Security over Collateral. SPAIN Uría Menéndez

Transcription

1 Security over Collateral SPAIN Uría Menéndez CONTACT INFORMATION Carlos de Cárdenas Smith José Millán Martín Uría Menéndez C/ Príncipe de Vergara 187, Madrid (Spain) / ccs@uria.com / fmi@uria.com 1. Can assets be charged, liened and/or encumbered in your jurisdiction? Please insert any exemptions, if any. Yes, according to Spanish law assets can be charged, liened or encumbered. Under Spanish law, security interests cannot be created over assets considered by law as being part of the public domain (bienes de dominio público), which relate to the provision of services considered to be of a public nature (servicio público), the debtor s basic personal belongings, the goods devoted to worship of any religion (included in the official registry of religious communities), the debtor s salary up to the minimum amount fixed by law and all those assets which the law specifically declares as non chargeable. 2. In your jurisdiction, under what circumstances may security arrangements be subjected to choice of law and/or choice of forum clauses (does it matter, whether the security itself is located abroad and/or governed by foreign law [e.g. a pledged claim])? What is the market practice in your jurisdiction? Is there a treaty on this in your jurisdiction, whether bilateral or multi-lateral? Are there any requirements for enforcement in your jurisdiction? Pursuant to Spanish conflict of laws rules, the validity and legal effects of security interests are governed by the lex rei sitae (i.e., the law of the country where the assets affected by the in rem rights are located). In turn, the enforcement of the security interests is governed by the lex fori (i.e., the law of the country where enforcement is intended).

2 3. In your jurisdiction, are floating charges or security over the overall assets of an entity accepted, and if so in what terms? Floating charges are not regulated as such by Spanish law. According to Spanish law, the substitution of collateral (securities, cash, receivables) from time to time will be considered as a new security and cancellation of the previous security. Consequently, such new security must comply with the same requirements as those required for the original pledge. The only exception to this rule is Article of the Catalonian Act 5/2006 of May 24, on in rem rights, which allows for the parties agreeing to the substitution of all or part of the asset given as collateral, provided that such asset is fungible. It should be noted that the application of this Act is limited to assets located in the territory of the Autonomous Region of Catalonia. Moreover, there are several security interests that, although seldom used in Spain, have some elements which are similar to those of a floating charge: (i) (ii) Mortgage (chattel) of industrial or business premises, by means of which the debtor mortgages his industrial or business premises, including machinery, movable assets, labor instruments and, if an express agreement exists. The law permits that merchandise and raw materials are substituted in the course of business, provided that the debtor keeps within the industrial or business premises merchandise or raw materials in an amount and value equal or higher than those recorded in the chattel mortgage public deed. Pledge without transfer of possession over merchandise or raw materials stored in a warehouse. The parties may agree that merchandise and raw materials are substituted in the course of business, provided that the debtor keeps within the warehouse merchandise or raw materials in an amount and value equal or higher than those recorded in the relevant public deed. 4. In relation to the following types of assets, please explain in your jurisdiction the types of security that can be created or granted, if the security requires any type of registration or perfection requirements, an estimate of cost (including applicable taxes and any other duties/ costs) and timing for granting such security, and any special considerations regarding the asset type: (1) Types of security interest under Spanish law. General Overview. Pursuant to Spanish law, a security over assets is created and perfected as an in rem right (i.e., with effects vis-à-vis third parties) when a security agreement is executed and certain formalities, which are described below, are met. The main types of security under Spanish law are the following: (i) Pledge: In a pledge (prenda), the pledgor (generally the debtor) delivers to the pledgee (creditor) a movable asset (including securities) or a credit right (e.g., an account receivable, the balance of a bank account, the right to receive insurance payments or rights under any contracts) owned or held by the debtor to secure its own obligations or those of a third party. As a general rule, to be effective vis-à-vis third parties, pledges must be executed

