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Royal Legislative Decree 1/2020, of 5 May, approving the revised text of the Bankruptcy Law.

The BOE nº127 of 7 May 2020, publishes RDL 1/2020 by which the revised text of the Bankruptcy Law is approved, which – according to its explanatory memorandum – regularises, clarifies and harmonises the regulation with the greatest possible scope without going beyond the mandate of the legislator, a bankruptcy regulation that is necessary following the reforms and counter-reforms experienced since its entry into force, which converted certain articles (e.g. Article 5 bis on the communication of negotiations with creditors, Article 64 on the effects of the declaration of insolvency on employment contracts, Article 71 bis on the special arrangements for terminating certain refinancing agreements, Article 100 on the content of the proposal for an agreement, Article 149 on the legal rules on the liquidation of assets, Article 176 bis on the special arrangements for terminating the insolvency proceedings on the grounds of insufficient assets and Article 178 bis on the benefit of exemption from unpaid liabilities) into actual sections, if not chapters in themselves.

The chronological order (declaration of insolvency, effects of the insolvency proceedings, arrangement phase, liquidation phase, reopening and rating) has been replaced by a systematic exposure criterion, consisting of three books, devoted respectively to (i) the insolvency proceedings; (ii) “pre-bankruptcy law”, an expression that includes refinancing agreements, out-of-court settlement agreements and consecutive bankruptcy proceedings; and (iii) the rules of private international law, which are subsidiary to those established by Regulation (EU) 2015/848 on insolvency proceedings, and other European Union or conventional rules governing the matter.

It is possible that the government’s intention to approve this Royal Legislative Decree under the present circumstances is to facilitate the processing of the insolvency proceedings and para-insolvency “files” that seem to be approaching at the time and place where these lines are written, by clarifying the darkest points of the already repealed Bankruptcy Law.

Real Decreto-Ley 16/2020. Civil procedural, bankruptcy and corporate matters.

Royal Decree-Law 16/2020, of 28 April, on procedural and organisational measures to deal with COVID-19 in the area of the Administration of Justice, published in the Official State Gazette (BOE) no. 119 of 29 April 2020, contains significant amendments on civil procedural and bankruptcy matters, of which we highlight the following

1. The days 11 to 31 August, except Saturdays, Sundays and public holidays, are enabled for urgent procedural actions.

2. The procedural periods that have been suspended – by virtue of the 2nd A.D. of the RD 463/2020 – will be recalculated from the beginning of the period from the working day following the loss of force of the aforementioned RD 463/2020.

3. Special measures are issued in the area of family procedural law

4. From the lifting of the suspension of the procedural deadlines and until December 31, 2020, the claims related to the lack of application of the legal moratorium on mortgages and leases, as well as the bankruptcy proceedings of natural persons, will be processed with preference.

5. During the year following the declaration of the state of alert, the bankrupt party may present a proposal to modify the agreement that is in the period of compliance. In the event that the proposal is due to the impossibility of complying with the scheduled payments, the debtor will not have the duty to request the liquidation of the active mass.

6. During the year following the declaration of the state of alert, the bankrupt party may notify the Court of the start of negotiations with creditors to modify an approved refinancing agreement.

7. Until 31 December 2020 the debtor who is in a state of insolvency will not be obliged to apply for a declaration of bankruptcy. Until that date, the commercial judges will not admit applications for the necessary insolvency proceedings.

8. In insolvency proceedings declared within two years of the declaration of the state of alert, ordinary credits, loans, credits or similar claims that have been granted to the debtor by persons especially related to him since the declaration of the state of alert, or the credits of third parties to which such persons have been subrogated, shall be considered as insolvency proceedings.

9. The bankruptcy auction shall be out of court except when productive units are sold.

10. Without prejudice to the provisions of article 40 of RDL 8/2020, which exempts company administrators from joint and several liability (article 367 of the LSC) for company debts arising during the state of alarm, in the event that the imbalance has occurred during said period, article 18 of the RDL mentioned above provides that losses for the year 2020 will not be taken into consideration to determine the existence of a cause for dissolution. This is without prejudice to the duty to apply for a declaration of bankruptcy.
Translated with www.DeepL.com/Translator (free version)

Effects “ex tunc” of the nullity of social agreements. Someone always ends up paying for the round.

The BOE of 14 March 2020 (no. 66) publishes the resolution of the DGRN of 20 December 2019, in the appeal filed by Laminados de Aller S.A. against the refusal of the commercial register to register a corporate resolution of 8 April 2019 that replaced a previous one, adopted on 15 September 2014, of a capital decrease by offsetting losses and simultaneous capital increase, which was declared null and void by a final judgment of 20 March 2018.

Briefly, the facts are as follows:

  • On September 15, 2014, Laminados de Aller S.A. agreed to carry out an accordion operation whereby all its shares would be redeemed and the capital would be simultaneously increased to 100,000 euros represented by the same number of shares.

 

  • The agreement was challenged by a partner holding privileged shares (class A) called Sadim Inversiones S.A. for violation of articles 293.1 and 343 LSC, since the agreement was adopted without the legally prescribed “double majority”, i.e. the requirement of a majority of the holders of class A shares was missing and additionally the capital increase did not contemplate the issue of class A shares, which would have deprived the shareholder of a right without his consent, while also violating the preferential subscription right of Sadim Inversiones S.A. over the same type of shares it held. Despite this, Sadim Inversiones S.A. subscribed the ordinary shares corresponding to its participation in the company.

 

  • The nullity of the aforementioned agreement was confirmed by a final decision of the Provincial Court of Asturias, dated 20 March 2018, which expressly stated that “the agreement to carry out the accordion operation approving the reduction to zero and simultaneous increase in share capital will be conditioned for its valid approval to the concurrence of the double majority, which includes the majority of the shares belonging to the class affected, or to the issue of the new shares including the rights for that class; thus complying with the legal requirements for the amendment of the Articles of Association to provide for the guardianship of the minority shareholder“. As we have seen, the original agreement had complied with neither of these.

