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Insolvency

The impact of insolvency provisions in European jurisdictions is determined by the declarations made by the European Union[1] under the Convention and the Aircraft Protocol.[2] The European Union deposited as a Regional Economic Integration Organization (Article XXVII Aircraft Protocol) the instrument of approval to the Aircraft Protocol on 28 April 2008 together with declarations.[3] Accordingly, as far as provisions on remedies on insolvency are concerned, it has been interpreted that

EU Member States are unable to make declarations under Article XI Aircraft Protocol (and the corresponding Article in other Protocols), although they would be able to amend their domestic laws so as to produce same substantive outcomes as if the declaration had been made. Hence, despite the advocating of pondering OECD “qualifying declarations”, declarations concerning insolvency provisions are not expected in further instruments of ratification - see, however, declarations made by other EU Member States

In accordance to Spanish legislation on insolvency, currently in force[4] - noting that 2014[5] and 2015[6] reforms have entailed a notable impact on (asset-based) secured creditors’ position -, after insolvency procedure is commenced with the debtor, enforcement of security interests and other title-devices agreements are stayed under the following circumstances. Those security interests on assets devoted to and necessary for the continuation of the debtor’s business or professional activities, as held by the insolvency court, cannot be enforced (or will be suspended) until the first of the following milestone occurs: the approval of an agreement not affecting the exercise of the said security interest or the course of one year after insolvency was declared without being any liquidation initiated. Likewise, within the aforementioned period enforcement of the following agreements will be stayed as well: in particular, hire purchase agreements, title reservation agreements or leasing agreements provided that they are registered in the Registry of Movables.

It might be well worth reminding that those agreements whose obligations are still pending are not affected by the commencement of the insolvency procedure. Clauses entitling parties to avoid or terminate the contract on grounds of insolvency declaration are indeed null and void. Hence, agreements in force have to be expressly declared avoided upon the insolvency procedure. Otherwise, those obligations due by the debtor will be paid against the insolvency state (masa).

In the order of preference to pay claims in insolvency procedure, asset-based secured creditors are deemed to hold “privileged” claims, in particular, claims with a “special” privilege (Article 90 Insolvency Act). Accordingly, in the liquidation phase, those claims will be first paid with the proceeds of the sale of those assets or rights.

In particular, now it should be considered the convenience to align insolvency provisions with Alternative A of Article XI of the Protocol aiming to produce an equivalent domestic result, since the option under that provision was not available for European Union Member States.

  • [1] Berend Crans, ‘The Implications of the EU Accession to the Cape Town Convention’ 35 Air andSpace Law 1, 2010, p. 7.
  • [2] On 18 December 2014 the European Union’s instrument of approval to the Luxembourg Protocolto the Convention on International Interests in Mobile Equipment on Matters Specific to RailwayRolling Stock, adopted at Luxembourg on 23 February 2007, albeit not yet in force, was depositedwith UNIDROIT. In this case, the European Union has made a declaration under Article XXII(2)of the Luxembourg Protocol.
  • [3] Interestingly, the European Union declared that “at the time of accession to the Aircraft Protocol,the Community will not make a declaration pursuant to Article XXX(1) concerning the applicationof Article VIII nor will it make any of the declarations permitted under Article XXX(2) and (3).The Member States keep their competence concerning the rules of substantive law as regardsinsolvency”.
  • [4] Article 56 of Law 22/2003, of 9 of July, on Insolvency (Ley Concursal) as drafted by Law17/2014, of 30 of September, adopting a number of urgent measures on refinancing and restructuring business debt (Ley 17/2014, de 30 de septiembre, por la que se adoptan medidas urgentes enmateria de refinanciacion y reestructuracion de deuda empresarial), published in the OfficialBulletin of 1st of October of 2014 and in force since 2nd of October of 2014.
  • [5] The enactment of the Law 17/2014 derives from the legislative processing as an ordinary law ofthe Royal Decree Law 4/2014, March 7, adopting urgent measures in refinancing arrangementsand debt restructuration. BOE 1 October 2014.
  • [6] Royal Decree Law 1/2015, February 27, BOE 28 February 2015, introducing a ‘fresh start’ (or‘second chance’) solution in insolvency laws and Law 9/2015, May 25, BOE 26 May 2015. ‘Freshstart’ solutions had been previously introduced, for certain debtors and under specific conditions,by Law 14/2013 providing support to entrepreneurs and promoting internationalization. The extentof the ‘fresh start’ is nonetheless limited. The debtor was required, among other requirements, toentirely pay off secured creditors (mortgage and pledges). Under the RDL 1/2015, the ‘fresh start’model has been substantially amended. Interestingly, the total payment to privileged creditors isnot always required for the cancelation of debts. Other formulas are laid down to allow the debtorbeing eligible for ‘fresh start’ benefits. Finally, Law 25/2015, July 28, on second chance, reductionof financial burder and other social measures, BOE 29 July 2015.
 
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