SPAIN Law and Practice Contributed by: Miguel Cases, Toni Barios, Joaquín Fabré and David Navarro, Cases & Lacambra
Effects on Judicial or Arbitration Proceedings As a general rule, and subject to certain exceptions, proceedings that are already in progress will continue until the judgment becomes final. Upon declaration of insolvency, no enforcement may be initiated against the debtor’s assets and rights, and those proceedings initiated before the declaration of the insolvency shall be suspended. The insolvency court is empowered to order the lifting and cancel- lation of attachments on the debtor’s assets, in the event that such attachments would hinder the debt- or’s business. Holders of in rem rights may also initiate or continue enforcement proceedings in the event that liquidation has not been initiated within one year of the declara- tion of insolvency, although they will lose their right to a separate enforcement if they have not initiated the enforcement prior to the commencement of the liquidation phase. The declaration of insolvency by itself does not affect the effectiveness of arbitration agreements. Ongoing proceedings will continue until the arbitration award is final. However, in the case of new proceedings, the insolvency court is empowered to suspend the arbi- tration agreements if they could be detrimental to the processing of the insolvency proceeding. Effects on Claims The aim is to avoid an increase in the amount of the debtor’s liabilities, thus favouring the creditors’ chanc- es of payment. Consequently: • the accrual of interest on insolvency claims will cease, except for secured claims (to the extent of their amount), among others; • liens on assets of the insolvency estate will be suspended; • the offsetting of claims will not proceed, unless they derive from the same legal relationship and the requirements for offsetting the claims were met prior to the declaration of insolvency; and • the statute of limitations on legal actions against the debtor for claims prior to the declaration of insolvency shall be interrupted.
Effects on Agreements Agreements may not be terminated by the mere dec- laration of insolvency. Early termination clauses based on this trigger will be null and void, unless otherwise stated by law (ie, financial collateral). Agreements with outstanding obligations shall be executed in accordance with the agreed terms. Only agreements with successive performance may be terminated for breaches prior to the declaration of insolvency. In the event of breaches after the declara- tion of insolvency, the agreements may be terminated. Notwithstanding the foregoing, the insolvency court may, in the interest of the insolvency proceeding: (i) enforce the compliance of an agreement, even if there is ground for termination; and (ii) require the termina- tion of an agreement that has not been breached. Likewise, the insolvency administration may renew financing agreements (and purchase agreements with deferred price payment), that were terminated due to non-payments occurring in the three months prior to the declaration of insolvency and prevent eviction actions before eviction takes place. 7.2 Waterfall of Payments Pursuant to the Spanish Insolvency Act, there are three types of insolvency creditors: (i) privileged claims, which can be specially privileged or generally privileged claims; (ii) ordinary claims; and (iii) subor- dinate claims. Specially Privileged Claims Specially privileged claims are those that have an in rem right over a specific asset or right. This type of creditor holds a preferential claim in relation to the enforcement, or the proceeds of the sale of the asset or right affected by their in rem right. One condition in order to consider a creditor as specially privileged is that the right in rem must be granted before the commencement of the insolvency process, and it must comply with the legal requirements for it to be enforceable against third parties.
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