3 in a public deed granted before a notary public. Likewise, the possession of the assets pledged must be transferred to the pledgor or to a third party (e.g., the security agent) until the debt has been repaid or the pledge enforced. In the case of pledges over credit rights, delivery is deemed to take place by notifying the assigned debtor of the existence of the pledge and instructing such assigned debtor to pay directly to the pledgee if certain circumstances occur. Once notice is received by the assigned debtor, any payment made by the assigned debtor to the assignor, instead of to the assignee, will not release the assigned debtor. It is not necessary to obtain an acknowledgement of receipt from the assigned debtor. Although not regulated, second pledges are widely used (e.g., to secure mezzanine debt). (ii) Real estate mortgage: In a real estate mortgage (hipoteca inmobiliaria) the mortgagor (debtor) mortgages a real estate property owned by him in favor of the mortgagee (creditor) to secure its own obligations or those of a third party. In order to be effective, the real estate mortgage must be executed in a public deed granted before a notary public and the deed must be registered with the Land Registry (Registro de la Propiedad) of the town where the real estate asset is located. The Spanish Mortgage Law permits second mortgages. (iii) Chattel mortgage: In a chattel mortgage (hipoteca mobiliaria), the debtor mortgages certain types of assets owned by him in favor of the creditor to secure its own obligations or those of a third party. The chattel mortgage must be executed in a public deed granted before a notary public and the deed must be recorded in a special registry (Registro de Hipoteca Mobiliaria y Prenda sin Desplazamiento). The following assets can be subject to a chattel mortgage: (i) business premises and industrial plants; (ii) cars, trains and other motor vehicles; (iii) airplanes; (iv) machinery and equipment; and (v) intellectual and industrial property. Second ranking chattel mortgages are not permitted under Spanish law. (iv) Pledge without transfer of possession: In a pledge without transfer of possession (prenda sin desplazamiento), the debtor pledges certain types of assets owned by him in favor of the creditor to secure its own obligations or those of a third party. This pledge must be executed in a public deed before a notary public and recorded in the Registro de Hipoteca Mobiliaria y Prenda sin Desplazamiento. The following assets can be subject to this pledge: (i) harvests; (ii) proceeds of agricultural land; (iii) animals within this land; (iv) harvesting machinery; (v) raw materials in a warehouse; (vi) merchandise in a warehouse (i.e. inventories); and (vii) art collections. (2) Filings and registrations. As discussed above, a pledge (section (1) (i) above) only requires the execution of the security document in a public deed granted before a notary public and the transfer of possession. Mortgages, chattel mortgages and pledges without transfer of possession (sections (1) (ii), (iii) and (iv) above) are executed in a public deed before a notary public and the public deed must be recorded in the corresponding public registry in order for the security to be perfected and effective vis-à-vis third parties. The relevant registry will include information such as the identity of the debtor, a description of the asset pledged or mortgaged, the amount secured and a

4 description of the security created. Information on whether an asset or property is subject to a pledge without transfer of possession or mortgaged can be obtained by requesting a certification from the relevant registrar or an informative excerpt. Access via the Internet is available, although limited information is provided. (3) Registration, stamp duty and other costs associated with the creation of security interests. The execution of a pledge gives rise to notary fees. Depending on the amount secured the fees range from EUR 90 (for pledges securing up to EUR 6,000) to EUR 2,182 (for pledges up to EUR 6 million). The fees for amounts above these figures can be negotiated with the notary. The same notary fees must be paid when executing a real estate or a chattel mortgage. In addition, registry fees must be paid; these will range depending on the amount secured up to a maximum of EUR 2,182. Finally, execution gives rise to Stamp Duty ranging from 0.5% to 1% of the secured amount depending of the region where the property is located. (4) Assets and security which can be granted over them (a) Aircraft; Aircrafts can be subject to a chattel mortgage (hipoteca mobiliaria) (vid. section (1) (iii) above). (b) Bank Accounts; The credit rights arising from bank accounts can be pledged (vid. section (1) (i) above). (c) Animals, Crops (in ground and severed) and Timber; Animals, crops (in ground and severed) and timber can be subject to pledge without transfer of possession (prenda sin desplazamiento) (vid. section (1) (iv) above) or to an ordinary pledge if the possession of the asset is transferred to the pledgee. (d) Equipment; Equipment can be subject to a chattel mortgage (hipoteca mobiliaria) (vid. section (1) (iii) above). (e) Intellectual Property; Intellectual property can be subject to a chattel mortgage (hipoteca mobiliaria) (vid. section (1) (iii) above). It must be noted that the common law term intellectual property comprises two different concepts under Spanish law: industrial property (e.g., patents, commercial names and trademarks) and intellectual property (e.g., copyrights, inventions). Security interests can be created over intellectual property rights by means of an ordinary pledge over credit rights or by means of a chattel mortgage. An ordinary pledge over intellectual property rights, to be effective vis-à-vis third parties, must

