SPAIN Law and Practice Contributed by: Alfonso López-Ibor and Olivia López-Ibor, Lopez-Ibor Abogados
ment of rent) and for breaches subsequent to the insolvency proceedings. • The liquidation of the insolvent company will entail the termination of all contracts, including the lease. • When the liquidation phase of the insolvent com - pany is initiated, the receiver will be solely respon - sible for returning the aircraft. This should be done immediately, as any delay will unnecessarily increase the liabilities of the insolvent company. • In no case shall the leased aircraft be considered the property of the insolvent lessee. • Any claims in favour of the lessor from the lease will be contingent on the outcome of the insolvent company’s liquidation process. Rental payments that remained unpaid prior to the initiation of the insolvency proceedings will be treated as ordinary claims, meaning they do not have any priority in terms of collection. However, unpaid rents aris - ing after the insolvency proceedings began will be classified as claims against the estate, which hold preference over other insolvency claims, barring those with special privileged status. Such special privileges grant priority over any other claims on the property for which the privilege has been con - ferred (eg, mortgages). 2.9.6 Risks for a Lender if a Borrower, Guarantor or Security Provider Becomes Insolvent In the event of the lessee’s insolvency, the main risk for the lender is the delay that the insolvency proceed - ings may entail for the effective repossession of the aircraft. The ensuing damages would include unpaid rent, lost profits, and potential harm to the aircraft. The claims arising from these defaults would be subject to the outcome of the insolvency proceedings, in which the probability of recovering any amount, even partial, is very low. Despite this, the insolvency administration tends to be efficient in returning the aircraft when it does not see the viability of the insolvent company. This expeditious return helps to prevent an escalation of liabilities. Dur - ing the common phase, the lease agreement remains in effect, which means that the lease rent is payable from the insolvent estate’s funds. Termination of the lease agreement must be agreed with the lessor and
approved by the Spanish judge upon application by the insolvency administrator. Ultimately, the speed with which the aircraft is repos - sessed will depend on a number of factors, including whether the insolvent company considers that the maintenance of the aircraft lease is necessary for the continuity of its business. In the event of insolvency of a guarantor, the lender would potentially not be able to recover any amounts due from the guarantor, as these claims would also be subject to the outcome of the insolvency proceedings. 2.9.7 Imposition of Moratoria in Connection With Insolvency Proceedings • Protection During the Pre-Insolvency Proceedings: From the moment the communication is issued, the insolvent company is protected against its credi - tors for a period of three months, extendable for a maximum of three additional months (the “Protec - tion Period”), during which: (a) Foreclosures against necessary assets may not be initiated and those initiated shall be suspended. Likewise, the insolvent company may ask the court at any time to extend this suspension on foreclosure to other assets or rights as and when required for the successful completion of the negotiations. (b) For contracts with outstanding mutual obliga - tions, any clauses calling for suspension (such as a lease contract), alteration, resolution, or early termination will not be considered acti - vated solely because the insolvent company has made the communication or requested suspension of executions. However, these ac - tions (suspension, modification, resolution or early termination) can be initiated if requested by the creditor under circumstances not previ - ously mentioned, unless the contract pertains to necessary assets. In this case, such actions cannot be initiated until the protection provided by the communication has ceased. However, the counterparty retains the right to contest the classification of necessary assets if they believe this status is unwarranted.
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