 

  • In order to comply with the ruling, on April 8, 2019 the General Meeting of Laminados de Aller S.A. approved the replacement of the agreement of September 15, 2014 by the agreement to proceed with the planned accordion operation, but this time including the issue of the corresponding number of class A shares. Although Sadim Inversiones S.A. opposed its adoption, the resolution was adopted by the corresponding majority; and Sadim Inversiones S.A. exercised its preferential subscription right on all the new Class A shares issued.

 

  • The Commercial Registry refused to register the replacement agreement on the grounds, in essence (i) that its registration would alter the necessary reciprocal agreement of the registry entries since there were agreements to modify the share capital after the annulled agreement (30 April 2015) (15 September 2014), the nullity of the first modification would restore the original corporate capital which, in turn, would be incongruent with the existence of another figure of subsequent corporate capital, an incongruity that would make the judicial protection obtained illusory, since it would end up governing the corporate capital approved in the subsequent agreement; and (ii) that the old accordion operation agreement cannot be merely replaced by another one adjusted to the content of the ruling, but that the company must adopt a new agreement in this sense, which implies taking as a basis a new balance sheet approved in 2019, and not the 2014 balance sheet, in addition to meeting other formal requirements inherent in the adoption of this type of corporate agreement.

 

On the other hand, Laminados de Aller S.A., in an extensive document, details the reasons for the opposition to the registration qualification, summarizing these in the following:

  • The replacement agreement must be based on the company’s asset situation (balance sheet) at the time of the agreement being replaced, but not on a new balance sheet drawn up after five years that does not reflect the asset situation to be corrected by the replacement agreement.

 

  • The substitution agreement is valid for correcting both formal and substantive issues of the substituted agreement, as expressed in the STS of 28 October 2012: “The company may ratify, rectify, substitute or revoke ad nutum previous agreements, before being challenged, during the pendency of the challenge process or concluded by a final judgment”, which – however – should not be taken as an alleged “right to repentance” that would damage the rights acquired by the partners (STS 32/2006 of 23 January).

 

  • The judgement of the Provincial Court of Asturias did not pronounce on the cancellation of subsequent entries, resolving that such cancellation should be the object of a separate analysis within an improper execution (arts. 521 and 522 LEC) urged by any party who considered themselves to be harmed. This would not be the case of Sadim Inversiones S.A. since it did not exercise its preferential subscription right in the accordion operation of 30 April 2015, and therefore could not be considered harmed. In any case, the failure to exercise this right led to the loss of its status as a member.

 

  • In relation to the previous point, Laminados de Aller S.A. literally expresses in its statement of allegations that “Sadim does not compete, being in consequence the new capital figure formed exclusively by ordinary shares”, and “… if the interpretation of the commercial register is allowed, we should … allocate class A shares to a phantom partner because it does not exist”.

 

  • Sadim Inversiones S.A. did not request any precautionary measure in proceedings that concluded with the declaration of nullity of the accordion operation, nor a precautionary suspension of the execution of the agreement or even the preventive annotation of its claim in the company’s sheet, so in accordance with the joint interpretation of articles 155 and 156.2 of the RRM carried out by the RDGRN of 18 May 2013, the cancellation of subsequent entries contradictory to the one whose nullity is sought would not be justified, cancellation which could affect the rights of the good faith shareholders as well as the creditors of the company, ex art. 20.2 CCO “The declaration of inaccuracy or nullity shall not prejudice the rights of third parties in good faith, acquired in accordance with the law”.

 

Against the arguments sustained by the Registrar and Laminados de Aller S.A. the DRGN proceeds to cite the Supreme Court’s decision of October 18, 2012, which develops arguments for the admissibility of the revocation and replacement of corporate resolutions by others at any time, from which we extract the following paragraphs:

  • Our system expressly allows trading companies to adopt agreements that render the previous ones ineffective (…) without prejudice to the fact that, as indicated in ruling 32/2006, there is no ‘right to repent’ of rights acquired by third parties and even by partners (…).

 

  • In conclusion, the company can ratify, rectify, replace or revoke ad nutum previous agreements, before being challenged, during the pendency of the challenge process or concluded by a final judgment.

 

It also cites the RDGRN of 30 May 2013, which arguably develops the lack of fit of the general rules of the nullity of business (“quod nullum est nullum effetum habet”) in the field of societies, from which we extract the following paragraphs:

  • Contrary to what some people assume, the declaration of invalidity does not automatically or “ope legis” produce a kind of radical corporate “restitutio in integrum” or automatic return to the state of things prior to the annulled agreement, not even for internal purposes.

 

  • It cannot be ignored that there are two levels in the company, the contractual and the organizational, and that the successive organizational acts adopted by the company, once their legal cause is declared null and void, must be validated or regularized in accordance with the rules and principles of corporate law.

 

  • The precept of Article 6.3 of the Spanish Civil Code cannot be transposed to the causes of nullity of the ASL, nor do the legal contraventions all have the same entity and effects (…) in any case, the jurisprudential doctrine recommends “extreme prudence and flexible criteria” in the application of radical nullity.

 

The legal basis of the resolution also mentions, among other theoretical developments, that

  • Company law is inspired by “two major principles”: that of legal certainty, but also that of traffic safety, with acts performed under an appearance that “third parties can trust” being preserved.

 

  • Corporate resolutions can be revoked and replaced (Article 204.2 LSC), but they can also be rectified (Article 207.2 LSC); although the latter will proceed in the event of ineffectiveness for formal reasons, and in the event of ineffectiveness for material reasons a new resolution of a revoking nature – leaving the previous one without effect – or of a replacing nature – replacing the previous one with another one of materially incompatible content, must be adopted. In any case, the retroactive effectiveness of this type of agreement, whether it is a revocation, a replacement or a remedy, must respect the rights acquired by third parties.

And, finally, after an extensive generic argument on the matters summarised, which is of unquestionable theoretical interest, but of little practical applicability to the case under examination, the decision rejects the appeal lodged by Laminados de Aller S.A. and confirms the qualification appealed against, reasoning that it is not possible to register the substitution of the agreement affected of nullity without adopting another agreement that modifies the terms of the accordion operation of 30 April 2015, in which Inversiones Sadim S.A. could not exercise its preferential subscription right since no class A privileged shares were issued on which to do so. 

