Restructuring & Insolvency Newsletter - October 2018 | Judgments of interest

Collective layoff voided at Spanish branch of a company subject to German insolvency proceedings

Judgment by the National Appellate Court (Labor Chamber) on April 30, 2018

An insolvency order by a German court on a company does not in itself authorize that company to carry out a collective layoff at its Spanish branch. The German company should have petitioned for a local insolvency proceeding on its Spanish branch to obtain authorization from the judge hearing the Spanish insolvency proceeding to conduct the collective layoff at its branch.

Following commencement of the liquidation phase, an insolvency practitioner fails in his duties by not substituting the debtor in proceedings under way

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

On commencement of the liquidation phase, an obligation arises for the insolvency practitioner to substitute the company so as to take charge in any court proceedings under way. The substitution is a legal effect of the liquidation and if the insolvency practitioner does not make that substitution he incurs “failure in his duties”. If the insolvency practitioner does not perform his obligation, the company may continue the proceeding with its capacity to participate in the proceedings unchanged, but it will need authorization from the insolvency practitioner to appeal against the judgment at first instance, for example.

Claims for personal income tax withholdings arise on payment of the wages

Judgment by the Supreme Court (Chamber One) on July 11, 2018

Among claims for personal income tax withholdings against the debtor a distinction must be made between the creation of the main tax obligation, which takes place on the occurrence of the taxable event, and the withholding obligation, which is independent from the main tax obligation and arises when the wages are paid. To conclude whether a claim in respect of a withholding obligation is a pre or post insolvency order claim regard must be had to when the wages are paid.

A corporate group exists for insolvency purposes even if an individual or non-commercial company is at the pinnacle of the group

Judgment by the Supreme Court (Chamber One) on July 11, 2018

The reasons justifying a specific type of treatment for insolvency proceedings involving companies in the same group (and having an effect on issues like the consolidation of insolvency proceedings, clawback actions, subordination of claims, etc.) exist if “control” is exercised by a commercial company and also if it is exercised by one or more individuals (or a legal entity that is not a commercial company).

The value of an REO property having to be clawed back is calculated by reference to its value on foreclosure of the mortgage

Judgment by the Supreme Court (Chamber One) on July 19, 2018

Following the upholding of a clawback action against the creation of a mortgage that is later foreclosed, the amount to be clawed back by the financial entity (whose good faith in the transaction was not contradicted) is the mortgaged asset’s value on foreclosure of the mortgage, meaning the successful bid price is the most objective parameter to determine its value. Its appraisal value according to the mortgage deed and relating to when the mortgage was created may differ from the value of the assets on foreclosure of the mortgage.

EU legislation on unfair terms is not applicable to the assignment or purchase of consumer debts

Judgment by the Court of Justice of the European Union on August 7, 2018

The assignment of debts for a low price in the absence of a specific contractual clause to that effect, without the debtor being informed of that assignment beforehand or giving his consent to it and without giving him the opportunity to buy back his debt (and thus discharge it, by refunding to the assignee the amount which it paid for the assignment, plus the applicable interest, expenses and costs) is consistent with EU law. Directive 93/13 on unfair terms in consumer contracts is not applicable to the assignment or purchase of debts or to domestic provisions such as article 1535 of the Spanish Civil Code and articles 17 and 540 of the Spanish Civil Procedure Law governing the transfer of debts and the substitution of assignor for assignee in the proceedings under way.