On March 21st, 2012 the Spanish High Court rendered its Judgment in which stated that credits for supplies accrued before a company has been stated in bankruptcy, have to be paid as preferential credits, this means that they shall have priority over the rest of the credits, in those cases in which the Court who is dealing with the bankruptcy proceedings had ordered the supplier to continue with the respective supply in the interest of the bankrupt company.

The reference has been made in the course of proceedings brought by the Spanish energy supplier IBERDROLA against a company that upon the declaration of bankruptcy by the Court, the mentioned company owed IBERDROLA more than six million euros for energy supply.

IBERDROLA filed a claim before the Commercial Court which was dealing with the bankruptcy proceedings applying for the termination of the contract of energy supply with the bankrupt company and, subsidiarity, applying the Court to confirm that the contract remained in force, asking the Court likewise to consider those credits accrued before the declaration of bankruptcy proceedings as well as those accrued later on, as preferential credits.

The Commercial Court rejected the claim because the termination of the energy supply would stop the working activity of the factory, and stated that the credits for supplies accrued before the company was stated in bankruptcy shall be considered as ordinary credits, without any preferential treatment.

IBERDROLA appealed the Judgment before the Appeal Court who rejected the appeal claim, and one more time before the Spanish High Court which admitted the claim.

The High Court considered that, even taken into account that it is difficult to interpret the respective Section 62.3 of the Spanish Bankruptcy Law, the fact that the energy supplier was obliged by the Court to continue with the supply in the interest of the bankrupt company, was detrimental to the supplier, and deprived it to terminate the contract even the other party was had failed to comply with the agreement. Therefore, IBERDROLA should have more guaranties to obtain the payment for its credits.

For such reason, the High Court considered that both, credits accrued before and after the company was stated in bankruptcy, must be considered as preferential credits over the rest of the credits.