In fact, it is of little use – and would be illusory – the subscription by Sadim Inversiones S.A. of privileged class A shares in the accordion operation of 15 September 2014, if these shares were subsequently redeemed in the accordion operation of 30 April 2015, in which no new class A shares were issued that Sadim Inversiones S.A. could subscribe. Therefore, it is necessary to have a substitute agreement for the second accordion operation that combines its content with the agreement of the first one, complying with the DGRN’s pronouncement mentioned in the contested rating note: “If, as a result of the final judgment declaring the nullity of agreements, a situation arises which does not meet the requirements of coherence and clarity demanded by the legislation on the Commercial Registry, it will be the responsibility of those who are obliged to urge the adoption of the necessary agreements to implement the judgment of nullity and to regularise the legal situation of the company with regard to the acts and legal relationships affected.

What happens, then, with the rights of the other bona fide partners that Laminados de Aller S.A. repeatedly invokes? Although the resolution is silent on this matter, it could be deduced that – according to the criterion of the management center – since the subscription of new shares in the second accordion operation by those would not be affected, no rights acquired in good faith would be harmed. As for the duty of the rest of the members to be and go through the new shareholder rights that must be recognised to Sadim Inversiones S.A. – which imply at least (i) a proportional reduction in the capital share of each of the other members and (ii) a lower participation of these in the distribution of dividends – it could also be deduced that it is not considered to be a “new obligation” for these members (art. 291 LSC), which may be debatable.

Finally, with regard to the distinction between the correction of agreements for formal reasons and the replacement of those by others in the presence of material defects, the resolution does not enter into the debate – and this despite the broad doctrinal deployment on the subject – since, having resolved that it is necessary to modify the second accordion operation, the registry qualification is confirmed, without the need to enter into a decision on whether the modification of the first operation should be based on a 2014 balance sheet (correction) or on one from 2019 (replacement), a decision that would undoubtedly have been of considerable interest.  

In summary, this resolution exemplifies the technical difficulty that weighs on the regularization of the corporate history when an old corporate agreement has been declared null and void, because although its effects “ex tunc” are applied with the greatest prudence and flexibility, in most cases there will be conflicting interests of impossible total conciliation, so that the resolution – like the present one – that settles the discussion will produce a more or less serious damage to a party in an unjustified manner.

 

Article published in ALMACEN DE DERECHO on 18th April 2020

COMMUNICATION ALL-LAW

The State of Alarm has been decreed throughout Spain to prevent the spread of Coronavirus (COVID-19), has limited the free movement of people and vehicles except for specific causes allowed by the rule.

As a result, and following the security recommendations established by the competent authorities, All Law temporarily interrupts the on-site customer service at our offices in CC Maretas 32A in Costa Teguise, Lanzarote and in Paseo de la Castellana 140, 10D in Madrid.

As always, All Law remains at your disposal through  the email info@all-law.es, santiagolleo@all-law.es and  cesarayala@all-law.es.

In accordance to the Decree, all judicial and administrative deadlines and terms have been suspended while the estate of alarm remains in effect.

We hope you and your beloved feel well, and, otherwise, we wish the soonest and most satisfactory healing.

Yours sincerely,

Santiago Lleó and César Ayala

The “Know How” is a non-monetary contribution

Inscribed in a line that we would dare to call “progressive” regarding the interpretation of the principle of integrity of social capital, the Resolution of the General Directorate of Registries and Notaries of December 4, 2019 (BOE Tuesday, January 21, 2020, page 5958) revokes the negative rating of the Commercial Registrar IV of Madrid, and admits the incorporation of a limited company through the contribution in kind consisting of the “Know How” of one of its founding partners.

The resolution is structured in (1) the reproduction, for the purposes of interest, of the Supreme Court Judgment of October 21, 2015, (2) the comparison for analog purposes between the “Know How” and the “Goodwill “, which may constitute an object of contribution in kind, and (3) the reasoning of the Directing Center on the suitability of” Know How “to be considered an asset that – also – can be contributed to the share capital. Specifically it is reasoned in this last point:

“According to article 58.1 of the Law on Capital Companies,” in capital companies, only assets or economic rights subject to economic valuation may be subject to contribution. “And the object of contribution questioned in the registry qualification, even if an intangible asset, has a patrimonial character, is susceptible to economic valuation and appropriation for what can be contributed to society and is apt to produce a profit.In addition, it is different from the mere obligation to make, so that the norm that prevents work or services from being contributed (article 58.2 of the Capital Companies Law). Therefore, the defect cannot be confirmed. ”

The first criticisms of this novel and surprising doctrinal turn have not been long in coming, and highlight the uncertainties that this registration consideration will entail as a consequence of its impact (i) on the principle of integrity of social capital (how can it be seized? How will it be accounted for? Can it be subject to depreciation or accounting impairment?) And (ii) on intra-corporate relationships (how much is valued? What would happen in cases of capital reduction? And in those of dissolution and corporate liquidation ? Can titles that reflect or support this type of intangible asset be transmitted? What happens if the holder of the “Know How” dies?).

The comparison of the “Know How” with the “Goodwill” does not seem very correct in order to justify the contribution of the former, already sanctioned in the RDGRN of October 31, 1986, since although both concepts have the nature of intangible assets , the “Goodwill” refers mainly to items with economic value that cannot be demarcated from the company because they are their property, such as the clientele or business reputation (we estimate that if the clientele depends on one of the partners or if the business reputation is due to the presence of one of the partners, such elements could not be included in the “Goodwill”), and that for inclusion in the business asset needs to be acquired onerously in order to assign an objective value that, it is said, would coincide with its transmission value.

However, and on the contrary, from a material point of view “Know How” does not belong to society, although it has been contributed in exchange for shares, since it is not possible to split a set of practical knowledge of a personal nature – “Know How” which in the contractual sphere would be considered a very personal obligation – of its holder. In other words, the ownership of “Know How” is completely non-transferable from a material point of view, so that this element is not suitable to be classified as a social asset, and therefore to be considered as a contribution in kind.

On the other hand, it was necessary to allude to the Resolution commented on the lack of character of the “Know How” of work or service, and this due to the interdiction in that sense of Article 58.2 LSC, mentioning that the “Know How” is different from the “mere obligation to do”, quite brief and weak justification, because, although it may be considered that the “Know How” exceeds the mere obligation to do, its externalization – in the form of activity, organization, direction or any other – inevitably requires a “do” that collides with the prohibition of the aforementioned provision. In other words, a “doing” (work or service), however qualified, does not lose the character of “doing”, and “knowing” without “doing” is deprived of any economic value.

