I.- INTRODUCTION.
Pursuant to judgement number 740/2012, of 12th December, the Supreme Court of Justice declares inadmissible the appeals filed by the receivers of the company OTAYSA, S.A. against the judgement of the Provincial Court of Madrid.
The referred to judgement of the Supreme Court addresses the annulment of acts detrimental to the assets of the insolvent company, and for this purpose, is based upon the interpretation of the former article 878.II of the Spanish Commercial Code (“Ccom”) in relation to the most recent case law, further taking into account the current article 71.5 of Insolvency Act 9/2003 (hereinafter referred to as “IA”).
II.- THE FACTS DISCUSSED AND THE FIRST AND SECOND INSTANCE JUDGEMENTS.
In 1994, OTAYSA, S.A. signed a lease agreement with AZATA, S.A. on an entire building for a term of fifteen years. In March 2000, both companies agreed upon the termination of the contract and the settlement of the debts pending on the part of OTAYSA by means of the deposit paid by the latter upon signing the lease agreement (318.536,41 Euro) and a cheque issued in favour of AZATA for 108,426.24 Euro. Simultaneously, both parties also signed a lease agreement for just two floors of the same building so that OYASA would be able to continue with its operations. OTAYSA filed for temporary receivership fifteen days following the termination of the lease contract.
In July 2001, the Court of First Instance nº 1 of Coslada fixed the date for the retrospective annulment of OTAYSA’s dealings in property as 1st January 2000. Subsequently, in November of 2006 the receivers, under article 878.II of Ccom, filed for the nullity of the payments made by OTAYSA to AZATA because they had been made during the abovementioned period of retrospective annulment.
Both the Court of First Instance and the Provincial Court of Madrid deemed that the payment of the lease upon properties in which production units of a bankrupt company are located is an example of one of the typical acts of ordinary business activity excluded by 878.II of Ccom, and it furthermore emerged that the acts of OTAYASA were not detrimental to the insolvency assets. Thus the payment of the owed rent was tied to termination of the rental of the entire building and its substitution for another lease agreement, which affected only two of the floors of the building, which in addition meant the reduction of the rental price to less than half.
III.- THE JUDGEMENT OF THE SUPREME COURT OF JUSTICE.
a) Corporate business of the bankrupt company. The Supreme Court of Justice judgement establishes that the payment of rent on the premises where a bankrupt company carries out its business activity may be considered as an ordinary act in the course of its business activity, however, so that this may be excluded from the retrospective annulment, without needing to analyse the detriment, it is necessary for the payment of the rent to have been made under normal conditions, that is to say, regularly and periodically. In the case at hand, the payment of accumulated rent, the majority of which was collected against the deposit paid beforehand, fifteen days before filing for temporary receivership, and in order to obtain the novation of the lease contract, may not be deemed to have been carried out under normal conditions. Therefore, it is necessary to analyse whether detriment to the insolvency assets existed.
b) Inevitable detriment to the insolvency assets. Despite the abovementioned payment not being considered as an ordinary corporate act carried out under normal conditions, and that it was made a short time before filing for temporary receivership, the Supreme Court of Justice deems the criterion of the Provincial Court to be correct and in accordance with current case law, given that the novation of the lease contract was signed under conditions more favourable to OTAYSA.
IV.- CONCLUSION.
The most relevant part of the judgement analysed is the interpretation of 878.II of “Ccom” (now revoked) taking into account the current in force article 71.5 of the “IA”, therefore the reasoning of the Supreme Court of Justice is also applicable to current insolvency proceedings. In summary, so that an act may be the object of annulment, not only must it be beyond the ordinary acts included in the business activity of the debtor, or is included within said concept but is not carried out under normal conditions (as in the case in question), but it must also be detrimental to the assets of the insolvent company.
Vilá Abogados
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22nd of February 2013
