For many companies, the losses generated during the pandemic have been a difficult burden to overcome. While some opted for dissolution, others benefited from an exceptional measure implemented in the midst of the crisis: the accounting or corporate moratorium. Thanks to this, they were able to avoid legal grounds for dissolution despite their negative results.
This financial respite allowed sectors such as hospitality, retail, tourism, construction, and automotive to continue operating without the losses of 2020 and 2021 weighing on their balance sheets. However, this “accounting fiction,” as experts call it, will end on December 31, 2024.
A temporary lifeline that expires
To avoid a massive business crisis due to coronavirus restrictions, the government approved two key measures in 2020:
- Bankruptcy moratorium, which ended in June 2022.
- Corporate or accounting moratorium, which was extended until the end of 2024 by Royal Decree-Law 20/2022.
The objective was clear: to give companies that were viable before the crisis time to recover from the economic impact of the pandemic.
“The moratorium has allowed many companies to stabilize their finances in a recovery environment, facilitating restructuring processes without the immediate pressure to demonstrate solvency,” explains Victoria Vilar, M&A partner at Zadal. It has also given them more time to adapt to new market conditions and even, in some cases, implement improvements and innovations.
During these years, companies have been able to temporarily ignore losses when assessing whether their net worth fell below half of their share capital, a threshold that triggers the obligation to call a meeting to decide whether to dissolve the company or take corrective measures.
What happens now?
With the moratorium about to expire, companies must face their real situation. “It’s not that the losses don’t exist; they’re still on the balance sheets, but they acted as if they weren’t there,” explains Juan Díaz Hidalgo, corporate partner at Eversheds Sutherland.
Many companies that failed to recover have already closed in recent years, while those that did not benefit from the moratorium have continued to apply accounting standards normally. In other words, distressed companies that have survived thanks to this measure must now assess their real viability.
Recovery or dissolution: the post-moratorium landscape
Some companies have managed to recover and regain pre-pandemic levels. “In many cases, the losses in 2020 and 2021 were only temporary,” Vilar points out. Even in mergers and acquisitions, the results of those years have been considered exceptional and not decisive in company valuations.
However, others remain on the ropes. “Companies that have continued to be in the red have likely already entered into bankruptcy or are close to doing so,” warns Manuel García-Villarrubia, bankruptcy partner at Uría. For specialists, there shouldn’t be any major surprises, since the directors have been looking at the balance sheets for some time and have been able to anticipate their situation.
Directors’ Liability
The end of the moratorium also reactivates a key issue: directors’ liability.
If a company presents a equity imbalance severe, the administrators have a two-month period to call a meeting and make a decision. If they don’t, they could face joint and several liability, which means having to use their own assets to cover the company’s debts.
“The main benefit of the moratorium was precisely putting this liability on hibernation,” Díaz Hidalgo emphasizes.
Impact on SMEs and large companies
Large companies and multinationals will barely notice the end of the moratorium, as they already have the resources to deal with the situation. SMEs, on the other hand, could have more difficulties.
“The market is what rules. The moratorium has been a useful temporary measure, but reality sets in. Many companies are closing not because of accounting imbalances, but because of a lack of liquidity,” warns Díaz Hidalgo.
Conclusion: time is running out
Companies must review their accounts as soon as possible to determine whether they can continue operating without the protection of the moratorium. “Managers must be diligent and assess whether their company can stay afloat. If not, they must act before it’s too late,” concludes García-Villarrubia.
December 31, 2024, will mark the end of an exceptional period. Now, companies must face their financial reality and make strategic decisions to ensure their continuity. Time is ticking.