Finally, the Resolution mentioned does not refer to the amount of the share capital or the total participation in it of the partner or partners who contribute their “Know How”. In fact, if it is the only contribution that the partner or partners make, the value of the “Know How” should coincide with that of the share capital, but, where appropriate, the issuance or assumption premium, with which, said value would have its corresponding reflection in accounts 100 and 110 of the PGC. On the other hand, due to its nature of intangible assets, the “Know How” should be expressly mentioned in note 7 of the Report. Needless to say, the founding partners and the people who derivatively acquire the shares issued in return to the contribution of “Know How” for the term will respond to the company and to the social creditors. five (5) years since the contribution occurs (art. 75 LSC).

As we have mentioned, although it is true that, according to common experience, the figure of social capital is not a sufficient guarantee against creditors, the principle of reality of social capital – that the figure of social capital has a real economic support – continues configuring the regulation of this institution. It is unfortunate that the Commercial Registrar IV of Madrid lacks active legitimacy to challenge this Resolution of the Directing Center before the commercial jurisdiction (STS 149/2019) because with it a dematerializing line of social capital and corporate equity is inaugurated, a line that – if It may well respond to the process of intellectualization of high value-added services – it should be accompanied by an in-depth review of the precepts intended to protect third parties in good faith.

Published in Legal Today on 13.02.2020, http://www.legaltoday.com/practica-juridica/mercantil/prop_industrial/el-know-how-tiene-caracter-de-aportacion-no-dineraria)

DIRECTIVE (EU) 2019/2121 PASSED, AMENDING CROSSBORDER MERGERS, TRANSFORMATIONS AND SPINOFFS

On December 12, the DOUE published Directive 2019/2121, which modifies the legal regime applicable to cross-border mergers and adds to that regime the possibility of carrying out transformations and splits of the same nature. The Directive has taken a long time to approve, considering that it integrated the so-called company law package together with the Digitalization Directive 2019/1151.

His recital (1), in this regard, states that:

(1) Directive (EU) 2017/1132 of the European Parliament and of the Council (3) regulates cross-border mergers of capital companies. The rules on cross-border mergers represent a milestone in improving the functioning of the internal market for companies and companies and their exercise of freedom of establishment. However, the evaluation of these standards shows that they need to be modified. In addition, it is appropriate to establish rules that regulate cross-border transformations and divisions, since Directive (EU) 2017/1132 contains only rules relating to national divisions of public limited companies.

In relation to the control at the origin of the legality of the operation and the issuance of the appropriate certificate, recitals (10) and (34)

(10) Given the complexity of cross-border transformations, mergers and divisions (referred to jointly, hereafter , “Cross-border operations”) and the multitude of interests at stake, it is appropriate, in order to provide legal certainty, to have control of the legality of cross-border operations before they take effect. To this end, the competent authorities of the Member States concerned must ensure that decisions on the approval of a cross-border operation are taken in a fair, objective and non-discriminatory manner, and on the basis of all relevant elements required by the Law of Union and national.

(34) In order to issue the certificate prior to the operation, the Member States of the company or the companies carrying out the cross-border operation must designate, under national law, one or more competent authorities to control the legality of the operation. Jurisdictional bodies, notaries or other authorities, a tax administration or an authority in the field of financial services may be the competent authority. If there is more than one competent authority, the company must be able to request the pre-operation certificate from a single authority, designated by the Member States, which must be coordinated with the other competent authorities. The competent authority must assess compliance with all relevant conditions and the correct completion of all procedures and procedures in that Member State, and decide whether to issue a certificate prior to the operation within three months of the request for the society, unless it has well-founded suspicions that the cross-border operation has been carried out for abusive or fraudulent purposes that have the effect or purpose of subtracting from Union or national law or avoiding it, or for criminal purposes, and the evaluation requires take additional information into consideration or conduct additional research activities.

For more information on the subject, Prof. Miquel illustrates the subject in his blog: https://merchantadventurer.wordpress.com/2019/12/12/directiva-2019-modifica-la-directiva-ue-2017- 1132-in-what-that-bind-to-transformations-mergers-and-cross-border divisions /

International effects Insolvency Proceedings in Spain. The Vulcano Judgment.

