Restructuring & Insolvency Newsletter - June 2022 | Judgments

CJEU pronounces on “mobile conflict” and the effects of Brexit in relation to insolvency proceedings

Judgment by the Court of Justice of the European Union on March 24, 2022

The judgment pronounces first on the “mobile conflict” issue that arises in cases where after the petition for the opening of the main insolvency proceeding to a court in one member state, the debtor transfers its center of main interests to another member state after filing that petition, but before that court has ruled on it. The CJEU held that in these cases the court would retain exclusive jurisdiction to open that proceeding. As a result, any other court in another member state with which a request is later filed for the same purpose cannot declare that it has jurisdiction to open the main insolvency proceeding until the first court has delivered its decision and declined jurisdiction.

Additionally, the CJEU makes a particularly important finding in relation to the UK's withdrawal from the EU. It notes in particular that the inability of the courts of another member state to declare that they have jurisdiction to hear an insolvency proceeding where the petition to open insolvency proceedings has been filed with a court in the United Kingdom is conditional on the requirement that the latter court must deliver a decision on the request to open proceedings before the end of the transition period set out in the Agreement on the Withdrawal of the United Kingdom from the EU, in other words, before December 31, 2020.

 

Approval of liquidation plan automatically halts ongoing administrative enforced collection and earnings attachment procedures

Decision by Madrid Commercial Court No 13 on March 21, 2022

Approval of a liquidation plan automatically renders invalid any enforced collection procedures, and any administrative or earnings attachments levied on the debtor's assets have to be removed. Therefore any steps taken to collect debts using these remedies are null and void as a matter of law, and all sums collected must be returned to the assets available to creditors.

 

Debit discharge relief includes nonpriority public claims

Decision by Madrid Commercial Court No 2 on March 11, 2022

Nonpriority public claims are subject to the general rules on debt discharge relief because the legislature adopted rules falling outside its authority by approving the Revised Insolvency Law.

 

Two Commercial Courts passes contradictory resolutions in relation to the requirement of prior payment by guarantor for subrogation of the Ministry of Economic Affairs and Digital Transformation in respect of amounts of ICO loans

Judgment by A Coruña Commercial Court No 2 on March 7, 2022

Judgement by Barcelona Commercial Court No 11 on March 4, 2022

Resolution from A Coruña Commercial Court states that automatic subrogation of the Ministry of Economic Affairs in respect of 80% of the amount of an ICO loan recognized in an insolvency proceeding as payable to a financial institution is not allowed if the prior payment as guarantor has not been made, due to being contrary to the insolvency rules on subrogation.

On the contrary, Barcelona Commercial Court states that the COVID legislation (Royal Decree-Laws 8/2020, of March 17, 2020; 25/2020, of July 3, 2020; and 5/2021, of March 12, 2021) acts as special law and takes precedence over the Revised Insolvency Law. Therefore an unsecured claim in respect of 80% of the amount of the ICO loan has to be recognized for the Ministry of Economic Affairs and Digital Transformation without the need for prior payment by the guarantor ministry.

 

Appointment of a company’s board members after conclusion of insolvency proceeding on the company due to insufficient assets available to creditors cannot be registered

Decision of the Directorate-General for Legal Certainty and Attestation on February 10, 2022

The conclusion of an insolvency proceeding due to insufficient assets available to creditors prevents registration of action to name board members and appoint a chief executive officer due to being acts incompatible with the liquidation of the company and removal of its page at the registry, nor can directors be named where the company is in a winding up process.

 

Ordinary claim in respect of a mortgage registered after insolvency order

Decision by Barcelona Commercial Court No 11 on January 17, 2022

A claim in respect of a mortgage must fulfill all the requirements to be classified as a special priority claim before the insolvency order (in particular, registration at the registry), which means that a mortgage not registered before the insolvency order must be classified as an unsecured claim.

 

Creditors bringing clawback action under a secondary right may petition for a mandatory insolvency order against the debtor

Decision by Las Palmas Provincial Appellate Court on January 14, 2022

Creditors’ secondary rights to bring clawback action extend to the enforcement of any judgments resulting from exercising those rights, includinguniversal enforcement. Those rights may be used to petition for a mandatory insolvencyproceeding on the debtor to collect their claims.

 

Justice system lawyer is entitled to allocate assets in the liquidation phase at a value below 50% of that attributed by the insolvency practitioner

Decision of the Directorate-General for Legal Certainty and Attestation on January 5, 2022

The justice system lawyer has the power to allocate the debtor’s assets by decree in the liquidation phase of the insolvency proceeding, and is able to allocate them at a value below 50% of the amount that would have been attributed to them by the insolvency practitioner where the debtor actively takes part in the auction, all of which is allowed under the right to weight conferred by the law.

