Disputas Mayo 2019
LAW REGULATING REAL ESTATE CREDIT CONTRACTS
By Antoni Faixó
I. ENTRY INTO FORCE
This Law shall come into force on 16 June 2019.
The Law applies to mortgage credit or loan contracts granted by a natural or legal person acting in its professional scope (financial), when the borrower, mortgagor or guarantor is a natural person and the real estate is for residential use, including box rooms and parking spaces related therefor or when it is a land or real estate built up or to be built up.
As we have seen, the scope is very broad and affects the vast majority of mortgage loans.
III. PUBLICITY AND PRELIMINARY INFORMATION OF THE CONTRACT
The publicity of the mortgage loan must include the payable fee amount, foreseeing that the Ministry of Economy and Business will create a form of such representative example.
Furthermore, before signing this type of contract, the lender must deliver the borrower customised pre-contractual information from the information submitted by the latter upon requesting a loan. Such pre-contractual information will be delivered by means of the European Standardised Information Sheet (ESIS) attached as Schedule I to the Law and at least 10 calendar days will mandatorily elapse between the delivery date of such customised pre-contractual information and the signing date of the loan.
Within the same minimum term in advance, the lender must deliver the borrower a Standardised Warning Sheet (FiAE), which will include explanations on certain relevant elements such as the interest rate, additionally to a copy of the contract project and a document related to the contract expenses (which are clearly established by law: any assessment expenses will be borne by the borrower and the rest by the lender, except for the tax, which will be assigned pursuant to the corresponding tax regulations).
Finally, we highlight the obligation to deliver a document warning the borrower on the obligation of free advice from a notary public of his choice regarding the contract.
Furthermore, once this documentation has been supplied by the lender, the borrower will be obliged to appear before a notary public of his/her election for providing advice and analysing the documentation supplied and formalising, if the notary public considers that the information is appropriate, a notarial certification prior to the execution of the contract to certify performance of this preliminary information obligation.
Upon signing of such certification, the lender must also appear, at least the day before the signing of the main contract. Without the positive certification, the mortgage loan deed may not be granted
IV. PROTOCOLS FOR EVALUATING THE BORROWER OR GUARANTOR’S SOLVENCY
The Law sets forth the obligation by the lender to have an evaluation proceeding implemented to evaluate the borrower or guarantor’s solvency and will be also obliged to periodically review such proceeding. Such reviews will be deposited and audited by the Bank of Spain.
It is an obligation similar to accounting audits.
If the lender may deny to grant the loan as a result of such evaluation, the lender will have to inform on a reasoned manner to the applicant and also inform on the database from which the lender has extracted data on the doubtful insolvency.
V. RELATED SALES
Any related sales of products are forbidden, except for insurance for payment enforcement and real estate damages.
However, the lender must accept alternative proposals to the insurance proposed, provided that they have equivalent conditions.
VI. STAFF COMPENSATION POLICY
The Law regulates the obligation to establish a transparent and objective procedure for staff compensation which may be engaged in this duty. It is a labour, though generic, regulation.
VII. ADVICE SERVICE
The lender may recommend the borrower a third-party advice service. In this case, the lender must clearly specify the cost of the service or if the service is free of charge.
It is an unclear rule, because it does not regulate the obligation of such advice, but it is optional.
VIII. NON-FLOOR CLAUSE
In no event may a “floor clause” be established in the event of variable interest, which is consistent with the case law of the Supreme Court on this matter.
IX. EARLY MATURITY
The Law provides for mandatory maturity early rules, i.e., no agreement may be reached against such rules.
Particularly, the Law stipulates that the lender may early terminate the contract, provided that the borrower may breach its payment obligation as follows:
- 3% of the capital or in at least 12 months or equivalent, during the first half of the validity term of the contract.
- 7% of the capital or in at least 15 months or equivalent, during the second half of the validity term of the contract.
Moreover, the lender will require payment from the borrower one month in advance in respect to the actual maturity.
X. DEFAULT INTEREST
The loan signed by a natural person will accrue a mandatory default interest corresponding to the wage interest plus 3 points and will be applied only on the capital and may not be capitalised.
