The 5th Final Provision of Law 40/2015, of 1 October, on the Regulation of the Public Sector (Ley 40/2015, de 1 de octubre, de Régimen Jurídico del Sector Público –“LRJSP”), published in the Official State Gazette on 2 October 2015, amends several precepts of the Insolvency Law (“LC”), including Article 90.1.6 LC. Specifically, the following text has been added to this precept:

“Credits secured with pledges established over future receivables shall only be given special priority when the following requirements are met before the declaration of insolvency:

  1. a) The future receivables must arise from contracts based on legal relationships established prior to the declaration of insolvency.
  2. b) The pledge must be established in a public document or, in the case of a non-possessory pledge, registered in the competent public registry.
  3. c) In the case of receivables arising from the termination of works concession or public services management contracts, the requirements of Article 261.3 of the revised text of the Law on Public Sector Contracts approved by Royal Legislative Decree 3/2011 of 14 November must also be met.”

Article 261.3 of the Revised Text of the Law on Public Sector Contracts (Ley de Contratos del Sector Público–“LCSP”) referred to in point c) of Article 90.1.6. LC was introduced by the 9th Additional Provision of the LRJSP itself, in the following terms:

“3. Rights arising from the termination of a works concession or public service management contract, to which the first sections of Articles 271 and 288 refer, as well as rights arising from public contributions and the enforcement of guarantees established in Articles 254 and 256, may only be pledged to secure debts related to the concession or contract, subject to authorisation by the contracting body, which must be published in the ‘Official State Gazette’ (‘Boletín Oficial del Estado’ –B.O.E.) or in the official gazettes of Spain’s autonomous communities or provinces.

Both laws came into force twenty days after their publication in the Official State Gazette (Section 1 of the 18th Final Provision of the LRJSP).

Background and scope of the reform

On the terms indicated above, the LRSJ replaces the final section of Article 90.1.6 LC which had been included in Law 38/2010, which read as follows:

“Pledges in security of future receivables shall only give special priority to credits that came into effect prior to the declaration of insolvency, as well as credits coming into effect thereafter when their reinstatement is admissible pursuant to Article 68 or when the pledge was registered in a public registry prior to the declaration of insolvency.

This rule had been the object of strong criticism, despite which the LC had been amended on numerous occasions before it was finally decided to change its wording. While it was clear that future receivables should be understood to mean credits coming into effect after the declaration of insolvency, it was not clear what type of pledge was being referred to. Interpreted literally, the rule would only have affected pledges established to secure future receivables. However, initially many rulings interpreted it as covering the pledge of or over future receivables, so that to be given special priority the pledge had to be registered, which precipitated an increase in the registration of pledges of future receivables in the Personal Property Registry.

The most recent case law, however, has begun to interpret the rule literally. Based on the traditional doctrine on the effectiveness in insolvency of the collateral assignment of future receivables, it came to be understood that for the pledge over future receivables to receive special priority it was enough that the legal relationship on which such credits were based existed at the time the security was established (Judgments of the Supreme Court [SSTS] 125/2013, of 6 November, and 650/2008, of 22 February 2008; SJM No. 1 Alicante 38/2014, of 12 February; SAP [Section 15] Barcelona 116/2014, of 3 April; SSJM No. 7 Madrid 68/2014 and 70/2014, both of 21 April; and SJM No. 9 Madrid of 6 February 2015).

The legislator has now opted for this solution generally by recognising special priority not only for credits that came into effect prior to the declaration of insolvency, but also those coming into effect afterwards which are based on a previously executed contract or on a legal relationship established beforehand [Article 90.1.6 a) LC].

In any case, it is an express requirement that the pledge be established in a public document or, in the case of a non-possessory pledge, that it be registered in the competent public registry (Article 90.1.6 c) LC). It is thus worth noting that generally for a pledge of credits a document with an irrefutable date is sufficient (first paragraph, Article 90.1.6 LC), while for future receivables a public document is required. The competent public registry continues to be the Personal Property Registry, pursuant to Article 54.III of the Law on Chattel Mortgages and Non-Possessory Pledges (Ley sobre Hipoteca Mobiliaria y Prenda sin Desplazamiento–“LHMPSD”). However, it should be borne in mind that pursuant to Article 8.1 of Royal Decree-Law 5/2005, of 11 March, the financial collateral agreements regulated by this law must be recorded in writing or in a legally equivalent manner, and no other formality can be demanded for their establishment, validity, effectiveness against third parties, enforceability or admissibility as evidence. Also, along the same lines, Article 54.III LHMPSD excludes credit claims from the scope of its application, including future receivables, which are deemed to be financial instruments for the purposes of the provisions of this Royal Decree-Law.

In any case, it is unquestionably clear that entry in a registry is not necessarily a requirement for the establishment of a pledge of credits, even if it involves a pledge over future receivables; nor is it a requirement to receive special priority in the insolvency proceedings of the pledgor, once the option of establishing that pledge in a public document exists.

In view of the doubts that could be generated by the apparent requirement for the registration of non-possessory pledges of future receivables, it is important to remember that the Resolution of the Directorate General of Registries and Notaries of 18 March 2008 recognised the possibility that pledges of credits, including future receivables, may be established as possessory pledges at the same moment that such credits come into effect. It is therefore to be expected that to avoid any problems and to save the cost of registering pledges over future receivables, duly advised pledgees should establish them as possessory pledges, expressly providing in the public documents that establish them that the credits pledged will automatically come into the possession of the pledgee or of a third party upon their coming into effect.