It is common for a creditors’ agreement to contain a clause stating the creditor’s obligation to inform the insolvent company of the details of the current account into which the payment instalments shall be made as set forth in the agreement itself. It is also quite common to find cases where such a clause may contemplate that if these details are not communicated in a specified maximum timeframe, it shall be understood that the creditor waives the right to payment. In such situations, often, the lack of communication by the creditor within the established timeframe lead the insolvent company to understand that the creditor had given up its credit, generating a situation of non-payment of the amounts set forth in the agreement. As a consequence, the creditor then calls for payment from the insolvent company for breach of the agreement (former article 140 of the Insolvency Act or IA).
A Supreme Court ruling of 8 April 2016 analyses the validity and effect of clauses of this nature.
In the case heard by the Supreme Court, the creditors’ agreement approved by the creditors’ meeting provided that if in the timeframe of 3 months as from the approval of the creditors’ agreement becoming final, the creditor does not notify the insolvency administrator of the current account details into which the payments should be made, the creditor automatically waives the credit, without the need for any communication or formality regarding the first payment. Likewise, the payment right on subsequent payments would be deemed waived, if the current account details are not notified at the start of each payment period. Furthermore, it explicitly stipulated that in such cases of non-payment as a result of non-communication of bank details in the established timeframe, the agreement shall not be deemed to have been breached.
The wording of the clause does not leave room for doubts regarding the intentions of the parties who gave their consent, considering that the effects of the agreement are projected onto the rest of the creditors (article 134 of the IA). In that case, if outside the scope of insolvency, no doubts regarding legality arise, it begs the question of legality within the framework of insolvency or rather whether the rigour concerning this obligation of communication and the effects of its fulfilment should diminish.
The Supreme Court stresses that article 131 of the Insolvency Act (IA) contemplates ex officio judicial control for the approval of the agreement, a control which requires the analysis by the court of the content of the agreement and the way the agreement was approved, and which would force the refusal of the agreement if it is thought that any rule has been breached, especially the contents of article 100 of the IA. The question raised is whether the clause which contemplates the loss of payment rights if the bank details are not communicated in the established timeframe is valid or not. In the case at hand, neither the courts nor the creditors noted that the agreement was contrary to the legal rules governing its content contained in article 100 of the IA.
In the Supreme Court’s opinion said clause does not contravene the limits established in article 100 of the IA, given that it does not actually affect the insolvency agreement, but the method of making payment; neither does it violate rules of an imperative nature, which would allow said clause to be understood to be “removed” (Supreme Court Judgement 50/2013 of 19 February 2013). In fact, the wishes of the parties, embodied in the agreement, justify the validity of such clause.
Therefore, the Supreme Court concludes that the clause (1) is valid; (2) it does not breach any imperative rule which prevents its application; (3) it should develop all its effects and finally (4) it cannot be understood that a breach of the creditors’ agreement took place for the purposes of article 140 of the IA; and (5) the affected creditor may not call for payment from the bankrupt company on said grounds.
In light of what is set forth in the clause declared valid by the Supreme Court, if the creditor does not communicate the current account to the insolvency administration, it loses its payment rights on the first two partial payments established in the agreement, and communication at a later moment shall not allow the creditor to demand the payment of instalments which had fallen due from the insolvent company. Furthermore, if the communication is not made at the start of the second payment period, it is understood that the creditor also waives all subsequent payments.
If the Supreme Court endorses such an extensive and rigorous effect on the breach of a formal payment obligation, it also raises the question as to the validity and effect of the clause establishing that the non-communication of the current account details of the creditor within a determined timeframe (non-extendable) shall give rise to the waiver of the payment right of the totality of the payments set forth in the agreement. Bearing in mind the contents of this judgement, it must be concluded that such clause shall likewise be valid and effective.
Eduardo Vilá
Vilá Abogados
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20th May 2016
