{"id":2397,"date":"2018-08-03T14:50:24","date_gmt":"2018-08-03T14:50:24","guid":{"rendered":"https:\/\/vila.es\/en\/?p=2397"},"modified":"2020-11-12T12:58:35","modified_gmt":"2020-11-12T12:58:35","slug":"requirements-strong-comfort-letters","status":"publish","type":"post","link":"https:\/\/vila.es\/en\/litigation-and-arbitration\/requirements-strong-comfort-letters\/","title":{"rendered":"REQUIREMENTS FOR \u201cSTRONG\u201d COMFORT LETTERS"},"content":{"rendered":"<p style=\"text-align: justify;\"><strong>\u00a0I.\u00a0<\/strong><strong style=\"font-size: 1rem;\">Introduction<\/strong><\/p>\n<p style=\"text-align: justify;\"><em>Comfort letters<\/em> are an alternative to endorsements that fulfill a personal guarantee function against a creditor or a future creditor in order for them to grant the sponsored (debtor) a corporate finance. It is an obligation of result, in which the sponsor guarantees the good purpose of the designed financing operation.<\/p>\n<p style=\"text-align: justify;\">The Supreme Court distinguishes between \u201cweak\u201d and \u201cstrong\u201d comfort letters (Supreme Court Judgement of 13<sup>th<\/sup> February 2007). The \u201cweak\u201d letters are mere recommendations or declarations of trust, while \u201cstrong\u201d comfort letters represent a one-sided legal business that creates a compulsory relationship between the sponsor and the beneficiary.<\/p>\n<p style=\"text-align: justify;\"><strong>II. \u201cStrong\u201d comfort letters<\/strong><\/p>\n<p style=\"text-align: justify;\"><strong>\u00a0<\/strong>With regards to \u201cstrong\u201d comfort letters, the case-law doctrine of the Supreme Court has been compiled, inter alia, in Judgement No. 424\/2016, of 27<sup>th<\/sup> June.<\/p>\n<p style=\"text-align: justify;\"><strong>a) Background of the case<\/strong><\/p>\n<p style=\"text-align: justify;\"><strong>\u00a0<\/strong>In this case, a bank entity granted a loan to a company due to the fact that two companies that held a dominant position above the sponsored company provided \u201cstrong\u201d comfort letters.<\/p>\n<p style=\"text-align: justify;\">As the repayment of the offered loan and personal guarantee were breached, the bank entity requested for the sponsors to be sentenced to pay the sponsored wages of the debtor, which had expired, and was liquid and payable.<\/p>\n<p style=\"text-align: justify;\">The defendants opposed against said main claim arguing that said comfort letter only contained some declarations of intentions, without any mandatory obligations. And they added that none of them were parent companies of the debtor and that, in any case, they shall only be liable in accordance with their percentage of ownership in said debtor company.<\/p>\n<p style=\"text-align: justify;\"><strong>b) Supreme Court\u2019s analysis<\/strong><\/p>\n<p style=\"text-align: justify;\"><strong>\u00a0<\/strong>As a preliminary matter, the Supreme Court analysed the mandatory efficiency of the comfort letter, for example, its suitability to constitute or create a mandatory relationship (referring to its Judgement No. 440\/2015, of 28<sup>th<\/sup> July) as exposed below:<\/p>\n<p style=\"text-align: justify;\">In this sense, the comfort letter, for example, in its qualification of strong, answers to the structure of <u>unilateral legal business with mandatory transcendence<\/u>, as unilateral voluntary declaration, of regular character, directed to the constitution or creation of a mandatory relationship, which requires the following suppositions or conditions:<\/p>\n<p style=\"padding-left: 40px; text-align: justify;\">(i) First of all, it has to contemplate a clear and unequivocal will of the sponsor to be bound; for example, a real voluntary declaration to create an authentic mandatory bond;<\/p>\n<p style=\"padding-left: 40px; text-align: justify;\">(ii) Secondly, the acceptance by the creditor, which can be tacit or purported, and is inferred from the relation of causality between the issuance of the comfort letter and the implementation or execution of the intended financing; and<\/p>\n<p style=\"padding-left: 40px; text-align: justify;\">(iii) As for the concrete relationship which shall exist between the debtor and sponsored, the Supreme Court does not require anymore this relationship to be necessarily within the framework of a parent company concerning its subsidiary, but it understands that there is a <em>causa credendi<\/em> in any relationship justifying the validity of the personal interest, attribution or benefit that could imply for the sponsor the implementation of the intended financing operations, due to either its condition of parent-subsidiary, or its condition of creditor or sponsor (Supreme Court Judgement of 13<sup>th<\/sup> February 2007).<\/p>\n<p style=\"text-align: justify;\"><strong>c) Conclusion of the Supreme Court<\/strong><\/p>\n<p style=\"text-align: justify;\">In the light of the foregoing, the Supreme Court concluded that comfort letters were fully suitable for the constitution of the sponsors\u2019 mandatory bonds, because said engagement was determined in order to conduct the credit transaction.<\/p>\n<p style=\"text-align: justify;\">Then, the Supreme Court analysed the scope of the mandatory effect which characterises the comfort letter, concluding in favour of the <strong>joint nature of the mandatory commitment assumed by the sponsoring companies<\/strong>, since these were the tools that the parties agreed in order to guarantee, as a whole, the refinancing of the debt of the debtor and its guarantor parent company (mainly participated by the sponsors) which was conducted through the grating of a new loan.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p style=\"text-align: justify;\">Carla Villavicencio<\/p>\n<p style=\"text-align: justify;\">Vil\u00e1 Abogados<\/p>\n<p>&nbsp;<\/p>\n<p style=\"text-align: justify;\">For more information, please contact:<\/p>\n<p style=\"text-align: justify;\"><span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"mailto:va@vila.es\">va@vila.es<\/a><\/span><\/p>\n<p>&nbsp;<\/p>\n<p style=\"text-align: justify;\">3<sup>rd<\/sup> August 2018<\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u00a0I.\u00a0Introduction Comfort letters are an alternative to endorsements that fulfill a personal guarantee function against a creditor or a future creditor in order for them to grant the sponsored (debtor) a corporate finance. It is an obligation of result, in which the sponsor guarantees the good purpose of the designed financing operation. The Supreme Court  [&#8230;]<\/p>\n","protected":false},"author":4,"featured_media":4675,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[83,78],"tags":[],"class_list":["post-2397","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-contracts","category-litigation-and-arbitration"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>REQUIREMENTS FOR \u201cSTRONG\u201d COMFORT LETTERS<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/vila.es\/en\/litigation-and-arbitration\/requirements-strong-comfort-letters\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"REQUIREMENTS FOR \u201cSTRONG\u201d COMFORT LETTERS\" \/>\n<meta property=\"og:description\" content=\"\u00a0I.\u00a0Introduction Comfort letters are an alternative to endorsements that fulfill a personal guarantee function against a creditor or a future creditor in order for them to grant the sponsored (debtor) a corporate finance. 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