The lender’s credit in respect of the joint-and-several guarantor declared insolvent is contingent unless existence of p

Rescission of an extension to a mortgage granted by the insolvent company securing a preexisting debt of a company of its group

1. Introduction

On 7 September 2014, Royal Decree Act 11/2014 on urgent measures in insolvency matters (“RD 11/2014”) came into force, introducing important changes in the Spanish Insolvency Act (“SIA”), especially regarding incourt proceedings, whether within a composition or a liquidation stage. This piece of legislation followed Royal Decree 4/2014 (“RD 4/2014), which introduced equivalent measures for preinsolvency restructurings.

Exposición de la doctrina de la rescisión aislada del derecho de garantía 1. Establece el art. 73 LCon que (1) la sentencia que estime la acción (rescisoria) declarará la ineficacia del acto impugnado y condenará a la restitución de las prestaciones objeto de aquél (…). (3) El derecho a la prestación que resulte a favor de cualquiera de los demandados como consecuencia de la rescisión tendrá la consideración de crédito contra la masa, que habrá de satisfacerse simultáneamente a la reintegración de los bienes (…). 2.

The Spanish Supreme Court has established the legalconcept of insolvency as an objective requirement forthe Declaration of Insolvency pursuant to Section 2.1 ofthe bankruptcy Act by virtue of the decision taken by the Court on April 1, 2014.

Financial institutions are not de facto directors of the insolvent company because they do not significantly affect the performance of the insolvent company’s activity, but only ensure that  certain costs do not affect the repayment of their loan.

The extension of the term for the delivery of works not authorized by the guarantor that had secured  the penalty for delay does not  harm it and, therefore, the guarantee is not  extinguished;  any increase in the  penalty agreed does not extinguish the guarantee,  but  cannot be enforceable on the guarantor that will be liable in the terms agreed in the initial  agreement. This decision discussed the effects  on the guarantee of  the novation of the  secured  obligation agreed without the guarantor’s knowledge.

The rescission was declared of a mortgage the insolvent company  granted over a  warehouse it owned in guarantee of the  loan a credit institution  had  granted to a company of its group. The Supreme Court declared (i) that the contextual guarantee was  for consideration and (ii) the need for proof of the profit (even indirect) of the guarantor  company without merely belonging to the  group sufficing, and  confirmed that the  rescission only affected the guarantee and not the loan.

SUPREME COURT RULING OF APRIL 9, 2014, NO. 175/2014: IN THE RESCISSION OF THE  ASSIGNMENT IN PAYMENT AGREEMENT (DACIÓN EN PAGO), THE CREDIT OF THE NONDEFAULTING PARTY  IS AN  INSOLVENCY CLAIM AND NOT AGAINST THE INSOLVENCY ESTATE

The assignment in payment (dación en pago) of debt is an act extinguishing obligations and not a bilateral agreement. Therefore, its rescission leads to an insolvency claim for  the non-defaulting party.

A creditors’ composition agreement has been approved for Pescanova, and section six of  the insolvency proceedings (categorisation of the  insolvency) has not been opened, as  there is  a type of creditor whose  moratorium is less than three years and  whose debt  relief is below one third.