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Spain: Pledges over future credits

León López Iglesias

Law 40/2015, of October 1, on the Public Sector Legal Regime, which entered into force on October 22 2015, has amended article 90.1.6 of the Insolvency Law regulating the insolvency treatment of loans secured by pledges over future credits governed by Spanish law.

One of the aims of the reform is to clarify the previous (and unfortunate) wording of article 90.1.6 (which referred to pledges 'securing' future credits rather than to pledges 'over' future credits) and the formalities required to benefit from a special privilege in the case of insolvency. The amendment also introduces specific requirements applicable to pledges over credits derived from the termination of concession contracts for works or the management of public services.

The previous regulation, introduced by Law 38/2011, of October 10, was quite confusing and controversial. A conservative approach led many legal practitioners to configure pledges over future credit rights as pledges without transfer of possession (prendas sin desplazamiento) with access to the Registry of Moveable Assets (Registro de Bienes Muebles) in order to benefit from the special privilege foreseen in article 90.1.6 of the Insolvency Law. This resulted in a more expensive, time consuming and burdensome process than configuring the security as an ordinary pledge (prenda ordinaria) regulated by the Civil Code, which is simpler and does not require registration for perfection.

The new reform sets forth that loans secured with a pledge over future credit rights will enjoy a special privilege as long as (a) the underlying agreements giving rise to the future credits become effective before the declaration of insolvency, and, (b) the pledge is granted in a public document (if ordinary) or recorded at the corresponding public registry (if without transfer of possession).

Additionally, two specific requirements have been introduced for pledges over credits derived from the termination of concession contracts: (i) that the pledge is expressly approved by the relevant contracting body, and, (ii) that this authorisation is published at the Spanish Official Gazette (Boletín Oficial del Estado) or the corresponding regional official bulletin. This is particularly relevant for the purpose of creating security over the so-called Responsabilidad Patrimonial de la Administración or RPA (that is, the financial liability of the public administration) in infrastructure concession projects (for example, toll roads, ports, public hospitals and so on).

León López Iglesias

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