This paper offers some reflections on the effectiveness of the insolvency law measures adopted in Spain during the Covid crisis and on the provision of public funding during this crisis and the repayment of the corresponding claims. The analysis shows that the insolvency measures were inherently ill-suited for achieving the policy goal of preserving businesses, and that there was a good case for the provision of public funding. However, in the Spanish case this funding came too late, and there are now significant challenges associated with restructuring these funds where they were extended by way of loan or guarantee rather than as grant. With regard to the recovery of these funds, the paper concludes that there are no good reasons to insulate the State from the restructuring of debtors’ liabilities in the context of a crisis with the characteristics of the pandemic crisis. On the contrary, credit risk should also be transferred to the State—as to other creditors—, and the State will then have to assume the role of loss absorber of last resort.

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See, with further references, John Armour, Audrey Wen-hsin Hsu, and Adrian Walters, 'The Costs and Benefits of Secured Creditor Control in Bankruptcy: Evidence from the UK' (2012) 8(1) Review of Law & Economics 101; for an extensive and critical analysis, see the seminal works of Lucian Bebchuk and Jesse M Fried, 'The Uneasy Case for the Priority of Secured Claims in Bankruptcy' (1996) 105(4) Yale L J 857; 'The Uneasy Case for the Priority of Secured Creditors in Bankruptcy: Further Thoughts and a reply to Critics' (1997) 82 Cornell L Rev 1279.2 D D´Onfro, 'Limited Liability Property' (2019) 39 Cardozo Law Rev 1365, 1365 & 1372: 'While it is easy to explain why lenders, and sometimes even borrowers, like secured credit, it is far more difficult to explain why secured credit should enjoy the priority rights that makes it so attractive. As Lynn LoPucki puts it 'security is an agreement between A and B that C take nothing''. However '' […] there are reasons to believe that secured debt is a net positive for the economy.' 3 For further details on the debate,