A shareholder or creditor can apply too.

Does an administrator pay for debts that existed before the dissolution cause arose?

No, the personal liability covers debts that arose after the cause occurred. Debts are presumed to be later unless the administrator proves they came earlier, so keep dated records of each debt.

Does negotiating with creditors pause the duty to file for insolvency?

Yes, filing a notice of negotiations with creditors suspends the filing duty while it runs, which gives you three months plus a further period. If no agreement is reached, you have one month after that period ends to file for insolvency.