XI. REAL ESTATE CREDIT INTERMEDIARIES
This figure is regulated by the Law. Intermediaries must be registered with a registry managed by the Bank of Spain. Such registration and the activity of these intermediaries is thoroughly regulated.
XII. REAL ESTATE LENDERS
This figure is also regulated by the Law, but more generically, to the extent the same will be regulated in the relevant regulations in detail. In any event, financial companies are not considered real estate lenders.
XIII. FREE COPIES
The borrower will be entitled to a free copy of the deed provided by the notary public and a free registry note provided by the Land Registry. To this end, an email of the borrower must be mandatorily specified in the mortgage loan deed.
XIV. APPLICATION TO PRIOR CONTRACTS
The Law does not affect such contracts signed before its coming into force, unless in relation to early maturity: the mandatory rule on the requirements for early termination will apply as of the entry into force, both to prior and future contracts.
THE PURCHASE OF A PRODUCTION UNIT IN INSOLVENCY PROCEEDINGS
By Antoni Faixó
I. INTRODUCTION AND DESCRIPTION
The purchase of a production unit has been a very outstanding action in many insolvency proceedings, which since 2015 was specifically regulated in the Insolvency Act to materialise its importance and try to resolve certain doubts on such concept.
The purchase of a production unit consists of a business by which a subject (usually a company) purchases a business unit of a legal person or businessman natural person bankrupted in exchange for the payment of a price.
In general terms, this business is remarkable for the possibility to sell the business free of debts, that is, the business assets, but not liabilities, are sold. However, the purchaser must usually assume the existing employment contracts, and this is so because an essential cornerstone that justifies this concept is the retaining of the existing jobs.
It is worth mentioning that payment cannot be made by offset. In other words, if the purchaser is a creditor of the bankrupted company, the purchaser cannot apply the price to offset its credit, because this would damage the other creditors.
II. INSOLVENCY STAGES
The insolvency court proceedings have several stages and files, but simplifying, we can state that regulations establish a first common stage, where assets and liabilities are analysed and another subsequent stage, either the arrangement stage, if an arrangement with creditors is voted and approved, or the liquidation stage, if there is no arrangement and the business is then liquidated.
The sale and purchase of the business unit is currently carried out in the liquidation stage. However, the Insolvency Act sets forth that it can also be carried out in the common stage, which is the initial stage prior to liquidation, but is exceptional and the bankruptcy administrator would only do so if the administrator justifies to the judge the need to carry out the sale and purchase so early; the Law also allows such sale and purchase to be carried out in the arrangement stage, i.e., that the proposal of arrangement contains a sale and purchase of the business unit, although it is also very rarely in practice.
III. CHARACTERISTICS OF THE PURCHASE OF A BUSINESS UNIT
Article 149 of the Insolvency Act regulates this figure as follows:
(a) The group of establishments, exploitations and any other production units of goods or services belonging to the debtor shall be sold as a whole, unless the judge may deem more appropriate to sell some components separately.
(b) The sale shall be carried out by means of an auction, unless the judge may consider the direct sale more convenient or by a specialised company.
(c) In the event of an auction, if the difference between the best two bids is below 15%, the judge may choose the bid considered more appropriate for the continuity of the production unit and jobs. In other words, the best bid is not always the awardee, but the judge could choose the second-best bid (if the economic difference is below 15% in respect to the first bid) if the judge considers that this bid is more convenient for the business continuity.
(d) In court decisions on this matter, the workers’ representatives shall be notified, which may submit the relevant pleadings before each court decision.
(e) In the purchase bid, the acquirer must specify its identity and solvency, clearly designate the rights and contracts it wants to acquire, as well as the price and terms of payment.
(f) When the economic unit sold retains its identity, corporate succession shall be deemed to exist for labour purposes.
In addition, article 146 bis LC establishes the following particularities:
(a) In the event of disposal of production units, the rights and obligations of such contracts still in force attached to the activity, shall be assigned to the acquirer. The acquirer shall subrogate in the contractual position of the bankrupted, without the other contractual party being entitled to object so.
