With regards to the regulation of precautionary measures in Spanish Law we find, on the one hand, the provisions established in Article 721 and thereafter in the Law of Civil Procedure (hereinafter, “LCP”), and, on the other hand, those established in Articles 54, 133 and 520 of the Consolidated Text of the Insolvency Act (hereinafter, the “CTIL”).

Bearing in mind the supplementary nature of the LCP in relation to the CTIL, but also the generic provision established in Article 721 of the LCP (consisting of the possibility of adopting the necessary precautionary measures to ensure the effective protection of the judgement that has been passed) and in Article 726 of the LCP (possibility of agreeing, as a precautionary measure, with regards to the assets and rights of the accused party, whichever action aims exclusively at making possible the effectiveness of the protection that may be granted in a possible conviction), we might ask ourselves the following:

Can the judge ruling on the insolvency case adopt precautionary measures based on what is established in Article 721 and thereafter in the LCP?

Court order number 15 of June 2021, passed by the Commercial Court no. 3  of Barcelona (ECLI:ES:JMB:2021:2215A), (hereinafter, the “Court Order”) analysed a hypothetical case in which:

(a) The Insolvency Administration requested the preventative embargo measure under the protection of general regulation on precautionary measures provided for in Article 721 and thereafter in the LCP (not under the protection of that established in Article 48 ter of the Insolvency Act (hereinafter, “IL”), today Article 133 of the CTIL), and

(b) The accused parties opposed the Court Order, alleging that they were not passive subjects, since it was their understanding that the provisions of Article 48 ter of the IL, which did not regard them as the recipient of such a measure, should be applied, thus they objected due to their lack of legal standing (as a defendant).

In the Third Fundamental Point of Law, the Judge analysed the applicable articles according to the IL and the current CTIL, as well as the LCP, arriving at the following conclusion:

“it seems beyond any doubt that the only measures to be agreed by the judge of the insolvency proceedings are those expressly scheduled in the insolvency regulation since, if the Civil Procedure Law does indeed act as a supplement to the Insolvency Act (with regards to how this law does not tackle special procedural rules), said omission does not occur in the case of precautionary measures, under the insolvency regulation, that expressly provides for the type of subjects of said measures.”

This  conclusion was also based on the fact that the precautionary measure must be instrumental to the court proceedings; that is to say, it must have the aim of guaranteeing the effectiveness of a possible conviction that may rest on the insolvency administrator’s report, to ensure responsibility in the insolvency proceedings for debt that may affect the subjects observed in the regulation (directors or liquidators and general representatives in the case at issue, nowadays, directors or liquidators and managing directors). In other words, in order to ensure the compliance with the conviction that entails the paying off of the insolvency deficit.

In this sense, the judge referred to the Court Order dictated by the Provincial Court of Girona (ECLI:ES:APGI:2017:485A).

With regards to its judicial nature, the Court Order explained that it is a special precautionary measure, which may be adopted ex officio at the request of the Insolvency Administration.

With regards to the premises required for its adoption, it also explained that they are those observed both in the CTIL as well as in the CPL, namely:

  1. That a court order declaring insolvency has been issued.
  2. That a real possibility exists that said insolvency is declared tortious.
  3. That a real possibility exists that the assets of the company are not enough to pay debts.
  4. That the persons against which the measure is passed are directors or liquidators, de facto or de jure, of the insolvent party, or have been in the two years prior to the declaration of insolvency.
  5. The existence of “periculum in mora”, of “fumus boni iuris” (appearance of good law) and the proportionality of the measure.

The Court Order finally dismissed the request for a precautionary measure upon considering that there did not exist the premise that the persons against whom said measure had been called for had the condition of passive subjects according to the applicable article of the IL, today the CTIL (specifically, they would be the de facto or de jure directors or liquidators of the insolvent party, or those who may have held those positions in the two years prior to the declaration of insolvency).

 

 

Mireia Bosch

Vilá Abogados

 

For more information, please contact:

va@vila.es

 

27th of May 2022