Barcelona, 2017-06-15

The avoidance of transactions in insolvency proceedings due to defeat of a creditor is stipulated in Art. 71 ff of the Spanish insolvency law (Ley Concursal 22/2003, de 9 de julio 2003) as a measure to examine all disadvantageous actions of the insolvency assets the insolvency debtor has taken, either alone or in collaboration with third parties, within two years before opening of insolvency.

Contesting facts

The contesting facts stipulated in Art. 71 of the Spanish insolvency law can be divided into two groups:

1. Irrefutable discrimination

This category of grounds for contestation includes all free-of-charge asset transfers, as well as payments and legal actions which result in the cancellation of the liabilities of the joint-law debtor which became due after the insolvency opening

2. Refutable discrimination

In those cases in which the debtor carries out legal transactions against payment or legal transactions with persons closely associated with him, grants collateral in favour of already existing obligations and/or makes payments and other actions with securities which become due after opening of insolvency, the debtor can refute the statutory presumption if he can prove that the contested action did not cause disadvantage of assets.

Actions excluded from contest

Art. 71 of the Spanish insolvency law also regulates a set of exceptions which do not justify an action for annulment. Those exceptions concern legal acts of common business activities of the insolvency debtor, provision of collateral for public means as well as compensations specially regulated by law.

Unlike the German legal situation (cf. the debate on § 133 insolvency law and the reform from April 5^th 2017), in Spain subsequent installment payment agreements between creditor and joint-debt partner in knowledge of a liquidity weakness has not yet become subject of a successful avoidance of transactions in insolvency proceedings. The scope of the review is the qualification of an agreement as an action within the contracting parties’ common business activities. It remains to be seen if this customary criterion will continue to exist in Spain or be subjected to a general judicial review, if necessary.

Furthermore, a special scope for refinancing agreements between the insolvency debtor and financial institutes has been established. These agreements may not be cancelled as long as the insolvency debtor’s financial status improves due to refinancing, and the interests of the insolvency creditors indirectly involved in the proceedings are not disadvantaged. These refinancing agreements must fulfil a range of legal requirements which were further aggravated after the reform of the Spanish insolvency law from September 30^th 2014.

Author: Dr. Jochen Beckmann, attorney at law

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