Amendment to the Insolvency Act: non-possessory pledge over credit claims
Published on 17th Dec 2015
On 22 October 2015 Law 40/2015 of 1 October on the Spanish Public Law Legal System entered into force amending, amongst others, Article 90.1.6 of the Insolvency Law Act. This new drafting clarifies the confusion caused by the previous drafting regarding the pledge of future credit rights and the way to obtain privilege in insolvency proceedings. The non-possessory pledge will cease to be the only instrument for pledging future credit rights and benefitting from the privileged nature of the claim in insolvency proceedings.
Articles 1,863 to 1,873 of the Spanish Civil Code regulate the ordinary pledge (also named possessory pledge) as an in rem security over the movable assets with the same requirements for its constitution as a mortgage (Art. 1857) – over real estate and other fixed assets – but adding another requirement: the delivery of possession of the pledged asset, in favour of the creditor or a third party assigned by mutual agreement between the creditor and the pledgor until the fulfillment of the secured obligations.
The non-possessory pledge (NPP) is an in rem security over some specific movable assets that permit the securing of the obligations without the need to deliver possession of the pledged asset. However, the NPP requires the registration thereof in a public registry (the Movable Assets Registry).
Article 90.1 of Law 22/2003 of 9 July, the Insolvency Act (IA), lists the claims (liabilities of a company) benefitting from the privileged character (in the recovery scale) in case of insolvency proceedings of the debtor. Effectively, the privilege of these claims derives from the collateral attached to them (mortgage, pledge, antichresis, etc.).
The amendment of Article 90.1.6 of the IA was passed on 21 September 2011 ( and entered into force on 1 January 2012) emphasised the importance of distinguishing between the ordinary pledge, the pledge over credit rights and the pledge over future credit, because different requirements were demanded for each type of credit in order to grant the privilege in case of insolvency proceedings. In particular, for the claim (liability) secured with a pledge over future credit rights to benefit from the privileged nature within insolvency proceedings, as of 2012 a requirement has been imposed by the IA to the effect that said pledge was registered in a public registry (i.e., not permitting the use of ordinary pledges, as they are not registrable).
The pitiful new drafting of Article 90.1.6 also provided more confusion as it referred to the pledge as security of (and not “over” or “of”) future credit rights. After several approximations on the subject by professors and case law, the lack of clarity in the provision forced the majority of lawyers and firms to take a practical position to avoid the risk of not obtaining privilege for the claim secured with the pledge over future credit rights: they ceased to grant the pledges over future rights as ordinary pledges (with delivery of possession) and started granting them as NPP, registerable in the correspondent public registry (Movable Assets Registry). Therefore, the requirement of registering the pledge in order to benefit from the privilege in insolvency proceedings resulted in a generalised use of the NPP between 2012 and 2015, with the correspondent additional cost (economic – accrual of registration fees – and time).
With the recently approved amendment of the IA the requirements to be fulfilled by the pledge over future credit rights so that the secured claim can benefit from the privileged nature in insolvency proceedings have been clarified: an ordinary pledge over future credit rights can also benefit from the insolvency privilege provided that the pledge has been granted prior to the declaration of insolvency.
In conclusion, this amendment of the IA terminates with the prevalence of the NPP as a type of security over future credit rights, stripping it of its generalised use and permitting the ordinary pledge over such future credit rights to also benefit from the privileged nature in insolvency proceedings (without the need to register the pledge in a public registry).
