SPAIN Law and Practice Contributed by: Miguel Cases, Toni Barios, Joaquín Fabré and David Navarro, Cases & Lacambra
5.6 Release of Typical Forms of Security When the primary obligation is fulfilled, securities and guarantees are inherently terminated. Nonetheless, specific procedures might be necessary to erase all mention of the security. For example: • for mortgages, whether they are over tangible assets or chattel, and for non-possessory pledges, the termination should be registered with the appropriate authority. This requires the involved parties to produce a public document; and • for possessory pledges, the collateral must be handed back to the individual who provided it. It is also worth noting that any power of attorney given to the party holding the security within this framework might necessitate formal revocation via a public document. 5.7 Rules Governing the Priority of Competing Security Interests In Spain, the rules governing the priority of competing security interests are primarily dictated by the princi- ple of “priority in time” and formal registration. As a general rule, the first security interest to be created, presented and registered has priority over subsequent ones. In the event of a debtor’s insolvency, the Spanish Insolvency Act ( Ley Concursal ) establishes a hierar- chy for the repayment of debts. Secured creditors (like mortgage or pledge holders) generally have prefer- ence over unsecured ones, but they might be subordi- nate to certain privileged claims like employee salaries or public debts. On the contrary, certain credits might be subject to equitable subordination by operation of law in an insolvency scenario. Parties can contractually agree to modify the prior- ity of their claims, but such agreements might not be enforceable against third parties who are not party to the agreement. While contractual subordination is generally recognised, insolvency administrators and courts may review these arrangements to ensure they adhere to insolvency law principles.
5.8 Priming Liens Generally, creditors holding in rem security interests benefit from special privilege in an insolvency scenario and are entitled to receive payment from the liquida- tion of the encumbered assets. However, certain claims may prime a lender’s security interest if there are insufficient assets in the compa- ny to satisfy the so-called claims against the estate ( créditos contra la masa ), which include, amongst others, labour-related claims (up to a maximum), tax and social security law claims and other claims arising from the insolvency proceedings. 6. Enforcement 6.1 Enforcement of Collateral by Secured Lenders Spain tends to favour borrowers in its jurisdiction, which can make it challenging to expedite loans gov- erned by Spanish law and to enforce security meas- ures. Spanish courts may hesitate to approve accel- eration unless two primary conditions are met: (i) a significant violation has occurred, primarily involving a payment default of a minimum of three months’ instal- ments or an equivalent sum, and (ii) no other solutions, like debt restructuring or refinancing, are viable. Securities governed by Spanish law can be enforced in two principal manners: through judicial or notarial methods. Directly selling or seizing secured assets is Outlined in Article 681 and subsequent sections of the Civil Procedure Law (Ley 1/2000, dated 7 Janu- ary), the process to execute an in rem security inter- est involves a court-supervised public auction. This method is optional for any in rem security enforce- ment. For obligations secured by pledge agreements on a periodic basis, a minimum of three unpaid instal- ments must be defaulted before initiating the pledge enforcement or hastening the debt and enforcing the pledge for the entire secured amount. typically unfeasible. Judicial Approach
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