The International Law Office has published a new Chapter of a series of publications by SAN SIMÓN & DUCH.
The Insolvency Act (22/2003) is based on the principle of universality with regard to assets and liabilities. However, in accordance with the act, certain credits – including maritime privileged credits – must be separated from a bankruptcy estate, resulting in a breach of this principle.
Maritime privileged credits
Article 76.3 of the Insolvency Act establishes a right of separation in favour of shipowners with regard to maritime privileged credits, which allows assets encumbered by such credits to be excluded from a bankrupt party’s estate. Therefore, the owners of such credits can separate the value of the ship – up to the value of the credits – from the bankrupt party’s assets. Any surplus value must be refunded to the assets.
It has been considered whether this separation should apply to other articles of the act – such as Article 56, which regulates the right to implement separation, or Article 80 – or scenarios involving the separation of assets that are not the property of the insolvent party.
At present, the legal regime on this matter is determined by Articles 122 onwards of the Maritime Navigation Act (14/2014), in respect of the International Convention on Maritime Liens and Mortgages 1993 (which modified the prior 1926 convention), ratified by Spain in 2002 (and effective from November 5 2004). Unless provided otherwise, the convention applies to all registered maritime navigation ships, regardless of whether the state in which they are registered is a party to the convention, on the condition that ships registered in states that are not a party to the convention are subject to the jurisdiction of a state that is (Article 13).
Nonetheless, maritime privileged credits have been recognised by Spanish law since before the first convention on privileges was signed in 1926, in Article 580 of the Commercial Code (EDL 1885/1) and the Ship Mortgages Act, which have now been overridden by the Maritime Navigation Act.
The Maritime Navigation Act establishes the privilege of specific credits that stem from the operation of a ship and their order of precedence. This order of precedence prevails only in cases of single implementation – thus, if a privileged creditor does not use the right of separation conferred by Article 76.3 of the Insolvency Act, it will be subject to the classification and graduation of credits established in Final Provision 9 of the Insolvency Act.
The right to separate a ship from a bankrupt party’s assets can be exercised only if the privilege is enforced on an asset that is subject to a trial. Whether the relevant judgment is declaratory or executive is irrelevant, as the act is silent on this. However, logically, there should be judicial recognition of the existence of the maritime privilege before it is executed – except in cases where the privilege is a document with executive force under Spanish procedural law.
The competent court must be aware of all civil actions relevant to the bankrupt party’s assets. However, there are international judicial competence regulations which can alter which court will be considered to have competence. As such, these regulations must be addressed where the competent court is a foreign court or an arbitral tribunal. At the very least, the relevant insolvency court must be made aware of the potential conflict in order to exercise the right of separation.
Under Article 11 of the Insolvency Act, a court’s jurisdiction encompasses only actions that have a judicial foundation in the act and an immediate relationship with the bankruptcy. While it will be difficult to assert that the actions through which maritime privileged credits are exercised have their judicial foundation in the Insolvency Act, their relationship to the bankruptcy can be argued. In any case, it cannot be argued that the international judicial competence regulation of Article 11 overrides the EU Brussels I Regulation (44/2001) or the various international treaties.
By law, the act of separating a ship from bankruptcy assets can no longer be effected if the act is not commenced within one year from the date on which the bankruptcy was declared. Hence, the classification and graduation of credits are governed by the Insolvency Act. Therefore, maritime privileged credits lose their privilege if they are not exercised within the period specified by the applicable law and the separation of the ship from the rest of the debtor’s assets is not initiated within one year from the date on which bankruptcy was declared.
Finally, under Article 410 of the Civil Procedure Act, lis pendens (ie, a lending legal action) starts when the lawsuit is presented. Thus, if a lawsuit exercising a privileged maritime credit is brought in Spain, the period in which the right to separate the ship of a bankrupt party from its assets will begin on the date on which the suit is brought. If the suit is brought abroad, this period will commence when the procedure is recognised in Spain through the corresponding process of recognising and executing foreign decisions.
Ultimately, if a maritime privileged credit is exercised against the ship of a party undergoing bankruptcy proceedings, the creditor or owner of the maritime privileged credit has the right to separate the ship from the bankruptcy estate if the liquidation of assets phase has yet to commence.
For further information on this topic please contact Carlos Cerdá at San Simón & Duch by telephone (+34 96 395 20 67) or email (email@example.com). The San Simón & Duch website can be accessed at www.lsansimon.com.