Vol 15 (2018) - Issue 2

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'Compensatory Advantages' and Avoidance Powers in the Insolvency of a Company that Gives an Intra-Group Guarantee: Spanish Experience

I. Introduction and previous legal doctrine

As in other jurisdictions, Spanish law has long faced the problem of the validity and enforcement of intra-group guarantees, where the grantor, subsidiary company, has become insolvent afterwards. The same topics are constantly discussed: is the granting of the guarantee an act of disposal without consideration as regards the beneficiary group company? If the answer is in the negative, could it be contested as an act detrimental to the estate, positing the question ex-ante (at the time the guarantee was granted)? For some years after the enactment of the Spanish Insolvency Act ('IA') in 2003, courts hesitated as to the solution that these questions merited (see Supreme Court Judgments 791/2010 and 652/2012). In the end, one had the impression that almost every up-stream guarantee succumbed to the insolvency practitioner’s avoidance powers and that courts generally upheld the validity of down-stream guarantees. This outcome reveals the counterfactual insight of legal scholars and legal doctrine as to the phenomenon of the group of companies, when refusing to take an overall approach to this theme. Besides, the decisions were justified without taking into account whether or not there were group external creditors to be protected and whether the avoidance of the transaction was the optimal way of providing such protection.