5 be formalized into a public deed granted before a notary public. In order to be effective vis-à-vis third parties, a chattel mortgage over intellectual property rights requires the granting of a public deed before a notary public and the registration of such public deed with the relevant registry. (f) Inventory; Inventories can be subject to pledge without transfer of possession (prenda sin desplazamiento) (vid. section (1) (iv) above). (g) Leases; Credit rights arising from leases (and any other agreements) can be pledged (vid. section (1) (i) above). (h) Mineral Interests, including Hydrocarbons; The mineral interests can be pledged if the pledgor transfer the possessions of such assets to the pledgee (vid. section (1) (i) above) or subject to pledge without transfer of possession if the assets are stored in a warehouse (vid. section (1) (iv) above). (i) Promissory Notes and Chattel Paper; Promissory notes and chattel paper can be pledged (vid. section (1) (i) above). (j) Real Estate; Real state can be subject to real estate mortgage (vid. section (1) (ii) above) (k) Receivables (credit rights under contracts or invoices); Receivables can be pledged (vid. section (1) (i) above). (l) Rights under Contracts (excluding Receivables); Rights arising from agreements can be pledged (vid. section (1) (i) above). (m)shares (in book-entry and certificate form and other securities); Shares can be pledged (vid. section (1) (i) above). When the pledged shares are of a corporation (sociedad anónima or S.A.) and the shares are registered shares (acciones nominativas), the creation of the pledge shall be notified to the company whose shares are pledged and the pledge shall be recorded in the Registry Book of Registered Shares (Libro Registro de Acciones Nominativas) in order for such pledge to be fully effective vis-à-vis the company. However, in the event of dematerialized securities (represented by means of book entry accounts) registration of the pledge with the entity in charge of the book entry accounts is equivalent to the transfer of possession and there is no need to notify the creation of the pledge to the company whose shares are pledged.

6 Additionally, when the pledged shares are of a limited liability company (sociedad de responsabilidad limitada or S.L.), shares do not exist in certificated form and the pledge is perfected when the creation of the pledge is notified to the company whose shares are pledged and the pledge is recorded in the Registry Book of Shareholders (Libro Registro de Socios). (n) Vessels; Vessels can be subject to a chattel mortgage (hipoteca mobiliaria) (vid. section (1) (iii) above). (o) Vehicles; Vehicles can be subject to a chattel mortgage (hipoteca mobiliaria) (vid. section (1) (iii) above). (p) Business as an ongoing concern. Business as an ongoing concern (establecimientos mercantiles) can be subject to a chattel mortgage (hipoteca mobiliaria) (vid. section (1) (iii) above). 5. Please explain briefly for each type of assets the procedure for enforcement (judicial and extra-judicial). Is it possible to enforce security governed by another jurisdiction? If yes, what is the procedure? (a) Overview. According to Spanish law, a secured party is not entitled to appropriate the collateral affected by a pledge or a mortgage, nor to dispose of the collateral as it deems fit; the so-called pacto comisorio or appropriation of collateral by the creditor is prohibited as a general rule. Because of this prohibition, a creditor must initiate the enforcement of the security interest and use as payment of the debt the proceeds obtained in the sale of the collateral in a public auction or through certain other proceedings aimed at ensuring that the a fair value is obtained from the sale of the collateral. These proceedings are monitored by a court or a notary public depending on the case. The only exceptions to the prohibition of the pacto comisorio are the following: (i) Financial collateral arrangements: Royal Decree-Law 5/2005, of March 11 ( RDL 5/2005 ), which implements in Spain Directive 2002/47/EC of the European Parliament and of the Council of June 6, 2002, on financial collateral arrangements, regulates, among other matters, financial collateral arrangements. RDL 5/2005 regulates two types of financial collateral arrangements, title transfer collateral arrangements (acuerdos de garantía financiera con cambio de titularidad) and security financial collateral arrangements (acuerdos de garantía pignoraticia) (i.e., pledges over cash or securities). It should be noted that only cash, securities (valores negociables) and financial instruments can be given as collateral in financial collateral arrangements subject to RLD 5/2005. It is also important to note that the scope of RDL 5/2005 is rather confusing as it is not clear whether financial collateral arrangements can be granted to secure all types of monetary obligation or whether they can only be granted in connection with

