SPAIN Law and Practice Contributed by: Ángel Pérez López, Luis Jiménez and Rodrigo del Saz, Uría Menéndez
5.2 Form Requirements Ordinary pledges as well as financial collateral arrangements are executed through a public document (either a public deed or notarial policy) before a Spanish notary public. Real estate mortgages must be executed through a public deed before a Spanish nota- ry public and registered with the land registry where the asset is located. The chattel mortgage must be executed through a public deed before a notary public and regis- tered with the Movable Assets Registry. Pledges without displacement must be execut- ed in a public document (either a public deed or notarial policy) before a notary public and registered with the Movable Assets Registry. However, they are normally executed through notarial policy ( póliza notarial ) in order to avoid stamp duty (which is only triggered if the pledge is granted through a public deed). A notarial policy is, however, restricted by law to banks and other financing institutions; hence, not every entity acting as pledgee (ie, alternative lenders) Ordinary pledges do not require registration with a public registry, but certain formalities to ensure the delivery of the possession must be observed; if the pledged asset is a credit right vis-à-vis a third party or the share capital of a company, it is customary to notify the third party of the furnish- ing of the pledge (either at the time the pledge is granted or, in certain specific cases, upon the occurrence of an event of default ‒ the latter option being less advisable for the lenders), so as to ensure that the third party is aware of the existence of the pledge and that the lender may require direct payment upon enforcement, or to may use this public instrument. 5.3 Registration Process
inform the relevant company or the depositary of shares, so that the relevant book reflects the existence of the pledge over the pledged shares. Real estate mortgages, chattel mortgages and pledges without displacement require registra- tion in order to be completed, as outlined at 5.1 Types of Security Commonly Used . The notarised security document is filed with the corresponding registry (together with, if appli- cable, the document evidencing the payment of the stamp duty) and then the registrar has, as a general rule, 15 business days to review the document and accept or reject the registra- tion. Registration may only be rejected based on formal defects and those defects are gener- ally capable of being rectified through a deed of rectification. It is generally accepted to include, in the facilities agreement, an event of default if the security is not registered within a three- or four-month period following the granting of the mortgage. 5.4 Restrictions on Upstream Security Spanish law allows upstream or cross-stream security or guarantees (indistinctly speaking between them). However, in the context of acqui- sition finance, the main restriction on upstream security results from the financial assistance rule, which is explained at 5.5 Financial Assistance . Another limitation to be taken into account is the corporate benefit of providing upstream security (especially when the entity providing the secu- rity or guarantee has minority shareholders in its share capital). The granting of such upstream or cross-stream guarantees may breach the fiduciary duty that directors and controlling shareholders have vis- à-vis the company, which must be analysed on a case-by-case basis. Minority shareholders’ rights should not be prejudiced by upstream or
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