(b) Licenses or administrative authorisations attached to the continuity of the activity are also disposed of, provided that the acquirer may continue the activity in the same facilities.
(c) The acquirer may decide not to be subrogated in certain contracts or licenses.
(d) The disposal excludes the debts prior to the disposal, unless the acquirer may expressly assume the debt.
IV. EMPLOYMENT CONTRACTS
As mentioned above, one of the cornerstones of this figure is the job retention. However, we have also seen that the Law regulates that the disposal may be either considered as a corporate succession or not, so that article 44 of the Workers’ Statute would be applied in the first, but not in the second case.
If the corporate succession is deemed to exist, the Insolvency Act sets forth that the judge may establish that the purchaser is not subrogated in such wages or compensations pending before the sale and purchase, in which case, such obligations would be assumed by the Wage Guarantee Fund.
In fact, regulation of the Insolvency Act on this matter is unclear and there has been and there is doctrine and case law discussions. Firstly, because the Insolvency Act seems to be inconsistent when regulating that the purchaser may specify which contracts it wants to retain or not and then regulates that if there is corporate succession, article 44 of the Workers Statute will apply.
Secondly, because the Supreme Court has stated that the judge of the insolvency proceedings is not competent to determine if a specific purchase of a production unit is a corporate succession for labour purposes, since this issue must be determined by the Labour Courts.
For practical purposes, we must say that within the insolvency proceedings, the judge may decide the employment contracts either considered or not as attached to the economic activity of the production unit sold and which are therefore subrogated to the purchaser, but the excluded workers may appeal to the labour jurisdiction to obtain a judgment recognising that their employment contract was actually attached and in such case, subrogation would apply.
Consequently, it is very important for the purchaser to explain and reason very carefully such employment contracts in which the purchaser accepts to be subrogated, because the purchaser runs the risk that such not-subrogated workers may claim in the future before the labour jurisdiction and a judgment may oblige the purchase to also assume them.
Evidently, this risk does not exist if the purchaser assumes all employment contracts of the bankrupted company.
V. PROPOSAL FOR SALE AND PURCHASE OF THE WHOLE COMPANY ATTACHED TO THE INSOLVENCY PROCEEDINGS
As we have seen, the sale and purchase of a production unit is currently carried out within the liquidation stage of the bankruptcy. However, there is the possibility to propose the sale and purchase directly in the application for bankruptcy.
Particularly, article 190 provides for such possibility in the so-called abridged insolvency proceedings. The abridged proceedings, which are shorter and simpler than the ordinary proceedings, applies in different circumstances, among others, when the bankrupted party files with its application a binding offer to purchase its business.
In this case, the bankruptcy directly passes to liquidation and the liquidation plan will be the one submitted by the bankrupted party with its application, which includes the direct sale and purchase according to the offer submitted, although the bankruptcy administrator and creditors may file pleadings and therefore there is the possibility that such plan and sale and purchase is not approved.
This option allows the purchaser to have more possibilities to acquire pursuant to its needs, because during the proceedings the purchaser may be competent to purchase or otherwise the bankruptcy administrator or judge may not admit its claims.
VI. MORTGAGED OR PLEDGED GOODS AND RIGHTS
If the sale and purchase of the production unit includes the disposal of mortgaged or pledged goods or rights, two circumstances may occur:
(a) If the purchaser expressly assumes the obligation to this creditor, such obligation is transferred, with no need of the creditor’s consent.
(b) If the purchaser does not assume the obligation and the judge agrees this guarantee to be released, the creditor shall receive the part of the sale and purchase corresponding to such good or right in respect to the whole production unit sold. In the event that this amount received does not reach the guarantee value, then the creditor’s consent will be required to release such guarantee. However, regulations set forth that the consent of 75% of the creditors only, will be required.
For practical purposes, it is important to carefully analyse if the disposal contains mortgaged or pledged goods or rights to evaluate the possible risk that they may not be transferred free from such guarantee, since the creditor would normally refuse so, unless under an agreement otherwise.