The Judgment of the Civil Chamber of the Supreme Court of May 7, 2019 (Rapporteur Sancho Gargallo) addresses heterogeneous issues around bankruptcy proceedings: (i) international competition, (ii) foreign effects of the national bankruptcy proceedings, (iii) thing deemed international material, (iv) real rights, and (v) effects of the agreement, issues whose concurrence and conjugation singles out the judicial resolution and make it worthy of these modest lines.
(1) Summary of the facts
The summary of facts is as follows: a shipyard Vigués, Factorías Vulcano S.A. – as a result of an arbitration award for a dispute in the construction of a ship – owed to an English company, Arrow Seismic II LTD, a loan backed by an approximate amount of 40 million euros. The guarantor, Banco Popular, honored said guarantee, thereby reducing the amount of the loan to approximately 10 million euros. Later Arrow urged before the Norwegian courts – Norway does not belong to the European Union – the execution of the award, and obtained from these courts precautionary measures named under Norwegian law “utlegg” consisting of the seizure of the credit rights that Vulcano held against a Norwegian company called Armada Seismic for the outstanding amounts.
Subsequently, Factorías Vulcano was declared in voluntary bankruptcy by the Commercial Court No. 3 of Pontevedra, recognizing in favor of Arrow approximately 8 million euros as ordinary credit and approximately 1.5 million euros as subordinated credit. For its part, the approved agreement reduced the ordinary credit to approximately 1.6 million euros and the subordinate to approximately three hundred thousand euros.
After the approval of the agreement, Vulcano requested, both in Spain and in Norway, the lifting of the “utlegg” embargoes made. The Spanish Commercial Court referred to the Norwegian legislation on embargoes, affirming – however – that Arrow’s credit rating did not enjoy any privilege. For its part, the Norwegian Court (Office of Coercive Executions of Bergen) denied the cancellation of seizures on the grounds that foreign bankruptcy proceedings cannot lay the groundwork for voiding seizures.
Vulcano reacted to such denial by filing a lawsuit before the ordinary Courts of Vigo requesting substantially a sentence with (a) a declaratory pronouncement on the amount owed by Vulcano after the bankruptcy take-off, and (b) a pronouncement of sentence to Arrow to leave without effect the execution and to raise the embargoes locked on the credit rights of Vulcano against Armada.
The Court estimated points (a) and (b), and the sentence was appealed by Arrow, a resource that was dismissed in its entirety by the Provincial Court of Pontevedra. In the face of said judgment, Arrow filed an extraordinary appeal for procedural infraction on the basis of (i) incorrect assignment of international jurisdiction to the bankruptcy court and (ii) thing deemed international, and an appeal based on what is of interest, on the wrong assignment to Spanish legislation as applicable.
(2) On international competition to hear about actions directly related to insolvency proceedings.
In relation to the international jurisdiction of the Court of Vigo, the Supreme Court is obliged to assess it ex officio – given its character of procedural public order – since the Pontevedra Hearing had erroneously substantiated that on the basis of article 5.1.a) of the Regulation 44/2001, when considering the agreement of creditors as “contractual matter”.
And we say wrong because the aforementioned regulation excludes from its scope “bankruptcy, agreements between bankrupt and creditors and other similar procedures” and therefore cannot be invoked to sustain the international jurisdiction of the Spanish courts. On the contrary, the interpretation conferred by the CJEU (Judgment of February 12, 2009, C-339/2007) to Article 1.3 of Regulation 1346/2000, which was applicable for temporary reasons, is that such provision must be interpreted in the sense that it also attributes international competence to the Member State in whose territory the insolvency procedure has been opened to hear about the actions that emanate directly from this procedure and that are closely related to it, even if the defendant is domiciled in another member state of the EU, corresponding to the Courts of that State the attribution of the internal competence according to its national law, competence that may fall on a different jurisdictional body from the one that dictated the opening of the proceedings.

The Supreme Court, in turn, interprets – as it seemed logical – that the declaratory and conviction actions exercised by Vulcano are directly related to the open competition in Spain; Therefore, the international competence to hear declaratory actions and compliance with the agreement is attributed to the Court of First Instance of Vigo. It should be noted that this doctrine of the CJEU has been transferred to Article 6.1 of the current European Insolvency Regulation 848/2015.

(3) About the thing deemed international

The appellant Arrow alleges that the court of first instance of Bergen (Norway) has already dismissed Vulcano’s claim to lift the embargoes that weighed on her credit rights against the Navy, by means of a sentence that reached its firmness on April 24, 2013, so prior to the action taken before the Court of First Instance of Vigo, a circumstance that would determine the existence of an international res judicata, within the meaning of article 222 LEC in relation to article 33 of the Lugano Convention.
However, the Supreme Court, even admitting the existence of a previous process in which there is subjective identity, and even that the petitum – lifting of embargoes uttleg – is coincident in both lawsuits, considers that there is a difference in the petendi cause of those ; because while in the first of them the justification was the stoppage of executions as a result of the opening of the contest, in the second the justification is the novatory effect of the bankruptcy agreement, which has reduced the credits to 20%, to which they must remain subject to ordinary and subordinated loans under the principle of the conditio creditorum pair and the loss community, which makes it impossible to maintain seizures destined precisely to the extra-bank satisfaction of the original credits.

Article 222.2 LEC provides that the thing judged reaches the “claims” of the claim – the procedural claim must be identified with the cause petendi – but not so to its plea or “petitum”, which could be replayed if the cause of request or “cause petendi” of the second lawsuit would have varied with respect to the first. In our circumstances, there are differences between the first and second proceedings, both in their legally relevant facts, or “cause petendi”, as in their plea or “petitum”:

In relation to the “cause petendi”, in the first procedure, processed before the Norwegian courts, the “cause petendi” was based on the prohibition of continuing enforcement proceedings against the bankrupt (art. 55.3 LC); while in the second procedure, processed before the Court of First Instance of Vigo, the “cause petendi” is based on the novatory effect of the agreement and on the principle of “par conditio creditorum”.

In relation to the “petitum”, while in the first procedure it was requested that the Norwegian Court order the Bergen Seizure Office to lift the embargo on Vulcano’s credit rights vis-à-vis the Navy, in the second procedure it was requested to the Spanish Court that condemned Arrow to desist in the execution followed in front of Vulcano before the Bergen seizure office and, consequently, raise the seized embargoes.

Although the “petitum” is not identical, the existing difference would not be sufficient to justify the uniqueness of each claim, since in the end its purpose is the same: the lifting of the embargoes made in Bergen. That in the first case the addressee of the court order was the Office of Embargoes, and in the second case the seizure itself does not deprive the “supplicants” of both procedures, since said lifting of embargoes is what, in reality, is pretended by Vulcano, and what was denied by the Norwegian courts.

However, as regards the “petendi cause”, the legally relevant facts of the second process are clearly different from those of the first, and could not have been used in it (art. 400.2 LEC) – since the agreement has not yet It had been approved – it cannot be considered that we are faced with a case of res judicata.

(4) On the applicability of Spanish bankruptcy legislation to real rights over debtor assets located abroad.

Article 201 LC provides that the effects of the insolvency of the creditor’s real rights over assets of the bankrupt that are located abroad, will be determined by the law of the state in which they are located, so the creditor Arrow argues that it would be the Norwegian law – and not Article 136 LC on the novatory effectiveness of the agreement – that would determine whether or not the lifting of embargoes is appropriate.

However, the real nature of the “uttleg” executive embargoes is questioned by the Supreme Court, because, having qualified Arrow’s credit as ordinary bankruptcy, that nature was not discussed or contested by the creditor, and therefore it can be considered or alleged that it is a secured loan with a real right, therefore, subject to Norwegian law.

