Vol 3 (2006) - Issue 5

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Spain: Subordination of Claims under the New Insolvency Law

1. Introduction
In this issue we will analyse some of the most significant
changes that Law 22/2003, of 9 July 2003 (the ‘Insolvency Law’) has introduced into Spanish insolvency proceedings: the subordination regime.
The subordination of a claim causes its settlement to be subject to and deferred until the satisfaction of other claims that rank above it. The subordination may be ‘general’ (the subordinated claim ranks below all of the creditors’ claims) or ‘specific’ (the subordinated claim ranks below specific creditors’ claims). In addition, a claim may be subordinated by agreement between the parties (contractual subordination) or by operation of law (legal or statutory subordination). The former may be agreed upon the creation of the contract or at a later stage; whereas the latter is normally imposed within the framework of insolvency proceedings.
2. New ranking of claims
The Insolvency Law classifies claims as privileged, ordinary or subordinated. Privileged claims include ‘secured claims’, which enjoy a special privilege related to specific assets or rights of the insolvent as a result of the existence of a charge over such assets. Privileged claims also include ‘general privileged claims’, such as: claims for unpaid salaries, unpaid taxes and social security contributions, certain tortious liabilities, and 25% of the claims of the creditor who first files the petition for the declaration of insolvency of the company, provided it is not subordinated.
Secured claims shall be paid out of the proceeds of the sale of the secured assets, but claims of the secured creditor remaining after the enforcement of privileged claims shall be classified as ordinary claims. On the other hand, general privileged claims shall rank below secured privileged claims (only to the extent that the debt is covered by the secured asset) and above ordinary creditors.
There is a further set of claims classified as estate claims (créditos contra la masa). These include, inter alia, unpaid salaries (accrued during the thirty days prior to the declaration of the insolvency and within certain limits), legal and judicial expenses related to the insolvency proceedings and ongoing trading expenses incurred by the insolvent company in the course of its ordinary business after the declaration of insolvency.
Before making payments of insolvency claims (privileged, ordinary and subordinated), the insolvency administrators shall deduct or set aside from the insolvent’s estate any assets or rights (except those that secure the payment of a secured privileged claim) necessary
to pay the estate claims.
For the first time in Spain, the Insolvency Law states that certain claims shall be subordinated to the remaining claims.1 These subordinated claims are analysed below.

2.1. Claims which have been communicated late to the court
The Insolvency Law states that the court order declaring
the insolvency shall contain an announcement to creditors to give notice of their claims to the insolvency administrators. The time period for giving such notice is one calendar month from the date of the last publication of the relevant court order. The court order shall be published in, inter alia, the State Official Gazette (Boletín Oficial del Estado) and in a widely published newspaper in the location where the debtor has the centre of its main interests. All claims communicated to the administrators after the period of one calendar month has lapsed (‘late claims’) shall be considered as subordinated claims, except for those claims resulting from the debtor’s documentation.