SPAIN Law and Practice Contributed by: Marta González-Llera, Toni Barios, Jorge del Castillo and Rafael Baena, Cases & Lacambra
3.4 Taxes or Fees Relating to the Granting and Enforcement of Security A security:
evant corporate resolutions have been adopted to incur in the financing and to grant the relevant security. 3.6 Formalities When a Borrower Is in Default Before starting a judicial or extra-judicial foreclo - sure proceeding, the lender must formally notify the concurrence of an event of default and the termination of the loan to the borrower. The noti - fication must state: • that a breach of the terms of the loan has occurred, detail the specific breach and that, consequently, the loan is terminated early according to the relevant clause of the loan agreement; and • the total amount due because of the early termination of the loan. Spanish courts have traditionally been reluctant to uphold loan acceleration and subsequent enforcement of security if the default is not deemed material. Please note that Spanish law expressly prohibits what is known as pacto comisorio , which com - prises any agreement by virtue of which the lender would be entitled automatically to acquire the mortgage property in case of default by the borrower. 3.7 Subordinating Existing Debt to Newly Created Debt The subordination of existing debt to a newly created one is possible under Spanish law by an agreement between the different creditors and the borrower which establishes an order of pref - erence of the debt (ie, senior, mezzanine, junior). The subordination implies that certain debts are subject to prior repayment of other debts.
• is granted in a public deed; • has valuable content; and
• may be registered in a public registry, the for - malisation of that security shall trigger stamp duty. The tax rate would vary depending on the region where the public deed is executed but will range from 0.5% to 3%. No stamp duty shall be levied should the secu - rity not be granted on a public deed (ie, only in the granting of mortgages may stamp duty not be avoided). 3.5 Legal Requirements Before an Entity Can Give Valid Security Spanish corporate law prohibits Spanish com - panies from providing financial assistance in the form of financing, advancing funds, grant - ing security or guarantees, or assisting in any manner that contributes to the purchase of their own shares or of their parent company (public limited liability companies) or any of the group companies (private limited liability companies). Infringement of this legal prohibition would ren - der any such financial assistance null and void. With respect to the corporate benefit rules, under Spanish corporate law, the directors of a company must exercise their powers in the inter - ests of the company and its shareholders, act - ing diligently in the management of the company and faithfully and with loyalty to the company. Accordingly, when the borrower is a Spanish company, it is necessary to confirm that the rel -
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