| What happens if the beneficiary of a bank | | | | that have not voted in favour of the |
| guarantee or other surety decides to enforce it | | | | arrangement will not be bound thereby in terms |
| against a payment default by a debtor who has | | | | of the full subsistence of their rights vis-à-vis |
| been declared insolvent? This is a crucial question | | | | those joint and severally bound with the insolvent |
| not only for the beneficiary of the guarantee but | | | | party and vis-à-vis its guarantors or guaranteeing |
| also the granter thereof – in many cases a | | | | parties, who will not be entitled to invoke the |
| financial institution. Neither one nor the other | | | | approval or effects of the arrangement to the |
| should be unaware of the consequences if their | | | | detriment of the former" (article 135.1). |
| debtor and guaranteed party, respectively, is | | | | This is without detriment to whether the |
| declared to be insolvent. | | | | guarantee in question constitutes a first-demand |
| In the interests of the utmost clarity the | | | | bank guarantee. In such a case, it is our opinion |
| guarantor will be called herein "the guaranteeing | | | | that the guaranteeing party could never invoke |
| party". The debtor involved in the insolvency | | | | against the creditor with guarantee the debt |
| proceedings, for its part, will be called "the | | | | reductions and/or postponements of the |
| secured debtor", while the surety beneficiary will | | | | arrangement with creditors, not even if the latter |
| be called the "the creditor with guarantee". | | | | had voted in favour of said arrangement. Along |
| 1.- The general rule of article 87.6 of the Spanish | | | | these lines the LC lays it down that "the liability of |
| Insolvency Proceedings Act (Ley Concursal: LC) | | | | those joint and severally bound, guarantors or |
| This article lays it down that "the credits in which | | | | guaranteeing parties of the insolvency proceedings |
| the creditor enjoys a third-party surety will be | | | | against the creditors that have voted in favour of |
| recognised at their face value with no limitation | | | | the arrangement will be governed by the rules |
| whatsoever and regardless of any change in the | | | | applicable to the obligation they may have taken |
| credit holder in the event of payment by the | | | | on or by such arrangements as may have been |
| guarantor". | | | | made thereon" (article 135.2). |
| This means that, after declaration of the | | | | 4.- Guarantee in favour of the creditor specially |
| insolvency, the guaranteeing party will remain the | | | | related to the debtor |
| bound party vis-à-vis the creditor with guarantee, | | | | Special mention must be made of the situation |
| benefited by the remaining term until the obligation | | | | where the creditor with guarantee is considered |
| falls due. Should this term run its course during the | | | | to be a "person especially related with the |
| insolvency proceedings and the creditor with | | | | insolvent party". Pursuant to article 93.2 of the LC, |
| guarantee hold the guaranteeing party to its | | | | when the secured debtor is a company, the |
| surety obligation, then the latter, i.e., the | | | | following persons will be deemed to be specially |
| guaranteeing party, will then, by virtue of the | | | | related thereto: |
| payment, become the holder of the credit against | | | | - Shareholders that, pursuant to the law, are |
| the secured debtor, being entitled to take over | | | | personally liable without limit for company debts |
| the original creditor's payment demand right. | | | | and those others that, at the moment when the |
| Royal Decree Law (Real Decreto-ley) 2/2009 of | | | | credit right arises, are holders of at least 5% of |
| 27 March has added the following rider to said | | | | the share capital, if the company declared to be |
| article 87.6: "Whenever the payment-driven | | | | insolvent has securities trading on an official |
| subrogation should occur, these credits will then | | | | secondary market, or 10% otherwise. |
| be classified in such as a way as may be least | | | | - The directors, the liquidators and generally |
| onerous for the insolvency proceedings, between | | | | empowered agents of the company plus those |
| those corresponding to the creditor or guarantor". | | | | who may have been any of the above within the |
| 2.- The case of only partial credit payment by the | | | | two year period running up to the declaration of |
| guaranteeing party after enforcement of the | | | | the insolvency proceedings. |
| guarantee | | | | - The companies forming part of the same group |
| Article 87.7 of the LC runs as follows: "at the | | | | as the company declared to be insolvent and the |
| behest of the creditor that has received payment | | | | shareholders thereof, provided these meet the |
| of part of its credit from a guaranteeing party, | | | | same circumstances as under paragraph 1 hereof. |
| guarantor or joint and several debtor of the | | | | Along these lines article 97.2 of the LC runs as |
| insolvency proceedings, the list of creditors may | | | | follows: |
| include in its favour not only the rest of the | | | | "If the creditor classified in the list of creditors as |
| unpaid credit but also the total sum corresponding | | | | especially related with the debtor does not |
| to whoever made the partial payment, by | | | | challenge this classification in due time and form, |
| reimbursement or the part corresponding to a | | | | the insolvency-proceedings judge, as soon as the |
| joint and several debtor …" | | | | deadline for doing so has passed, and without any |
| This precept, for the credit recognition phase, | | | | other requisite, will dictate an order declaring any |
| enshrines the general principle that the right of the | | | | guarantees of any sort furnished in favour of the |
| creditor with guarantee to be compensated for | | | | former's credits to be extinguished, ordering, as |
| the unpaid part of the credit overrides the right | | | | the case may be, the possessory restitution and |
| of the guaranteeing party that has made a partial | | | | cancellation of the entries in the corresponding |
| payment vis-à-vis the same debtor. | | | | registries ". |
| Pursuant to this provision (article 87.7 of the LC), | | | | The practical importance of this provision is clear: |
| the original creditor has the possibility of | | | | does it mean that if I have a debt security from |
| recovering in the insolvency proceedings the rest | | | | a company of which I am a shareholder (or of its |
| of its unpaid credit against payment of the credit | | | | group of companies) and this is declared insolvent, |
| as corresponding to the guaranteeing party. | | | | I will forfeit my guarantee? Will I forfeit it too if I |
| Bearing out this idea, article 160 of the LC, in the | | | | am the CEO (general empowered agent) of a |
| section dealing with payment to creditors, lays it | | | | company that owes me several sums secured by |
| down that "any creditor that, before declaration | | | | a bank guarantee? |
| of the insolvency proceedings, has received part | | | | A strict reading of article 97.2 would disfavour the |
| payment of the credit from a guarantor or | | | | creditor with guarantee especially related to the |
| guaranteeing party or from a joint and several | | | | debtor, since it would mean that in every case |
| debtor will be entitled in the insolvency | | | | the insolvency-proceedings judge "without any |
| proceedings to receive the payments | | | | other requisite" will dictate an order declaring the |
| corresponding to the former until such time as | | | | guarantee granted in its favour to be extinguished. |
| they add up to the total sum of the latter". | | | | Some writers have criticised the mercantile |
| 3.- Relationship of the arrangement with creditors | | | | judges' tendency to such "strict interpretations" |
| and the secured credit | | | | and claim that, pursuant to article 97.2, the judge |
| The doubt now crops up of whether, in the event | | | | should weigh up the circumstances of the case |
| of the approval of an arrangement with creditors | | | | before adopting the drastic measure of |
| involving corresponding debt reductions and | | | | extinguishing the guarantee. |
| postponements, the guaranteeing party would be | | | | Unfortunately, the current wording of article 97.2 |
| able to pay the creditor with guarantee by | | | | is not conducive to this discretionary interpretation |
| applying the debt reductions and postponements | | | | by the judge, so there is a high risk of the judge |
| authorised by said arrangement. | | | | simply extinguishing the guarantee in question |
| The LC rules as follows on this point: "creditors | | | | without a second thought. |