SPAIN Law and Practice Contributed by: Antonio Paredes, Carlos Saldaña, Manuel Martínez and Román Mejías, ZADAL
5.5 Other Restrictions Consents, Approvals and Contractual Permissions Granting security or guarantees in Spain usually does not require regulatory consent, but it does require proper corporate approvals and a defensible corpo - rate benefit analysis, particularly for upstream and cross-stream support. Third-party consents are main - ly contractual (eg, restrictions on assigning/pledging receivables or the need for account bank co-opera - tion), and works council approval is not typically trig - gered unless broader measures activate labour con - sultation duties. Costs, Formalities and Insolvency Gardening Risk Key friction points are notarial and registry require - ments and, for real estate mortgages, potentially material mortgage-related taxes and expenses, which often influence whether real estate security is taken at closing or replaced with a lighter package. Spain’s two-year clawback look-back period also matters, as transactions and security granted close to distress may be challenged if detrimental to the insolvency estate, making value, consideration and timing critical. 5.6 Release of Typical Forms of Security Release Mechanics in Spanish Private Credit Deals In Spain, security is typically released by executing a formal release deed (often before a notary where the original security was notarised) and then complet - ing the relevant de-registration or cancellation steps. For real estate mortgages, release requires a notarial cancellation deed and Land Registry cancellation, and the security remains on record until that regis - tration is completed. For registered movable secu - rity (where applicable), release is effected through the corresponding registry cancellation. For pledges over shares, receivables or accounts, release is usu - ally documented through a release agreement and then implemented by returning or cancelling the rel - evant pledge deliverables (eg, share certificates/book entries, notices, account control arrangements), with the agent typically co-ordinating the mechanics once repayment or agreed release conditions are satisfied.
of security plus covenants, cash management and springing controls – particularly in competitive pro - cesses or tight timetables. 5.3 Downstream, Upstream and Cross- Stream Guarantees Ability to Give Downstream, Upstream and Cross- Stream Guarantees Spanish companies can generally grant downstream, upstream and cross-stream guarantees, which are common in leveraged and private credit deals. The main constraints are corporate benefit/directors’ duties, capital maintenance and, in acquisitions, finan - cial assistance, which can limit target-group guaran - tees or security supporting the share purchase. Limitations, Measurement and Common Solutions Limitations are typically assessed by reference to the guarantor’s corporate benefit and financial capacity, both at grant (validity/approvals) and in stress (avoid - ance/creditor prejudice). Deals usually address this through robust corporate approvals, limitation lan - guage (eg, capped or “to the extent lawful”), and structuring that strengthens the benefit link (eg, on- lending or guarantee fees where appropriate). In Spain, a target is generally prohibited from provid - ing guarantees, security or other financial assistance to support the acquisition of its own shares (and, depending on the structure, certain group shares), so “full target security at closing” is often not available in a standard share deal and becomes a key structur - ing issue. Spain does not have a broad “whitewash” procedure to cure prohibited assistance by approval alone; instead, parties typically structure acquisition debt at SPV level (secured by the acquired shares) and, if needed, implement a post-closing debt push- down via a merger or similar reorganisation with statutory safeguards. Recent case law reinforces a case-by-case approach, making careful structuring, corporate approvals and a credible corporate benefit/ solvency rationale essential. 5.4 Restrictions on the Target Financial Assistance Restriction
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