 

Special priority associated with maximum mortgage does not apply to any balance not appearing in secured checking account on date of insolvency order

Judgment by Ourense Provincial Appellate Court on November 3, 2021

The maximum mortgage arranged to secure the balance in a checking account only covers the final balance determined in the liquidation of that account, and therefore special priority claims cannot be recognized in respect of sums relating to transactions other than mortgage transactions which do not appear in that account on the date of the insolvency order.  

 

The individual named to carry out a legal entity’s director duties may be affected by the assessment of the entity’s insolvency

Judgment by Murcia Commercial Court No 2 on November 2, 2021

The individual representing a legal entity director may be a person affected by the assessment and therefore able to be ordered to cover the shortfall in the insolvency proceeding if their conduct contributed to causing or aggravating insolvency.

 

Directors may be liable for delay in petitioning for insolvency order even during the moratorium on obligation to petition for insolvency order

Decision by Madrid Commercial Court No 13 on October 28, 2021

Temporary suspension of the duty to petition for an insolvency order does not relieve company directors of their liability for loss of equity before March 2020 or for an increase in the company's debts due insufficient diligence on their part. 

 

Liquidation of assets remaining after conclusion of an insolvency proceeding due to insufficient assets available to creditors must be done by a liquidator registered at the Commercial Registry

Decision of the Directorate-General for Legal Certainty and Attestation on October 4, 2021

The shareholders are not authorized to decide for themselves on allocating the remaining assets after the conclusion of the insolvency proceeding due to insufficient assets available to creditors nor can they apply for a legal proceeding on the need to reopen the insolvency proceeding. Instead a liquidator must be appointed under the corporate law rules and for the liquidator to execute the liquidation deed.

 

Debt discharge relief does not cancel the mortgage, nor does it include third party owners who are not debtors

Decision by Madrid Provincial Appellate Court on September 27, 2021

The discharge of unpaid debts prevents the mortgage creditor from initiating enforcement proceedings to collect its claim against the debtor, but it does not cancel the mortgage, and any rights against third party owners of the mortgaged properties remain unaffected.

 

Limit on fees of insolvency practitioners laid down in transitional provision 3 of Law 25/2015 has been tacitly repealed by Revised Insolvency Law

Judgment by Murcia Commercial Court No 2 on September 22, 2021

The forfeiture of the insolvency practitioner’s right to receive fees starting from the thirteenth month after the opening of the liquidation phase is no longer applicable following the approval of Revised Insolvency Law.

 

Guarantee facilities considered to be financial claims for the purposes of calculating the majorities for court sanction of the refinancing agreement

Judgment by Gijón Commercial Court No 3 on July 26, 2021

The effects of a court sanction of a refinancing agreement cannot be made binding on the holder of guarantee facilities, if the holder was not included in the calculation of majorities despite being a financial creditor affected by the refinancing.

 

Insolvency practitioner relieved of duties to prepare, approve, have audited and file financial statements in liquidation phase

Decision by Murcia Commercial Court No 2 on July 21, 2021

The corporate law obligations mentioned above relating to the financial statements disappear in the liquidation phase of an insolvency proceeding, because the creditors’ rights to this information are sufficiently covered by the insolvency petitioner’s report, the quarterly liquidation reports and the submission of accounts.

 

Restriction of the grounds for objecting to submission of accounts, by excluding the right to challenge as a result of undue delay in post-insolvency claims or in applying for their recognition and/or payment

Judgment by A Coruña Commercial Court No 1 on July 20, 2021

Objection to the report on the submission of accounts cannot be used to challenge the payment order or the recognition of post-insolvency claims, which will have to be done through the mechanism for objection to conclusion of the insolvency proceeding or through the liability system for the insolvency practitioner.

 

Debt discharge relief should apply to public claims

Judgment by Guipúzcoa Provincial Appellate Court on July 12, 2021

Not applying debt discharge relief to a public claim is precluded by the European insolvency directive, which means that the provisions in the Revised Insolvency Law in this respect are not applicable. Moreover, a court-approved payment plan will not have to need subsequent ratification by a creditor holding a claim subject to public law.

 

Special priority status held in relation to a mortgage transferred by a financial institution belongs to recipient asset securitization fund

Judgment by Navarra Provincial Appellate Court on September 30, 2020

There is no special authorization for a financial institution that transferred a claim to be treated as a pre-insolvency creditor where the secured claim was transferred to an asset securitization fund. This means that even if the registered owner is the financial institution, it is the securitization fund that has priority creditor status.