Proceedings / Effects of Registration

Can judicial decisions opening insolvency proceedings be registered in the Land registry in accordance with your legislation?

If affirmative, what effects do these registrations produce?

In general terms, articles 36 and 37 of Royal Legislative Decree 1/2020, of May 5, approves the consolidated text of the Insolvency Act (principle of side 1).  In this sense, is provided for the registration in the Civil Registry, with respect to natural persons, in the Business Registry with respect to legal persons, or in any other public registry with respect to those legal persons not registered in the Business Registry.

Article 37.1 states that «if the debtor has assets or rights registered in public records, the declaration of insolvency, with indication of its date, intervention or, where appropriate, the suspension of his/her administrative and disposal powers, as well as the appointment of the insolvency practitioners will be registered in the folio corresponding to each of them.»

Insofar that the judicial document determines the properties on which the entry is to be practiced, it appears that the registration will only be extended in the folio corresponding to the same, even the debtor had more. But if the document does not determine anything, the registration will be practiced in the folios of each and every one of the properties on which the debtor bears any registered right.

In accordance with what we’ve just stated, the main inscription drafted in the Land Registry as a result of the declaration of insolvency will express the regime of intervention or suspension of administrative and disposal powers of the insolvent debtor, and the appointment of insolvency practitioners. It therefore appears to be clear that the inscription of the opening of the bankruptcy proceeding does not only produce warning effects, but also implies effective restrictions on the possibilities of the insolvent debtor to act on his/her assets and rights.

Consequently, only subsequent acts that are subject to the rules of intervention of the insolvency practitioners established by the judge may be registered in the Land Registry. In addition, the transfer or encumbrance of such assets generally requires authorization from the judge.

However, those acts performed by the debtor before the declaration of the insolvency could be registered, even though the deed is entered after he inscription of the insolvency.

In a way similar to the one established by RUE 2015/848, the Spanish law estates that, even the effects of the involvency proceeding will be those of the law aplicable to the proceeding itself, there will be some exceptions

1.- third party’s property rights or reservation of title over insolvent debtor’s assets that, at the time of the declaration of the insolvency, are in other Member State will produce effects in accordance with the lex rei sitae;

2.- effects of property rights belonging to the insolvent debtor over registrable assets will be under the lex libri siti;

3.- the validity of disposal acts over assets of the debtor, done after the declaration, will be those established by the lex libri siti;

4.- effects of acts over immovable assets will be under the lex rei sitae.

Somehow, this matter is related to the requisits the document must fit in order to be entered in the Spanish Land Registry. The current legislation, just as the RUE 2015/848, estates that the judicial decision opening the insolvency proceeding will be recognized, since the moment it starts to produce effects acccording to the law of the opening State, with no further formalities. Thereby, the aplicable law is the one to determine the effects of the insolvency proceeding, but, neither this, nor the authomatic recognition, excludes the control to be done by the Registrar. In accordance with International Legal Cooperation Act, the Registrar should perform an incidental recognition in order to make sure the judicial decision is in the scope of the RUE, and it doesn’t imply an obvious vulneration of the public policy. Such an idea, linked to the dispositions of article 14 RUE, means that the judicial decision must fit the requirements estated by national law to enter in the Land Registry. At this point, article 3 of the Mortgage Act and 36 of the Mortgage Regulation come to require that the document proves its own authenticity and the firmness of the resolution. Recognition can only be granted if the foreign resolution meets the necessary requirements to determine its authenticity imposed by the law that governs its form.

Moreover  furthermore,  we  can  distinguish  a  set  of  assumptions  having  their  origin  in  the   insolvency proceeding which will access to the Land Registry, causing different types of entries.

At the time of admitting the request for declaration of insolvency, the judge may adopt the precautionary measures that he/she deems pertinent to ensure the integrity of debtor’s assets. When declaring the insolvency or dismissing the application, the judge will decide whether or not to maintain them. Such measures, which will be recorded in the Land Registry by means of a provisional entry, would be essentially the following:

a.1.- notation of the pendency of the ensolvency proceeding, giving publicity to the fact that the administrative and disposal powers of the propietor may be affected as a result of such proceeding;

a.2.- notation of freezing, in order to prevent the dispossal of the properties, that will sure have a negative effect on the result of the proceeding;

a.3.- notation of attachment, attaching the real rights of the debtor to the result of the proceeding.

