Restructuring & Insolvency Newsletter - April 2020 | Judgments of interest

Jurisdiction to hear a case related to a temporary layoff procedure due to force majeure caused by COVID-19 lies with labor courts not the insolvency judge

Decision by León Commercial Court, April 1, 2020

The court disallowed a layoff procedure due to force majeure because the proceeding was in progress and no judicial decision had been delivered at the time of the entry into force of Royal Decree-Law 11/2020, of March 31, 2020 which dispelled doubts as to whether temporary layoff procedures due to force majeure fell within the jurisdiction of the insolvency judge or of the labor authority.

A productive unit to be transferred in liquidation may include administrative concessions

Decision by Pontevedra Provincial Appellate Court, March 20, 2020

The provincial appellate court confirmed the lower court’s judgment by holding that the existing administrative concession must be regarded as included in the productive unit to be transferred in the liquidation if the purchaser will continue the business. The court considers that the Insolvency Law must be treated as a special law in favor of encouraging trading and professional activities.

Assignment of claims and restrictions on exercising the right to redeem debts at their transfer price for individual claims or claims included in NPL portfolios

Judgment by the Supreme Court (First Chamber), March 5, 2020

For a claim to be treated as being “under litigation”, the lawsuit must concern the very existence or requirement to pay that claim. The pendency of a lawsuit over whether a collar clause affecting an assigned claim is null and void does not make it a claim “under litigation”, and it is also excluded from the right to redeem NPL claims transferred by bulk assignment.

Ability to prededuct social security contributions for work required to conclude the liquidation

Judgment by the Supreme Court (First Chamber), February 4, 2020

Following a notice informing of insufficient assets available to pay the credits against the estate, the necessary and pre-deductible nature of the salaries of anyone carrying out the activities needed to conclude the liquidation also includes the social security contributions related to those salaries.

The relevant time for determining the classification of a claim for reimbursement of the guarantor is when the guarantee was provided

Judgment by the Supreme Court (First Chamber), February 3, 2020

To include in the insolvency proceeding a claim for reimbursement of a guarantor, and, more specifically, to determine whether that claim must be subordinated due to the guarantor being classed as a “specially related party” to the debtor, the relevant factor is when the guarantee was provided.

Directors’ liability does not stretch to debts guaranteed in favor of the company before ground for winding up

Judgment by the Supreme Court (First Chamber), January 16, 2020

A director’s liability for breach of a duty to promote the winding up of the company only relates to corporate debts created after the appearance of the ground for winding up. Given the claim of the guarantor against the company arose when the guarantee was granted, and this happened before the appearance of the ground for winding up, the fact of the guarantor company paying after the ground for winding up existed does not make its director joint and severally liable for the guaranteed debt.

Fault-based qualification of the insolvency proceeding cannot be founded on two different grounds for fault where they stem from the same event

Judgment by the Supreme Court (First Chamber), December 16, 2019

A fault-based qualification of the insolvency proceeding cannot be founded at the same time on the existence of material accounting irregularities and on a serious inaccuracy of the accounting documents accompanying the petition for insolvency.

Fresh start does not include the non-borrower mortgagor

Decision of the Directorate-General for Registers and the Notarial Profession, December 10, 2019

The judicial decision granting the debtor the benefit of a fresh start does not include the debt secured by the non-borrower mortgagor, and does not allow the insolvency judge either to order removal of that mortgage collateral from the registry, because the mortgaged property, due to not belonging to the insolvent debtor, is not part of the assets available to creditors in the insolvency proceeding.

Law of the state of the opening of insolvency proceedings is applicable to actions that are a direct consequence of the proceedings

Judgment by the Court of Justice of the European Union (CJEU), November 21, 2019

The law of the state of the opening of insolvency proceedings does not govern action for payment under a contract concluded before the insolvency proceedings with another company established in a different member state, because that action cannot be regarded as the direct inseparable consequence of the insolvency proceedings.

Purchaser of an NPL portfolio may apply for a compulsory insolvency proceeding of the transferred debtor after six months from the purchase

Decision by Barcelona Provincial Appellate Court, October 23, 2019

Any creditor that has acquired its claim in a bulk assignment, which is the case of the purchaser of an NPL portfolio, is authorized to petition for an insolvency order on the debtor after six months have run from when it acquired the claim.