Vol 8 (2011) - Issue 4

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The Interest-Rate Swap Contract under Spanish Insolvency Law

1. Concept

The doctrine understands that financial exchange agreements, or swaps, are those contracts in which two economic agents agree to exchange cash flows, expressed in one or several currencies, based on different rates or reference indexes which may be fixed or floating, during a certain period of time. In the interest rate swaps, which are often seen in bankruptcy procedures, both parties agree, for a determined period of time, on a mutual exchange of periodic payments of interests fixed in the same currency and calculated over the same principal but with different reference rates. Usually, one of the parties (the bank) pays a fixed rate while the other party (the client) pays a floating rate. In fact, the respective salaries are normally settled between the contracting parties by offset, resorting to compensation.

Therefore, there is no actual exchange of payments or an economic flow between the bank and its client, as has been stated above, but rather a periodic settlement pursuant to different interest rates applicable to one single principal reference amount.

In the most common market scenario, the parties enter into a master agreement ('MIFID') in which the definitions, covenants and conditions inherent to the swap are determined. The MIFID establishes the general rules that will govern the specific exchange operations between the parties, the closure of which shall be sufficiently communicated between the contracting parties by the means of a confirmation, usually in a model form accompanying the agreement as an Annex. In this situation, each confirmation does not imply the formalisation of a new agreement, as all operations are part of the MIFID: a single contract of continuing performance.

2. Nature of the agreement

There is no doubt that the swap contract is a bilateral agreement, although in practice, and to the effect set forth in s. 61 of the Ley Concursal (Insolvency Act), many have discussed whether it is a true synallagmatic contract with reciprocal obligations for both parties. One must bear in mind that only those agreements with reciprocal obligations borne by one and another party and pending fulfilment generate accounts on the assets, all the while those obligations pending fulfilment by the insolvent party shall be satisfied with assets and rights integrated within the active assets (s. 61.2).

According to Díez-Picazo,

'obligatory relationships are synallagmatic when they determine reciprocal obligations borne by both parties. Each one of the parties holds a credit right and a payment obligation of correlative or reciprocal nature against the other party. Both reciprocal payment obligations are linked by interdependence, given that each party accepts the sacrifice that fulfilling its incumbent obligation implies, with the purpose of obtaining the payment that the other party must satisfy as a result. Each payment obligation functions as the equivalent of the reciprocal payment obligation, and this does not necessarily imply that there is an objectively measured total value equivalence in accordance with external modules'.