In other words, our High Court reasons that since the ordinary nature of the credit was not discussed by Arrow, it may be wrong later to argue that it entailed a security right. However, such an interpretation would leave the path ajar of assigning to the executive embargo the character of a real guarantee that privileges the credit, when the embargo – as is known – is not only not part of the list of guarantees that privilege the credit (art. 90 LC) , but it is imperatively cancelable after the declaration of insolvency (art. 55.3 LC), and it must be questioned even if it is a true real right, since even if it enjoys an “erga omnes” character and re-sectoral nature, it is more of a Real effect on an executive process that gives a guarantee given on a credit, and therefore is not subject to registration in the Property Registry, but only for preventive notation (art. 42 LH) subject to the appropriate expiration dates.

Therefore, although the effects of the contest on the real rights must be submitted to the “lex rei sitae”, there is no real right of the creditor in the circumstances on the seized credits.

 

  • Article published in Legal Today on 3rd October 2019

Decision 381/2019 of TS about release of public indebtment

Although judicial decisions cannot be cataloged as legislative matter, we cannot fail to echo the 381/2019 Plenary Decision of the First Chamber of the Supreme Court, dated July 2 (Rapporteur Sancho Gargallo) regarding the exemption of unfulfilled liabilities (art. 178 bs LC), since, together with the character of authority that grants it to proceed from the Plenary, it interprets the aforementioned precept in a manner contrary to its literacy, but with adjustment to its purpose.

In fact, apart from previously pointing out (i) that the debtor’s good faith who wishes to benefit from the benefit of the exemption is defined by art. 178 bis 3, and not by article 7.1 of the Civil Code, and (ii) that the payment plan provided for in art. 178 bis 6 can be presented in the answer to the incidental lawsuit filed by the creditor that opposes the granting of the benefit, the decision of the Court that reaches a singular significance is:

1º The extension of the benefit of the exemption of dissatisfied liabilities – in the form of payment plan (art. 178 bis 6 LC) – includes ordinary and subordinated public credit, and this despite the express exclusion of said credit from such benefit according to art. 178 bis 5 1st LC (“except credits of public law”); such reasoning is based on the fact that the benefit of the exemption – in the form of immediate payment (art. 178 bis 3 4th LC) – must constitute an obligatory interpretative reference for the objective scope of the exoneration in the payment plan modality; And if the former does not make distinctions and provides “full debt exemption” (except for the predictable and privileged), the same effects must be provided by the payment plan.
2º The payment of the forced public debt – the estate credit and the privileged one – is subject to the proposed payment plan, and this in spite of the express exclusion of such matter from the payment plan formulated in art. 178 bis 6 LC (“Regarding public law credits, the processing of applications for deferral or fractionation will be governed by the provisions of its specific regulations”), since the Court considers that the “administrative mechanisms for remission and deferment of payment are meaningless in a bankruptcy situation “,

In conclusion, in cases of exemption from dissatisfied liabilities – payment plan modality – (A) the ordinary and subordinated public credit is subject to full exemption, and (B) the estate credit and privileged public credit is subject to the provisions of the payment plan. payments, the latter having special significance, since, in accordance with art. 178 bis 8, even if the payment plan is not fully complied with, the Court may declare the definitive exemption of unsatisfied liabilities that would have been used to fulfill at least half of the income received during the five-year term.

Subordination of Credits of Common Shareholders (art. 93.2.3º LC)

The voluntary bankruptcy Tremon Grupo Inmobiliario SA has motivated co cin S entencias the Supreme Court (24 April, 10 July October 23, October 31 and November 22, 2018 ) and a writ of inadmissibility ( December 19, 2018) that address the qualification as persons related to the bankrupt to the partners that participate in the companies belonging to the group of companies of the insolvent, as established in Article 93. 2.3º of the Bankruptcy Law (LC). Although the contest of the Tremon SA Real Estate Group was declared on December 4, 2008, and therefore the norms that the Supreme Court has applied have been in force at that time , the repertoire of judgments clearly illustrates two fundamental aspects in the matter: (i) the temporary moment to consider for the subordination of the credit, and ( ii ) the type of group of companies referred to in article 93.2 .3 of the Bankruptcy Law.

Regarding the first question, how is it peaceful , what devalues iuris et de iure credit is the link between creditor and debtor; in other words, the special knowledge of the financial situation of the insolvent of which they have , among other persons, their partners if the bankrupt is a legal person , except – in this last case – the credits different from the loans or acts with analogous purpose , which are those ” destined to the financing of the insolvent, either by the legal nature of the business (loans, credits, discount, leasing, etc.), or because, although the legal nature is not that of a financing business, a business whose economic purpose is the financing of the insolvent party is being concealed “, According to Sentence 125/2019 of the Supreme Court of March 1 , and among those who , according to the criteria postulated by Judgment 446/2018 of the Provincial Court of Madrid of July 20 , it seems to be also the postponement of the price in the purchases . Therefore , credits that were born before the creditor had acquired the status of a person related to the debtor will be subject to subordination.

Regarding the second question , the cited judicial decisions warn that – not since Law 38/2011, which refers to the definition of group of companies established by Article 42.1 of the Commercial Code – but from the very enactment of the same. Bankruptcy Law , the criterion to appreciate group of companies is ” direct or indirect control “, discarding the “management unit”; therefore, the subordination will operate for the credits of the companies belonging to a vertical or ” hierarchical ” group, and should be discarded for the companies belonging to a horizontal or “coordination” group.

In any case, having applied the original bankruptcy legislation , prior to the modifications introduced in Article 93.2.3º LC by (i) Royal Decree Law 3/2009, which appended “whenever these – the partners of the companies of the same group of the insolvent company – meet the same conditions as in number 1 of this section”, and ( ii ) the Law 38/2001 that added the qualifier of “common” to “its partners”, in such a way that the diction of the precept was as follows: «3.º The companies that are part of the same group as the company declared in bankruptcy and common partners, provided that they meet the same conditions as in the 1st number of this section ‘questions are not clear – for now – by case law. Such open questions are:

1st        Would the criterion – related to the prior nature of the credit to the specially related person status – be applicable to the “personal and unlimitedly responsible for social debts” partners, despite the fact that the wording of number 1 of art. 93. 2 LC seems toomit it expressly for such partners?

2nd        Why are the credits of “The companies that are part of the same group as the company declared in bankruptcy” (under the criterion of “direct or indirect control”) , and also those of the partners that own 5% or 10% of the insolvent company , being clear that these percentages do not provide the “control” of that? Is not it incongruent?