At the time of declaration of the insolvency, a main inscription will be drafted in the Land Registry, with the extend of the aforementioned article 24•4, as previously stated:

b.1.- in case the declaration of the bankruptcy is not final at the time of issuing testimony for the registration, instead of a main inscription, a preventive notation will be taken, with a duration of four years, which may be extended for successive periods of another four years.

b.2.- as said, the declaration of insolvency will include the appointment of insolvency practitioners. These may accept the charge within five days, so his/her/their acceptance will generally be attached to the judicial writ and registered in one with the declaration itself;

b.3.- as an hypothesis, it would be possible that the acceptance of the designated practitioners is only credited to the Land registrar in a posterior moment. Then, the acceptance may be registered by means of a note at the margin of the inscription;

b.4.- the designated practitioners may be dismissed and replaced by others, and the regime of intervention or suspension of the administrative and disposal powers of the insolvent debtor may be modified. These circumstances are entered in the Land Registry, by inscription or notation, depending on whether the judicial decision is firm or not;

After the declaration of insolvency, an inventory is taken of both active and passive mass of the bankrupt, and a proposal of agreement is drafted, for its approval by the judge, and its referral to the board of creditors, for their acceptance.

c.1.- in case of opposition of the creditors to the proposed agreement, the judge may adopt precautionary mesures to avoid that the delay prevents the fulfillment of the agreement. To the extent that the status of the debtor’s administrative and disposal powers may be modified, such mesures must be subject to registration in the Land Registry. In particular, the judge may order to initiate compliance with the agreement, in whole or in part, with the conditions he/she may determine;

c.2.- the agreement accepted by the creditors is approved by the judge in the form of a judgement, which is entered in the Land Registry as an inscription or a notation depending on whether it’s firm or not.

The agreement will involve the acquittance, the wait or both of them, for the creditors, and any other measure to ensure the payment of the debts, except for the gobal assignement of the patrimony of the debtor. However, it may contemplate assignements in payment or for payment (pro soluto or pro  solvendo) of singular assets. Moreover, the agreement involves the cessation of the practitioners and the recovery by the debtor of all his/her administrative and disposal powers. In short, the effects of the agreement will replace those of the declaration of insolvency;

c.3.- if the agreement is fulfilled, the judge will declare so by a writ, bringing the proceeding to its end. On the basis of the subsequent order, all inscriptions, notations and notes resulting from the procedure would be cancelled in the Land Registry.

In the event the agreement is not fulfilled, the judge will open the liquidation phase. An inscription or notation will be taken in the Land Registry, regarding this new situation.

d.1.- the limitations to the administration and disposal by the debtor recover their validity;

d.2.- a liquidation plan can be drawn up, establishing the rules for the sale of the debtor’s assets, whether they’re sold as individual assets, as productive units or as a whole. If no plan is drafted, the sale would be done at auction. The approval of the liquidation plan, and its content, is also entered in the Land Registry;

d.3.- as aforementioned, when the liquidation plan is fullfilled, the judge will declare so and bring the proceeding to its end.

It’s possible to reopen a proceeding that has been already completed. This circumstance must also access to the Land Registry.

Regarding to who promotes registration, the necesary documentation can be sent directly by the court, or through the solicitor. In the case of legal person subject to inscription in the Business Registry, it’s possible for the latter to send a certified copy of the document the court has sent them for the purposes of registration. In general, there’s no limitation about who can promote the inscription in the spanish Land Registry, so  almost everyone can do so. The court is supposed to send the document to the Land Registry, in fact, to any public registry, by telematic means.

However, only if a public administration, represented and defended by its legal service is the one that requests the declaration of insolvency, the court will send the document ex officio. This leads to the fact that, mostly for econocmic reasons, practitioners only ask to enter the process in the Business Registry, and not so ussually in the Land Property Registry.

This connects with the last question. According to our Ministry of Justice, Land Registrars not only can, but must consult the content of other public registries. This includes, of course, Business Registry, but also the Public Insolvency Registry. Actually, some of the informatic applications used by the land registrars warns us when entering any document related to a person, whether natural or legal, who is subject on an insolvency proceeding.

Regulated by Royal Decree 892/2013, the Public Insolvency Registry is an internet portal under the Ministry of Justice and materially managed by Colegio de Registradores. It’s organized in three sections, of which the first comprises judicial decissions handed down in insolvency proceedings; the second section comprises an abstract of all kind of entries practiced in any public registry, regarding this matters; and section three covers out-of-court agreements in insolvency proceedings. In any case, it’s possible to search not only by the name of natural persons or company name of legal persons who have been declared insolvent debtors, but also by the name of the insolvency practitioners. The referral of documentation is always telematic.

In accordance with the rules of the EU that regulate it, the Public Insolvency Registry may be connected with bankruptcy resolutions registries of other member states, as well as with the EU platforms established for  this purpose, in order to facilitate consultations in insolvency proceedings in the EU and allow the knowlledge of insolvency proceedings in this area.