Any restitution and compensation agreed by the judge when the  swap agreement is terminated in the interest of the insolvency will be charged to the insolvency estate

This decision was handed down on the classification in insolvency for credits arising from several interest-rate-swap agreements that the commercial court terminated in the interest of the insolvency in application of article 61.2 of the Insolvency Act. The first- instance body classified the financial institutions’ rights to restitution and compensation due to the termination of the agreements as credits against the insolvency estate. The provincial court of appeal amended this classification, considering that the provisions were applicable (in the wording in force at the time) of section 2 of article 16 of Royal Decree-Law 5/2005, of March 11, on urgent reforms for fostering productivity and improving public procurement (“Royal Decree-Law 5/2005”) and considered them to be insolvency credits.

The Supreme Court considers that article 16.2, by referring to termination subsequent to the declaration of insolvency, refers to article 62.4 of the Insolvency Act, which is not applicable to the case because it considers as a determining factor that the non- fulfillment being prior or subsequent to the declaration of the insolvency is an aspect that is irrelevant when termination has been declared in the interest of the insolvency and not due to any non-fulfillment of the insolvent party. As a result, the rule that should be applied, as the commercial court did, was that of paragraph two of article 61.2 of the Insolvency Act, enabling the judge to order termination in the interest of the insolvency when no arrangement exists and to order the relevant restitution and compensation to be charged to the insolvency estate.

The judgment contained the dissenting vote of the Honorable Judge Rafael  Saraza Jimena, with which the Honorable Judge Ignacio Sancho Gargallo agreed, in relation to the consideration of the interest rate swap agreement as an agreement giving rise to reciprocal obligations. The Supreme Court assumed this condition in its decision. However, in the dissenting vote, it was stated that in the case examined, multiple financial transactions do not exist under a contractual netting agreement enabling application of Royal Decree-Law 5/2005. In their opinion, the interest rate swap was a single financial transaction, despite periodical successive liquidations taking place in time. Therefore, they understood that the rules of the Insolvency Act, and not those of Royal Decree-Law 5/2005, should be used to determine the nature of the credit.

As the Supreme Court judgments of January 8 and 9, 2013 did, the senior judges claimed that these agreements did not include any functional synalagma that, together with genetic synalagma, is inherent in agreements with reciprocal obligations and, therefore, that article 61.2 of the Insolvency Act, established for agreements with reciprocal obligations, would not be applicable.

They considered that the credit resulting from the early liquidation of the swap agreement should be classified as insolvency credit.