Decision 4095/2017 on the transmission of production units with mortgaged assets

Formes circulaires - Robert Delaunay

Siguiendo este link se accede a una versión en castellano sobre la STS 4095/2017

The Spanish Supreme Court Decision 4095/2017 (STS 4095/2017), of November 21, deals with the sale of a production unit including, among its assets, property that has been encumbered with a mortgage and, in particular, with the application of article 155.4 of the Spanish Insolvency Act (LC).

In the case resolved by the STS 4095/2017, the Insolvency Administration contemplated the unitary transmission, as a block, of the production unit in its liquidation plan, including in this block the property encumbered with a mortgage. The creditor holder of the mortgage, this is, the especially privileged creditor was assigned 47% of the consideration for the sale of the production unit, and the execution of the sale would result in the cancellation of the mortgage. The court decided to approve the transmission. However, the Registrar denied the cancellation of the mortgage because lack of consent from the creditor. According to the Registrar the cancellation required by the court was not complying with article 155.4 LC.

The Supreme Court in its Decision 4095/2017 must resolve if the Registrar can deny the cancellation of a mortgage ordered by a court referred to a property that is included in a production unit. The Supreme Court must resolve, also, if the Registrar can deny the cancellation, when the price assigned to the creditor holder of the mortgage is not covering the entire amount warranted and, if the court order have to expressly state that requirements of article 155.4 LC have been met.

The Supreme Court notes that in accordance with article 56 LC and article 90.1 LC, once the liquidation phase is open, the creditors with especial privilege that have not started the separate execution of its rights lose such right (to be executed separately). Therefore, the mortgaged property can be realized jointly with the rest of the debtor’s assets in case the separate execution has not being initiated before. If the creditor does not receive all of his credit through the amount resulting from the realization of the mortgaged asset, the remaining debt will be recognized, as appropriate, within the liabilities of the debtor.

While it is possible under previous approval by the judge to directly transfer the mortgaged asset to a third party, the general rule is that such asset should be auctioned. In addition, in case direct transfer is approved, it is required to apply, at least, the amount agreed by the parties with the mortgage and its payment have to be in cash to the creditor. Debtor and creditor may agree to apply a lower price but such price has to be the market value.

In consequence, the Supreme Court declares that, if the mortgaged asset should be realized together with the production unit with a price lower than the credit warranted, acceptance of the creditor holder of the encumbrance is required. This rule apply both in case the liquidation plan follows the supplementary rules laid down in article 149 LC and in case the liquidation plan established an specific procedure ad hoc.

For all these reasons, the order of the judge should have complied with the legal requirements, which include the acceptance of the credit holder of the mortgage, as the price assigned to the creditor specially privileged was lower warranty.

The Supreme Court remarks that with current regulations after RDL 11/2014, of September 5 and Law 9/2015, of May 25, introduced some amendments regarding the transfer of production units, which includes the following mandatory rules:

If assets with special privilege are transferred without subsistence of the warranty, the privileged creditors shall be entitled to receive the proportional part of the price obtained equivalent to the value of its encumbrance with respect to the global price of the company or the production unit transferred.

If the price to be received does not cover the entire amount warranted, it is required the acceptance of the creditor or creditors with special privilege that can require separate execution (however, in case of several creditors of this kind, approval of 75% of them is sufficient). In case of acceptance, the remaining amount not covered shall be classified accordingly.

If the price is higher than the value of the warranty, the acceptance of the privileged creditor or creditors affected is not required.

In essence, the Spanish Supreme Court confirms the Registrar’s denial regarding the cancellation of the mortgage, as the court order did not state that the procedure fulfilled the requirements laid down in article 155.4 LC.