7 obligations related to the settlement of financial instruments (i.e., derivatives). Banks in Spain seems to have adopted the latter view. (ii) Pledges of credit rights: As an exception to the general rule that requires the enforcement of pledges through a public auction, the pledge of credit rights can be foreclosed by way of set-off since these credit rights are considered liquid. In other words, the asset does not need to be transformed into money because it is precisely the right to claim an amount of money such as the balance of a bank account or the right to receive an insurance payment. (b) Types of enforcement proceedings. Creditors are entitled to initiate three different actions: (i) the so-called declarative proceeding (juicio declarativo); (ii) the executive proceeding (juicio de ejecución) provided for under the Civil Procedure Law (Law 1/2000, of January 7); and (iii) the procedure regulated in the Civil Code. The aforementioned procedures are aimed at selling the relevant asset in a public auction. In the declarative and executive proceedings, the sale is monitored by a court. In the proceeding regulated in the Civil Code, the sale is monitored by a notary public. In this later proceeding, if after two auctions no one is willing to purchase the relevant asset, the creditor may acquire control of the pledged asset provided that it accepts the full discharge of the debtor. If the creditor has a real estate mortgage, it may be foreclosed following a default on the principal obligation. The creditor is entitled to choose between several alternative proceedings provided for in the Spanish Civil Procedure Law (Law 1/2000, of January 7) to judicially obtain satisfaction of a secured debt: the socalled declarative proceeding (juicio declarativo), the executive proceeding (juicio de ejecución) and the mortgage proceeding (juicio hipotecario). In addition to the above, if this is provided for in the public deed of mortgage, the creditor is entitled to use an notarial proceeding (procedimiento notarial extra-judicial). According to Article of the Spanish Civil Procedural Law, the creditor will be entitled to claim repayment of all the principal plus accrued interest if the parties have agreed the acceleration of all the debt in the case of payment default of any installment and this agreement is recorded in the applicable registry. (c) (d) Enforcement after the declaration of bankruptcy. After the debtor is declared bankrupt, the enforcement of in rem securities (e.g., mortgages, pledges) affecting assets owned by the debtor and devoted to its professional or business activities (presumably most of the debtor s assets) will be stayed until the first of the following circumstances occurs: (i) approval of a creditors agreement (unless the content has been approved by the favorable vote of the creditor secured by the security, in which case the creditor will be bound to whatever has been agreed in the creditors agreement), or (ii) one year has elapsed since the declaration of bankruptcy without liquidation proceedings having been initiated. As an exception to this rule, enforcement will not be stayed if at the time of declaration of bankruptcy the announcements of the public auction had been published. Enforcement of security governed by other jurisdiction. The recognition by Spanish courts of security interests created abroad will be governed by Spanish law. Generally, such recognition will be granted provided that the security interest is not contrary to Spanish public order (orden público). Once this stage is passed,

8 the Spanish courts should not re-characterize or otherwise amend the security interest to conform it to security interests regulated by Spanish law. 6. Can a trustee or security agent be used in your jurisdiction, or must security be granted in favour of all lenders? The legal concept of security agent does not exist under Spanish law, the security must be granted in favour of all lenders. Therefore, if the enforcement of the security is carried out by the agent of the syndicate, such agent will need to prove that it is duly and expressly empowered for such purpose. Notwithstanding the authority that may be conferred upon the agent under the relevant syndicated facilities agreement, the agent may need to prove that it is duly and expressly empowered by means of a power of attorney granted in its favour by each of the lenders, which will need to be notarised and, if applicable, bear an Apostille of The Hague Convention dated October 5, In bankruptcy or insolvency scenarios, what are the suspect periods, is clawback possible, and what other types of rights (tax debts, employees, etc.) have preference over security granted? (a) Claw-back. The transactions executed by the debtor during a two-year period prior to the initiation of insolvency proceedings (the so-called suspect period ) and that are detrimental to the debtor s estate may be challenged and annulled, even in the absence of fraud. (i) (ii) Some transactions are presumed detrimental to the debtor s estate without the parties being able to provide evidence to the contrary (e.g., disposal of assets without consideration and payment of non-matured obligations). In some cases the prejudice is presumed although such presumption can be challenged (e.g., disposal of assets in favor of persons specially related with the debtor, security granted to secure pre-existing non-secured obligations). (iii) For the remainder cases, the prejudice must be evidenced by the party who applies for claw-back actions. Obligations assumed by the debtor in the ordinary course of business will not be subject to claw-back actions. (b) Types of creditors and claims. In the case of bankruptcy of a Spanish company (concurso de acreedores), creditors will be divided into two categories: (i) Bankruptcy creditors (acreedores concursales) who will have a claim against the bankruptcy estate (masa activa). The claims of the bankruptcy creditors will be divided into three categories: (1) Privileged claims, which include the following, in descending order: (1.1) claims with special privilege- that is, those secured by specific assets or rights (e.g., mortgage, pledge) - which will be paid from the proceeds of the sale of those assets and rights. Under Spanish law, the relevant collateral of security interests is "separated" and "reserved" for the benefit of a certain creditor. The

