BANK FINANCE AND REGULATION
Multi-Jurisdictional Survey
SECURITY OVER COLLATERAL
SPAIN
Uría Menéndez
CONTACT INFORMATION
Carlos de Cárdenas Smith / José Millán Martín
Uría Menéndez
C/ Príncipe de Vergara 187, 28002 Madrid (Spain)
+34 91 586 07 90 / +34 91 587 09 09
[email protected] / [email protected]
http://www.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).
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 579-17 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)
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.
(ii)
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
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
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
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.
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
obligations related to the settlement of financial instruments (i.e.,
derivatives). Banks in Spain seems to have adopted the latter view.
(ii)
(b)
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.
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 693.2 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)
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.
(d)
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,
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, 1961.
7. 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)
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).
(ii)
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
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).
(ii)
(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.
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.
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.