3rd        What is the reason why the precept includes the common partners, who are – in their own right – the partners of the bankrupt that meet the minimum requirements for participation in their capital established in number 1 of art. 93. 2 LC? Are not already said partners of the insolvent – ex iure proprio – considered persons related by said number 1; and therefore is not established by the number 3 a reiteration or redundancy?

Answer to the first question

S hile it is understandable that “ordinary members” have to have such a condition at the time of the birth of credit, as the ultimate reason for the subordination is precisely that partners financed the insolvent with knowledge of the situation, and – therefore – the subordination can not be imposed on the person who financed when he was not yet a member , such subordination requirement only reaches – in the 1st section – the capitalist partners, excluding the partners of companies of persons (with the exception of the limited partners) who are fundamentally what s , according to the law (Article 148 CCO) are personally and unlimitedly responsible for social debts.

It is not well understood, then, that exclusion of the necessary temporary element for the subordination of the credit of the capitalist partners, because the same reason (link of the partner at the time of loan) exists in a capitalist society as in a society of persons,because although in the latter there is not properly social capital, if there is a connatural “portion of interest” of the partners (Articles 140 and 143 CCO and Article 1689 CC).

Although the reason could be that civil and collective partners are born administrators of civil society (Article 1695 CC) , collective or limited (Article 129 CCO) , and therefore its subordination regime must match that of the members of the board of the company sestablished by Article 93.2.2º of the Bankruptcy Law, it remains true that the contractual regime societies can (i) exclude the condition of nato administrator of all partners, allocating such function to a specific partner or partners , or ( ii ) r indicates a system of decision-making by majority, therefore, exempt the member who voted against the decision to participate in the negative effects of social management. However , and n any case, it should also be agreed that credit managers non-members of equity capital companies against the insolvent debtor should also be excluded from subordination if they were born before holding such office , since, at such a time prior to their appointment, the subjective reasons that lead to devalue the credit.

In this line , the answer to this question can be found in the Sentences of the Supreme Court of March 4 , April 24, October 23 and November 22, 2018 , which address the subordination of capitalist partners in a sufficiently abstract manner. so that your reasoning can be transferred without problem to the personal partners . In effect, this jurisprudential repertoire clearly establishes that the concurrence of the circumstances that justify the consideration of a person specially related to the debtor makes more sense that it is referenced at the moment in which the legal act arises whose insolvency relevance is to be specified (the subordination of the credit), that to the later one of the declaration of bankruptcy, without making any distinction between the typology of the creditor partners. Therefore, the temporary criterion of activation of the subordination (moment of birth of the credit) predicable of the capitalist partners, should be applied to the personalist partners – and even to the administrators of the insolvent one – because there is identity of reason among all these assumptions

Answer to the second question

As stated in Sentence 125/2019 of the Supreme Court of March 1 , there is no identity of reason between the subordination of the credits of the partners and the subordination of the credits of the group companies. And if there is no reason identity, it is reasonable that the assumptions receive different treatment : while the basis of the subordination of credits of group companies is – basically – in which the credit of the insolvent company benefits the group and , therefore, , in its own benefit , the foundation of the subordination of the credits of the partners resides in the greater information or capacity of influence that these have (all this according to the aforementioned Judgment) .
However, and without prejudice to the respect that the High Court deserves, the reader will be warned that it will attribute influence capacity to a partner holding 10% of a non-listed company. to the point of subordinating your credit it is somewhat exaggerated,since the degree of participation – despite being significant – and remains minoritari or insufficient, inter alia, to ensure unlimited access to financial information society. And if we counterpose the limited participation allowed to a partner before subordinating itscredit , with the criterion of “control” that implies the direct or indirect possession of a significant portion – certainly more than 10% – of its social capital , we find in said excessive penalty des balance of the insolvent partner. And although it could be objected that the direct or indirect possession of the majority of the voting rights of the bankrupt does not exhaust the assumptions of “group of companies”, it is also true that, empirically, it can be verified that the power to appoint or dismissing administrators is closely linkedto the condition of the direct or indirect majority partner.

In sum, although a ratio legis could be appreciated different for the partners of the insolvent company and the companies of its group, the difference does not justify such a disparate treatment in the maximum percentage of participation in the bankrupt before being allowed to subordinate the credits. De lege ferenda would propose, then, the subordination (i) of the partner who directly or indirectly controls the insolvent party ; ( ii ) of the companies that are part of the same group as the insolvent company – which will necessarily be shared by the control partner – understood as the one that holds the direction of its operational and financial policy, or falls back in any of the circumstances indicated by article 42 of the Commercial Code ; and ( iii ) common partners that exceed the significant participation threshold, as will be explained in the following reply.

Answer to the third question

It is not easy to answer the reason why – in fact – what Article 93. 2.3º LC states is that the credits of the companies that are part of the same group as the company declared in bankruptcy and its partners will be subordinated. common , provided that thesecommon partners are already subordinated their credit for being related persons in their own right . This It is a reiteration or redundancy of difficult utility or explanation , since these “common” partners are only considered as related persons, if they are already related to article 93. 2.1º LC . Therefore declare persons related to the “common partners, provided that they meet the same conditions as in the 1st number of this section” tautology seems clear justification uncertain.

In the absence of real or judicial interpretation that illuminates the meaning of the provision,  may be followed would be applying compliance with the requirements of point 1 of paragraph not insolvent, but the company belonging to same group , hypothesis already advanced by QUETGLAS ( The bankruptcy of the group of companies , page 213) . In this case, the following would be considered to be specially related persons: the partners who exceeded the 5% and 10% share respectively in the company of the same group as the bankrupt and who – at the same time – maintained some participation in the insolvent company, however minimal it might be.

The legal reason behind the interpretation would be a composition of the reason for the subordination of credits of the partners of the bankrupt ( influence, information , with the criticism that has been made on this criterion in the answer to the second question) with a presumption of having such influence and information on the bankrupt one of its partners – even if not meet the thresholds of 5% and 10% stake in the insolvent – that reach at least those percentages in any other company of the group of the bankrupt.Exist, in this case, a rebuttable presumption in law that one partner which exceeds the percentages required in a group company of the insolvent, however distant that may result in the organization, and also has any stake in the insolvent itself, even if it is small, it deserves to be considered a person especially related because participating in the capital of more than one society denotes a link with the “policorporative enterprise ” more narrow and with more visions of permanence (partner insider ) than that owned byanother exclusive partner of a group company , even if both are minority .

