Restructuring & Insolvency Newsletter - December 2018 | Judgments of interest

There is no abuse of law by former shareholders claiming indemnity from the company after guaranteeing company debts

Judgment by the Supreme Court (Chamber One), July 20, 2018

Two former shareholders and former directors, joint and several guarantors for a mortgage loan provided to the company while they were managing its affairs (a ground for dissolution of the company existed even though an insolvency order had not been rendered) requested for the company to provide guarantees to them to cover legal action for the amount of the guarantee if the guarantee is executed, or, secondarily, for the company to relieve them of that guarantee. The Supreme Court supported the two guarantors’ claim and threw out application of the abuse of law principle because they did not satisfy the immoral or antisocial behavior requirements, since the provision by the company of coverage to its guarantors is a direct effect of the obligation the entered into by the company when guarantee was created.

To be treated as a 'specially related party' (insider) at the insolvent company due to belonging to the same group of companies, it is necessary for the creditor to belong to the group when the claim arises

Judgment by the Supreme Court (Chamber One), October 23, 2018

Even if the creditor’s majority shareholder is also the beneficial owner of a company in the insolvent company’s group (while not belonging to that group itself), that relationship does not per se make the creditor a specially related party (insider) at the insolvent company, therefore its claim does not have to be subordinated for that reason.

A fault-based assessment of an insolvency proceeding does not necessarily determine an order for the directors to pay the 'insolvency shortfall'

Judgment by the Supreme Court (Chamber One), October 31, 2018

When ordering the director of an insolvent company to pay the insolvency shortfall, besides considering the legal requirements it is also necessary to take into account the intentional and factual elements of the director’s conduct in relation to any steps that determined the fault-based classification of the insolvency proceeding. Not receiving compensation or the absence of professional advice in relation to the duties performed by individuals without any business management training are grounds able to save them from being ordered to cover the shortfall even if the insolvency proceeding is fault-based.

Only the courts of the member state where an insolvency proceeding opens are allowed hear action to set a transaction aside

Judgment by the Court of Justice of the European Union (CJEU), November 14, 2018

According to the Luxembourg Court, the jurisdiction to hear action to set a transaction aside on the ground of insolvency brought against a defendant whose registered office or habitual residence is in another member state, lies only with the courts of the member state of the opening of proceedings. They have exclusive jurisdiction, which rules out the option of bringing these types of action in the courts of other member states, including those where defendants have their registered offices. The judgment applies the former Insolvency Regulation No 1346/2000, although there is no obstacle to considering it to be applicable also to cases arising under the new Insolvency Regulation No 2015/848.

A subordinated claim transferred to SAREB retains its classification if it had already been recognized as a subordinated claim and the period for challenging the list of creditors has expired

Judgment by the Supreme Court (Chamber One), November 21, 2018

Article 36.4.h of Law 9/2012, of November 14, 2012, on the restructuring and resolution of credit institutions, provides that a claim transferred to SAREB is not to be classified as a subordinated claim, unless the transfer is made after its classification as such. To classify a claim transferred to SAREB as a subordinated claim it is therefore necessary for it to be recognized as such on the list of creditors and for the right to challenge the list to have expired. It is irrelevant that the law was not in force when the list of creditors was filed, because the claim could still be challenged when it came into force.