9 secured creditor, while preserving its full claim against the rest of assets of the debtor, will have a privileged right enforceable against the relevant asset. Certain creditors that are privileged by operation of law (such as workforce, the tax authorities, and the Social Security) will not be entitled to be paid with the proceeds obtained from the foreclosure of the collateral, unless the secured obligations have been fully discharged and any surplus remains; and (1.2) claims with a general privilege, which will be paid using the surplus assets of the bankruptcy estate after the claims that constitute the créditos contra la masa (see paragraph (ii) below) and claims with special privilege have been paid. Claims with a general privilege rank as follows and are paid in the following order: (1.2.1) certain labor claims; (1.2.2) tax claims; (1.2.3) social security claims (up to 50 per cent of their amount); (1.2.4) civil liability claims arising from tort; and (1.2.5) claims of the insolvency petitioner (up to a quarter of their amount). (2) Ordinary claims, which are paid after privileged claims. Any claim that does not qualify either as privileged or subordinated is an ordinary claim. Therefore, in the absence of a specific rule, all claims are ordinary. (3) Subordinated claims, which are paid last, in the following order: (3.1) claims that were reported late to the receivers (administración concursal); (3.2) claims stipulated as subordinated under an agreement; (3.3) claims for interest of any kind; (3.4) claims for fines; (3.5) claims of related persons (e.g., directors, shareholders); and (3.6) claims of persons that have been found to have acted in bad faith in a challenge to an insolvency proceeding. (ii) Creditors against the bankruptcy estate (acreedores contra la masa) who will be paid before any assets are distributed among the bankruptcy creditors. These claims are settled and on their respective due dates, regardless of the stage of the proceeding, but without disturbing those assets to be used to pay claims with a special privilege. The list of creditors against the bankruptcy estate is a closed one and includes expenses incurred in processing the proceedings and expenses that are basically necessary for the debtor to continue its business (e.g., salaries, utilities). 8. In your jurisdiction, can borrowers or guarantors subordinate their claims and if so in what terms? Both borrowers and guarantors can subordinate their credit rights to other creditors rights. It is accepted by Spanish law that a credit right can be subordinated to all or to part of the debtor s creditors, hence the mezzanine and other types of partially subordinated loans are accepted under Spanish law. According to the Insolvency Act, credits held by persons with a special relationship with the debtor (shareholders with at least 10% interest in the debtor s capital or 5% if the debtor is a public company, group companies, directors, representatives with general powers, de facto directors) will be considered as subordinated credits.

10 9. What are the consequences of a transfer, assignment or novation of an underlying credit in your jurisdiction (is new security necessary, is the security automatically transferred, etc.). Security interests are construed under Spanish law as ancillary rights. Therefore, due to the accessory nature of security interests, any assignment of a participation in the secured loan would entail the proportional assignment of the relevant security interests created to secure the full and punctual fulfilment of such loan. In the case of a novation that includes the creation of a new obligation (i.e. the cancellation of rights and obligations (including debts) under the loan agreement between the borrower and a lender and the creation of equivalent rights and obligations (and debts) between such parties), new security interests should be granted, in light of the accessory nature of the pledges and/or mortgages. 10. Can you have on top of a security in your jurisdiction, another layer consisting of an assignment of the collateral concerned conditional upon default by the debtor? This would most probably be deemed to be a violation prohibition on appropriation of collateral discussed in section 5(a) above. 11. Are step-in rights lawful in your jurisdiction or does any action to take control require the creditors to go through a court process? Step-in rights are not regulated under Spanish law. According to both the Corporations Act and the Limited Liability Companies Act the rules governing entitlement to vote and, generally, political and economic rights, will be provided for in the company's by-laws, if the by-laws do not establish anything, all political and economic rights will correspond to the pledgor. Step-in rights are sometimes agreed in project finance transactions but they are of a contractual nature (i.e. they do not constitute in rem rights) and, therefore, their effectiveness as a way to take control remains to be tested in practice and in the courts.