Borrowing against art in Spain

Borrowing against art

In your jurisdiction what is the usual type of security interest taken against art, antiques and collectibles?

A non-possessory pledge is the usual type of security interest. Its regulation expressly contemplates its use for art, antiques and collectibles. It is a security that is granted over movable property, where the collateral continues to be in possession of the owner (debtor) as a deposit. It requires execution in a public deed and must be registered in the Chattel Registry.

If the borrower borrowing against art assets in your jurisdiction qualifies as a consumer, does the loan automatically qualify as a consumer loan, and are there any exemptions allowing the lender to make a non-consumer loan to a private borrower?

If the debtor qualifies as a consumer, the loan will automatically qualify as a consumer loan, because this kind of financial instrument (a loan secured by a non-possessory pledge) is not included in the list of exceptions in Law No. 16/2011.

Is there a public register where security interests over art, antiques or collectibles can be registered? What is the effect of registration? Is the security interest registered against the borrower or the art?

Yes, the Chattel Registry. The registration of the public deed secured by a non-possessory pledge in the Registry establishes the date for the purposes of credit preference, constitutes evidence against third parties, prevents fraud invalidating the transmission of the asset to the detriment of the lender, and qualifies the credit as privileged and preferential in cases of insolvency of the borrower.

The security is registered against the art, but it is linked to the information pertaining to the borrower and his or her credit.

Can the lender against art collateral perfect its security interest without taking physical possession of the art?

It would be feasible for the lender against art collateral to enforce it without taking physical possession, if the non-possessory pledge has been validly granted according to the Movable Mortgage Law requirements, which are the following:

• the pledge must be granted in a public notarial document, which expressly has to cover specific mentions of the Law, such as the right of the lender to identify the art collateral; and
• the pledge must be registered within the correspondent Registry of Movable Property.

In such cases, the debtor does not transfer personal property to the lender, as the asset (work of art) remains in possession of the debtor.

If the borrower defaults on the loan, may the lender sell the collateral under the loan agreement, or must the lender seek permission from the courts?

Pledge regulations allow for an extrajudicial procedure before a public notary. However, if the debtor fails to collaborate in the delivery of the collateral, the lender will have no other recourse but to initiate judicial procedures.

With regard to the general enforcement of securities, the Civil Procedure Act sets forth the so-called ‘executive procedure’ to enforce securities that are considered as executive titles. Otherwise, enforcement of securities would follow the ordinary civil procedure. The two basic advantages of the executive procedure are its expediency and the fact that the debtor has limited causes of opposition. If the creditor is compelled to follow an ordinary civil procedure, it will be handled as an ordinary adversary proceeding (with the corresponding delay) and an executive procedure will not be initiated until a judgment is rendered (the executive procedure would then be that of enforcement of the said judgment).

Does the lender with a valid and perfected first-priority security interest over the art collateral take precedence over all other creditors?

Claims of secured creditors will qualify as privileged claims up to the value of the collateral on which they fall; any excess will qualify as an ordinary claim or, in the case of interest claims, as a subordinated claim. As a general rule, no third parties may benefit from the value of the secured assets insofar as the secured creditor has not been paid. In this regard, secured creditors will not be affected by the contents of the creditors’ composition agreement unless they agree otherwise.

It is possible to challenge security created ‘to the detriment of the insolvency estate’ within the two-year period preceding the declaration of insolvency, even in the absence of fraudulent intent. In particular, there is a presumption of prejudice to the insolvency estate in the event: (i) that the security was granted for pre-existing debts or for new debt incurred to cancel pre-existing and unsecured debt; or (ii) of any payments or other acts of early cancellation of secured payment obligations.