The General Directorate on Registries and Notarial Activities (“GDRN”) confirmed the registrar’s capacity to classify financial and early termination clauses in mortgaged loans and credits, and reviewed several clauses of this kind to agree on their registration in the registry. It also emphasized the most relevant characteristics of syndicated loan agreements and “floating” mortgages constituted under article 153 bis of the Mortgage Act (“MA”).

In these decisions, the GDRN compiled the doctrine on the classification and registration of clauses with financial content and early termination clauses agreed in financing agreements secured with a mortgage. Its position was based on three pillars, which it had already set out in previous decisions10:

  1. The reference article 12 MA11 makes to early termination clauses and  other financial clauses means these types of clauses are subject to the rule of law and should be classified by the registrar. They are relevant because they affect the exercise of the mortgage action and their inclusion in the registry renders the effects of any registration.
  2. The Supreme Court12 declared the validity and registrable nature of specific early termination and financial clauses, and recognized the classifying function of the registrar when determining the clauses that can be entered in the registry. This classification differs from the declaration of invalidity of the clause, which corresponds to the courts. The registrar’s classification must comply with  the criteria established by case law.
  3. The registrar can reject the registration of a clause when its invalidity was declared through a final legal decision, when its abusive nature is evident13 or  when, although no  abuse exists, it is not valid because it infringes  an obligatory or prohibiting regulation.

After confirming the registrar’s right to classify these types of clauses, the decision examined the clauses for which registration was sought, and concluded as follows.

Clauses are not subject to registration when establishing the early termination of the credit due to (i) an adverse change to the debtor’s solvency; (ii) an attachment against the borrower’s or mortgagor’s estate; (iii) a material adverse event; (iv) the non- fulfillment of payment obligations unrelated to the financing, or of obligations other than payment obligations and cross-default clauses; (iv) a change in the debtor’s shareholder composition; (v) any impairment to the guarantees; (vi) an opinion issued  on  the debtor’s financial statements with significant exceptions “in the opinion of the lenders,” although only in respect of this latter point. Finally, pledges without transfer of possession granted in the transaction cannot be registered.

Clauses are subject to registration when they are early termination clauses due to (i) the cease of the business activity or liquidation and dissolution of the debtor or any company of the group affected by the financing,  providing these are refinancing agreements meeting the requisites of article 71 bis IA; (ii) the supply of false or inaccurate information, even if this defect is not confirmed due to an error in proposing the classification; and (iii) non-payment of liens and costs with legal preference over the mortgage.

One new aspect was that the GDRN described the characteristics of syndicated loan agreements and, in the most recent of the four decisions, also specified the conditions of “floating” mortgages constituted under article 153 bis MA.

Regarding syndicated loans, it emphasized that when the syndication is agreed, there is a legal organization of the ownership of the group of creditors that, while preserving their individuality, provides them with a collective dimension: each entity holds different or separate claims, but loses the right to individual exercise. There is no active joint and several nature, and these are not profit-participating claims, but they are not usually construed under a strict joint or collective ownership nature, commonly owned.  To regulate the internal relations between its members, a set of rules is established governing the management, administration and disposal of the credit rights subjected to a majority system.

Under this scenario, a mortgage guarantee was granted under article 153 bis MA (a “floating” mortgage) agreeing the possibility of redistributing the lenders’ stake in the ownership of the mortgage if any of them waived their rights over the mortgage and, in the event of payment, release from or extinction of any of the secured obligations.

The GDRN accepted the registration of this clause, as the redistribution agreed was a simple expression of the specific number or percentage of ownership of the mortgage resulting from the unique nature of the limited floating mortgage.14 The payment corresponding to each creditor over the floating mortgage is variable and its in rem encumbrance regarding the secured obligations is maintained until the sum of the remaining outstanding obligations is reduced, through payment, release or extinction, until it is covered by the figure for mortgage liability.

The “floating nature” or “non-differentiability” of these mortgages prevents the guarantee from being understood as reduced if any of the secured obligations is extinguished or reduced, while the figure for mortgage liability is lower than the sum of the secured obligations. In this case, the floating mortgage will continue in full to secure the other secured obligations.