In other words, whenever a partner of a company in the group of the bankrupt exceeds the legal limits of participation in it , the amount of any participation in the bankrupt itself – before the granting of the loan – would transmit the subordinate effects formerlyproper to the partners of the bankruptcy , for having also propagated the presumptions of influence and information of the bankrupt that the former have.

The proposed interpretation has to be contrasted with the jurisprudence relapsed on the subordination of credits owned by partners participating in group companies , and especially with Sentence 239/2018 of the Supreme Court of April 24 , which is particularlyillustrative of the ” partners c omunes “, although without explaining the meaning of the apparent redundancy:

  • Apparently, the proposed interpretation would be divergent from the jurisprudential justification of the requirement introduced by RDL 3/2009 that the “common partners ” of art. 93. 2.3º LC ” meet the same conditions as in number 1 of this section” , requirement , justification that is summarized in that

“Did not have í a sense make worse condition or na partners companies within the same group of the insolvent that members of the insolvent itself, inasmuch as the former not being required a certain percentage m í nimo of participation or n the law expressly exig I a in the case of partners of the insolvent “

However, this explanation is perfectly transferable to the participation of the “common partner” in the company of the insolvent group – not in the bankrupt company itself – to whom the reform also equates with the partners of the insolvent for the purpose of participation in capital (A certain threshold is required, be it 5% or 10%, both in the insolvent company and in any other company in the group) . In this way, the exceeding of said threshold in the group company, together with the taking of participation – whatever it may be – directly or indirectly in the insolvent company , could be valued as an external signal of special linkage of the creditor with the corporate group, with the usual presumption of information and influence, which would justify the subordination of your credit.

It should be added that the express admission of the “indirect” participation in the bankrupt (article 93.2.1º LC) would allow a member of an upstream company of the group of the insolvent party , which has a share of more than 10% may be “indirectly” a member of the insolvent company – which would meet the conditions of subordination – without having any direct participation (for example, when you own 10% of the parent company at 100% of the bankrupt).

  • On the other hand, the proposed interpretation is not misaligned purpose of reduction of the subjective scope of the subordination of credits, operated by Law 38/2011 , when introducing in art. 93. 2.3º LC the requirement that the members of the company of the same group be “common” , as expressed in the Judgment:

“However, it is not so clear that the requirement that it be a common partner, meaning that it was not only the company of the group of the insolvent, but also the latter, was implicit in the original drafting of the precept. It was convenient not to extend subordination to external partners indiscriminately, but it is not so clear, as in the previous case, that under the original wording the standard would like to reduce this extension by limiting it to common partners. “

The proposed interpretation does not stop reducing this subjective scope, although to a lesser extent than that which is inferred from the literal nature of the rule, which reduces the subordination to those partners that are already subordinated creditors by virtue of the overcoming, directly or indirectly. , of the legal thresholds foreseen (Article 93.2.1º LC), an interpretation that would turn out to be – by the exposed – a redundancy without apparent constructive utility.

In any case, the question remains open until the Supreme Court does not begin to resolve appeals corresponding to litigation arising from open competitions in which the current wording of Article 93. 2.3 LC is effectively applicable.

The distressed-assets buyer must pay the amounts not disbursed by FOGASA

Judgment 981/2018 of the Labour Chamber of the Supreme Court, dated November 27, 2018, which has been said to seriously compromise the viability of productive units in bankruptcy headquarters has to be valued according to their proper intelligence .

Although some voices have pointed out that, in accordance with this ruling, the Social Jurisdiction can turn into a paper that has been declared by the Bankruptcy Judge in the Adjudication Order about the existence or not of succession of company for the purposes of article 44 of the Statute of the Workers (ET) – which determines the subrogation of the new employer in the labor and Social Security rights and obligations of the previous one, including those pending, in accordance with the third section of the precept – the truth is that the Commercial Judge does not have, nor has never, competence to rule on whether or not there is succession of a company, because this undoubtedly exists by legal imperative when the circumstances provided by the rule occur.

A different question is that – if there is a succession of a company – the Insolvency Judge has the power to agree that the purchaser is not subrogated to the amount of the salaries or indemnities pending payment prior to the alienation that is assumed by the Guarantee Fund Salary (FOGASA) in accordance with article 33 ET. This possibility is expressly provided for in article 149.4 of the Bankruptcy Law (LC). But what should not be controversial is whether the outstanding salaries that have not been paid by FOGASA have to be paid by the awardee, because in effect, by virtue of the succession of the company, such outstanding compensation has to be paid by the new employer , which has been subrogated in the pending obligations of the previous one.

The Supreme Court uses four arguments in the Judgment that serve to support that decision, arguments that we will explain, below, in order of relevance:

1º.- The article 44 ET is a norm of imperative character, reason why to exception its application would require an express legal declaration, declaration that does not exist in the law.

2º.- Article 148.4 LC expressly refers to Article 64 LC which refers, in turn, to the rules on collective modification and termination of employment contracts, a reference that would be superfluous to admit that the awarding of productive units implies a true business succession “Since the acquisition of the autonomous productive unit would not entail the assumption of the workers of the employer, so the liquidation plan should be limited to contemplate the conditions of realization of assets and rights of the insolvent, but without any regard to the situation of workers”

3º.- The interest of the contest referred to in article 148.2 LC can not become the supreme criterion that governs the adjudication of the goods, and therefore its application can not be against legem.

5º.-  In the factual case, the substantive requirements are met, so that company succession can be appreciated.

Therefore, this Judgment, in our opinion, does not imply a change of paradigm in terms of the labor consequences of a bankruptcy acquisition of an independent productive unit, but confirms what is provided by law: the bankruptcy judge can agree that the purchaser it is not subrogated in what was paid by FOGASA, but it does not have anything in regard to the amounts that have not been paid by that body – in accordance with article 33 ET – that remain in the liabilities of the purchaser.

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