When the Money Runs Out: The Concurso
Insolvency is the legal state of a debtor who cannot regularly meet its due obligations. Instead of a destructive race where the first creditor to grab an asset wins, the law imposes a single collective procedure: the concurso de acreedores.
Opening the concurso: The debtor must petition within two months of knowing its insolvency (voluntary concurso), or any creditor may petition (necessary concurso). Filing late makes the concurso culpable, leaving directors personally liable for the deficit.
Declaration effects: Individual enforcement actions freeze, interest generally stops, and a concurso administration supervises or replaces management. All creditors enter one proceeding with one inventory and claim list.
The fork: The procedure ends either in a convenio (an agreed haircut and/or rescheduling to keep the firm alive) or in liquidation (selling everything and paying the queue in order).
The Creditor Queue and Ranking
When liquidation hits, recovery depends entirely on where your claim sits in the strict legal order. Payment order: Estate claims to secured to general privileged to ordinary to subordinated.
| Class | Typical claims | Paid from |
|---|---|---|
| Estate claims | Procedure costs, post-declaration debts | As they fall due |
| Secured (special privilege) | Mortgage and pledge credit | Their specific collateral |
| General privileged | Recent wages, partial taxes/social security | Designated assets/funds |
| Ordinary | Suppliers, unsecured loans | The remaining mass |
| Subordinated | Fines, interest, insider/partner loans | Last, if anything remains |
Common pitfall: Directors waiting one more quarter to file. The two-month clock is strict; filing late risks a culpable rating and personal liability for company debts.