SPAIN Law and Practice Contributed by: Alfonso López-Ibor and Olivia López-Ibor, Lopez-Ibor Abogados
that are removed (suspension of powers). The latter usually occurs when the insolvency proceedings are
to swiftly agree to return the aircraft to the lessor in order to prevent further rental accruals that would be payable from the insolvency estate. Lease Security Deposit The lessor should be able to apply the deposits to the collection of unpaid rent or other claims derived from the liquidation of the lease. However, it is possible that the insolvency administration may seek the return of the deposit in respect of rents accrued before the dec - laration of insolvency, in which case, it should file an incidental lawsuit to determine the claims and obliga - tions of the parties derived from the termination of the lease and the consequent application of the deposit to the liquidation of the claims in favour of the lessor. Maintenance Reserves The lessor should be entitled to proper settlement of accounts in respect of maintenance of reserves assumed by the lessee in the lease that were pend - ing fulfilment at the time of termination of the lease, but not later ones. Set-off of maintenance reserves against other obligations not fulfilled by the lessee (eg, non-payment of rents) will not be permitted unless the lease expressly permits it. 2.10 Cape Town Convention and Others 2.10.1 Conventions in Force Spain acceded to the Cape Town Convention on 20 June 2013. The instrument of accession was pub - lished in the Spanish State Gazette on 4 October 2013. The Aircraft Protocol entered into effect for Spain on 1 March 2016 and was published in the Spanish State Gazette on 1 February 2016. For all legal purposes, the Cape Town Convention has been legally effective for aircraft matters since 1 March 2016. Pursuant to Article XIX of the Protocol, Spain desig - nated the Spanish Register of Goods and Chattels as the authorising entry point for registration of security interests over aircraft in the International Registry. The Spanish Register of Goods and Chattels will provide the party seeking registration with a unique authorisa - tion code (authorising entry point code, or AEP code), which must be included in the information submitted to the International Registry to register an interest. Since 10 April, AEP codes are provided within one business hour from their request and will be valid for
requested by a creditor. 2.9.9 Ipso Facto Defaults
Ipso facto clauses – clauses that allow a party to terminate upon the occurrence of certain events of default such as a counterparty’s insolvency or restruc - turing – are not enforceable under Spanish law. As a result, such contractual clauses providing for the automatic termination of an aircraft lease based solely on the existence of a court declaration of insolvency are not enforceable under Spanish law. This means that the aircraft lease agreement may remain in effect if the receivers decide to continue the flight operations of the troubled airline (“cherry pick”). In such cases, the lease rentals become an obligation of the insolvency estate as it is a necessary cost for the continuation of the business; ie, they will be given preference over the claims of common and preferred creditors. 2.9.10 Impact of Domestic Lessees’ Winding-Up If a domestic lessee is wound up by a court or admin - istration proceeding, this would impact the aircraft, lease rentals, lease security deposit and maintenance reserves as follows. The Aircraft The liquidation will entail the termination of all con - tracts, including the lease of the aircraft, the repos - session of which should be immediate. Lease Rentals Any claim derived from the contract 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 arising 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 conferred (eg, mortgages). In Spain, it is common for receivers
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