Spain: Swap agreement case law

Author: | Published: 8 Jul 2015
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Ignacio Buil Francisco Marzá
The Spanish Supreme Court rulings of January 8 and January 9 2013 put the discussion on the classification of claims arising from swap agreements to sleep for a while. But one issue remained. The Court did not tackle the classification of claims arising from swap agreements with netting provisions subject to the Spanish Royal Decree Law 5/2005 (RDL 2005). Therefore, this issue remained 'subject to further discussion'.

RDL 2005 offers a privileged treatment for claims arising from swap agreements with netting provisions. To summarise, these claims may be classified as: (i) insolvency claims, if the swap agreement is accelerated due to the insolvency of the debtor or as a result of the breach by the debtor prior to its insolvency declaration; or (ii) administrative expenses, if the acceleration occurs because of a breach by the debtor after the insolvency declaration.

In two controversial decisions, dated July 10 and September 2 2014, which were followed by several rulings of the Provincial Court of Madrid (the latest dated May 18 2015), the Spanish Supreme Court stated that claims arising from a single swap agreement with netting provisions entered under financial master agreement (or the so-called CMOF) could fall under the scope of RDL 2005. Therefore, some swap claims have been classified as administrative expenses. Surprisingly, netting is considered to occur not only when the parties are engaged in two separate swap agreements, but also when they have entered into a single swap transaction with obligations arising for each of them.

Given that it is highly unusual to find swap agreements without netting provisions (especially considering that swaps are entered in the context of financial master agreements), this new and controversial case-law should be closely monitored and could impact future restructuring situations.

Ignacio Buil and Francisco Marzá