The term insolvency mediation can be used to refer to mediation applied to disputes between a company in financial difficulty and its creditors. At an early stage, this tool can make it easier to negotiate deadlines, payment terms or other consensual solutions, always within the limits set by the applicable legislation.
Mediation can take place on a contractual basis or within court proceedings.
An important clarification is needed here: in Andorra, “insolvency mediation” is not set up as a standalone or specific insolvency procedure. Mediation as regulated by Llei 3/2018, of 22 March, on mediation can be used to facilitate certain negotiations between debtors and creditors, without prejudice to the obligations and procedures laid down by Andorran law on cessation of payments and bankruptcy (fallida).
Understanding how these two pieces fit together is crucial for any company operating in Andorra that is facing financial strain.
What is insolvency mediation?
In a business context, mediation can be applied to certain disputes arising from financial difficulties or from the relationship between a company and its creditors. Its defining feature is the involvement of an independent, impartial and neutral mediator who does not impose a solution (unlike a judge or an arbitrator), but instead facilitates dialogue between the parties so that they themselves can reach an agreement.
The process can facilitate agreements on payment deferrals, repayment schedules, debt reductions or other negotiated measures, provided that their content falls within the parties’ power of disposal under the law and is accepted by the parties concerned.
Business mediation: how to resolve company disputes without going to court
Find out what business mediation is, when it makes sense and how it works step by step to resolve your company’s disputes without going to court.
Mediation in Andorra: Llei 3/2018
Andorra regulates mediation through Llei 3/2018, of 22 March. As a general rule, it can apply to matters in which the parties are free to dispose of their rights and obligations under the applicable legislation. In the business sphere, this framework makes it possible to use mediation to facilitate certain negotiations and disputes between companies, professionals and creditors.
The law rests on a set of principles that explain why it is useful in insolvency scenarios:
- Voluntariness and good faith: no one is obliged to mediate or to accept an agreement they are not happy with.
- Confidentiality: the parties, the mediators and any experts involved are bound by a duty of confidentiality regarding the information they learn during the process, subject to the exceptions provided for by law.
- Impartiality and independence: the mediator does not act on behalf of either party.
- Equality of the parties: the process must ensure that all parties can take part on an equal footing and that the balance between their positions is preserved.
On this basis, mediation makes it possible to structure a negotiation that would otherwise be scattered across separate one-to-one conversations with each creditor. If an agreement is reached, its content is defined and accepted by the parties themselves.
Business insolvency in Andorra: arranjament judicial and fallida
Andorra has its own insolvency framework, which differs from UK insolvency law and its procedures, such as administration, company voluntary arrangements (CVAs) and liquidation under the Insolvency Act 1986. The general Andorran regime on cessation of payments is based on the Decree of 4 October 1969 (Decret del 4 d’octubre de 1969), as subsequently amended. Once a cessation of payments has been declared, the batlle (first-instance judge) may order an arranjament judicial (judicial arrangement) if it considers that the debtor is in a position to put forward a serious proposal and that the business or company has prospects of recovery. If these conditions are not met, the fallida (bankruptcy) route applies.
For this reason, each situation must be analysed in light of the legislation in force and the specific circumstances of the debtor.
Before a general cessation of payments occurs, early negotiation with creditors can make it possible to explore voluntary solutions
| Criterion | Mediation (Llei 3/2018) | Arranjament judicial | Fallida |
| Objective | Negotiated agreement with creditors | Reach a concordat or conveni where there are prospects of recovery | Liquidate the assets |
| Nature | Contractual or judicial; based on the voluntary nature of the agreement | Judicial | Judicial |
| Business continuity | May form part of the agreed solution | May continue if the conditions for the arranjament are met | Mainly geared towards liquidating the assets |
| Confidentiality | High | Limited | Limited |
How mediation helps a company in difficulty
At an early stage, it allows deadlines and terms to be renegotiated with creditors before cash-flow pressure becomes structural. When the situation is already delicate, it helps build the consensus needed for an orderly agreement, instead of a string of unconnected claims.
Advantages and limits of the negotiated route
Mediation can facilitate a more flexible and structured negotiation, under the confidentiality regime provided for by law and with the parties retaining control over the content of any agreement. It can allow certain negotiations to take place confidentially before insolvency proceedings are opened.
It also offers flexibility to design tailored solutions (for example, realistic payment schedules or partial write-offs). By maintaining the relationship with creditors, it supports business continuity.
Its limits are equally clear: it requires all parties to be willing, it does not guarantee a result if no agreement is reached and it must always be backed by a rigorous technical analysis of the company’s viability. That is why it works best as part of a comprehensive legal and financial strategy, not as a stand-alone measure.
Finally, agreements reached through mediation are binding on those who sign them, but they cannot be used to circumvent the mandatory rules of insolvency proceedings or to affect the rights of third parties beyond what the law allows.
What to do if your company in Andorra is in difficulty
The first step is to analyse the company’s financial position, its ability to generate cash, the volume and maturity of its obligations and its prospects of continuity. Based on that diagnosis, the different options available can be assessed.
From there, legal support makes all the difference. At Augé, we analyse these situations from both a legal and a business perspective, assessing the scope for negotiating with creditors as well as any obligations that may arise under Andorran law on cessation of payments. Where the situation calls for court action, the analysis is coordinated with our dispute resolution and litigation team. For companies that need ongoing, preventive advice, we also offer an in-house lawyer model. In fact, many of these disputes can be avoided with a solid contractual foundation, as we explain in our analysis of the legal risks arising from poorly drafted contracts.
If your company is facing cash-flow pressure or difficulties in meeting its payment obligations, acting early gives you more room to negotiate with creditors. Contact our team to review your situation.
Frequently asked questions
Is mediation also suitable for self-employed professionals and small businesses in Andorra?
Yes. Mediation can also be used in disputes involving professionals, self-employed individuals or small businesses, provided that the matter can be the subject of mediation under Llei 3/2018. Whether it is suitable will depend on the specific situation, the type of obligations involved and the parties’ willingness to negotiate.
Is an agreement reached through mediation binding and enforceable?
A mediation agreement is binding on the parties who sign it. It can also become an enforceable title once it is formalised as a public deed before a notary or approved by a court, in accordance with Llei 3/2018.
Who can act as a mediator in Andorra?
To practise as a mediator in Andorra, you must meet the requirements laid down in Llei 3/2018 and be registered in the Registre de Mediadors (Register of Mediators). Among other requirements, the law calls for a higher education qualification and specific training in mediation under the terms set out by law, as well as continuing training.
How does the Andorran insolvency regime differ from UK insolvency procedures such as administration or a CVA?
Andorra does not apply UK insolvency law; it has its own legal framework on cessation of payments. The general Andorran regime provides for arranjament judicial and fallida, each with its own rules and procedures. That is why an insolvency situation in Andorra must be analysed under the law of the Principality.
Can mediation be used if the company is already in insolvency proceedings?
Llei 3/2018 provides for the possibility of mediation within court proceedings. However, once arranjament judicial or fallida proceedings have begun, the specific rules of the Andorran insolvency regime must be respected. Whether mediation can be used for particular disputes will have to be assessed in light of the stage and specific circumstances of the proceedings.
