The Supreme Court confirms the effectiveness of obligational sponsorship letters (again comfort letters ) and their interpretation as joint guarantee respect of those who enacted them. The rules of the game have changed and any society that "sponsor" to another entity, whether or not subsidiary, will be liable to third creditor whenever the letters imply an obligation to provide the sponsored.

Sponsorship letters, commonly known as comfort letters , are often used in the context of financing transactions, but are also granted other legal businesses. The recent judgment of the Civil Chamber of the Supreme Court on June 27, 2016, which is the subject of this brief commentary, is of particular interest to operators of any economic sector. It should begin by recalling the nature and operation.

Among the different forms of personally guarantee a legal business, it is very common that the debtor avails of its controlling shareholders or companies in the same group in order to (through these sponsorship letters) prove their solvency and, where appropriate, to ensure compliance with its obligations to the creditor. Depending on the content of these instruments, in light of the pronouncements of the Supreme Court (among others, of June 30, 2005, to February 13, 2007, to December 26, 2014 or January 29, 2015) fits distinguish those known as "weak" (containing mere recommendations or statements sponsor the creditor confidence, respect sponsored) and those called "strong" (which constitute obligations to deal with the creditor, recognized as joint guarantees).

In order to reiterate clearly and concisely the doctrine defended by the Supreme Court in its recent pronouncements on this matter so, the recent judgment reflects the requirements that, in general, must meet the letters of "strong" patronage: (i ) a clear and unambiguous intention of the sponsor to be bound (in this sense, the servery language is crucial), (ii) an acceptance of the debtor being sponsored by the sponsor (this usually translates normally to execute the requested funding) and (iii) the admission of any relational framework between the sponsor and the sponsored.

It is compared with the last requirement where the sentence is more innovative, confirming the doctrinal change. Until a few years ago, the Supreme Court required, so that a letter could be considered strong (and, consequently, to recognize their obligational content), the sponsor matrix outside the debtor. But this rigidity in the sponsor-debtor relations has dissipated over time and now, clearly and firmly, the High Court considers that it is sufficient that both parties (sponsor and debtor) express interest in the operation in question, regardless of the legal or business that relationship. Therefore, we can support any relational framework to justify the validity of self-interest, attribution or advantage for the sponsor.

That said, it is common knowledge the dubious requirement of compliance with the obligations promised by the sponsors in sponsorship letters, provided they are not well written and has not been clear desire and intention of the sponsor to ensure and help the sponsored. That is, whenever we are faced with a written letter of vague and weak manner. Therefore, this fact strengthens the position of the sponsoring entities to avoid having to fulfill the obligations offered to the creditor. But, however, before a strong card, the position of the sponsors to avoid meeting their obligations is more than questionable, even in situations where the sponsor is not sponsored matrix. Thus, with the consolidation of the doctrine of the Supreme Court, the defense of the sponsoring entities seems more complicated.

On the other hand, it should also be noted the confirmation by the Supreme Court of solidarity nature of the obligations assumed by comfort letters , since not conceive the absence of such a character in obligations under commercial contracts that have been guaranteed. Once again (STS of 26 May 2004, among others), the statement provides arguments for the disputed specialty at this point of commercial law in relation to civil law.

In short, the ruling of the Supreme Court order of this commentary confirms the position of the High Court as to the interpretation of comfort letters strong concerns. The old, not less questioned, criteria resulted in only enforce the sponsors that were, in turn, matrices sponsored companies, their obligations to the creditor parties is history. Failure to maintain a legal parent-subsidiary relationship does not translate into an excuse not to be forced to face the responsibilities arising from breaches of the secured party.

This publication does not constitute professional advice or legal advice of the authors. This post was written by members of the Department of Corporate / M & A. For questions, contact Antonio Pino.

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