The Law refers to the current economic situation and the economic evaluation of the rules seems to have been given priority.

The aims of the new Law can be summarised by greater legal certainty, the opening-up of new alternative channels that focus on the balance between the company’s viability and the necessary judicial guarantee, the use of electronic media, the simplification and speeding-up of the procedure and a notable improvement to the position of workers. Accordingly, the aim is to standardise the role of bankruptcy as an instrument to be used for the viability and revitalisation of the business fabric in Spain.

First of all, we will analyse the various goals and, secondly, we will give a brief critical conclusion related to the voids in said Law, including the cultural problem in Spain whereby debtors and creditors prefer to solve their problems using channels beyond the scope of the legal procedure. 

I) Detailed examination of the alternatives to bankruptcy or legal concepts of preliminary bankruptcy 

The aim is to provide a quicker, cheaper dejudicialised alternative through refinancing agreements. The debtor may officially notify the Court of the commencement of negotiations with creditors to reach a financing agreement, where said agreement may be approved by the court in the term of three months from the date on which it is submitted. Consideration must be given to the fact that said refinancing agreements need to respond to a viability plan that enables the continuity of the professional or business activity in the short and medium term. 

In order to provide the company that is being refinanced with liquidity, the Anglo-Saxon concept of “fresh money” or the privilege of new money is brought in so that creditors can provide the company with new revenue by considering 50% thereof as credits against the bankruptcy estate. The aim is to encourage banks to award new credits and, therefore, contribute to the company’s viability and the continuity of its activity.

II) Simplification and speeding-up of the bankruptcy procedure

The insolvency solution must not be delayed since it may be damaging for the bankrupt party and its creditors through the loss of value of their assets, whose realisation is vital for the collection of debts.

The Law focuses on regulating the petition for reorganisation, which seeks to reduce the cost and time of the bankruptcy proceedings. The decision regarding the petition for reorganisation corresponds to the Judge, who will proceed in accordance with the following circumstances: the situation of the company in crisis, the number of workers, the negotiations the company may have started for its sale or the structural modification of the debtor company.

In pro of a quick and economic solution to the bankruptcy, the possibility of a hearing is notably restricted in accordance with the preferential option of a quicker procedure in writing.

The Law also improves the system for the public registration of the bankruptcy and the Public Bankruptcy Registry that is to be configured from now on as an instrument for the publicity and transparency of bankruptcies as a guarantee for all the parties that may be affected.

In order to favour a conservative solution for bankruptcy, structural modifications may be made during the creditors’ meeting and bankruptcy debts may be acquired, removing the voting prohibition, albeit only when the acquirer is an entity subject to financial supervision.

III) Improvements to the protection of the workers who are affected and latent social issues

When considering the labour issues subject to the bankruptcy procedure, the principles behind the social branch of law must be taken into account and, accordingly, article 64 of the new Bankruptcy Act seeks to avoid conflicts with social jurisdiction and the labour authorities, increasing the weight of the valuation that is to be given to the impact on workers in the bankruptcy.

The necessary coordination with the latest labour reform of urgent measures for reforming the employment market is introduced and the new concepts regarding labour force adjustment plans (in Spanish, ERE) correspond to the competent authority depending on when it is processed: after the bankruptcy has been declared, adjustment plans that make substantial changes to collective working conditions or involve the collective extinction or suspension of labour relations must be brought before the Bankruptcy Judge.

IV)  The importance of the role played by the receivers 

They are more professionalised and greater emphasis is placed on their functions and responsibilities, strengthening the requirements in place to be appointed as a receiver. There are two essential new issues to be considered:

• The cases in which the bankruptcy receivers comprise one single member are extended, which has a clear effect on the way the receivership operates, how receivers take their decisions and the savings made in costs. This model is already in place in other countries in our economic area and is more appropriate for the organisation and working system used by the professionals who are dedicated to this function. This avoids unfair participation by the various receivers.
• Bodies corporate are recognised as receivers and the exercise of said function by a number of professionals with the required training and experience is favoured. This option also reduces the costs of the bankruptcy and implies that judges can appoint specialist companies as receivers, which again fosters the training and professionalism of the corresponding body. 

The Law also seeks to harmonise the various systems of responsibility that apply to receivers during the procedure as follows: 

• The receivers will necessarily be the parties that require liability for damages to the company
• The bankruptcy liability for the deficit of the liquidation is maintained, but its legal system is defined in an attempt to solve the problems affecting application before the courts.

V)  The definition of the legal system for certain specific bankruptcy issues

 We consider it appropriate to highlight two points here: 

• The reinforcement of connected bankruptcies: “Chapter III” of “Title I” of the new Law is introduced and contains provisions whereby the bankruptcies that are declared jointly and/or accumulated must be processed in a coordinated way without the consolidation of assets and liabilities. 
• The more detailed regulation of the insufficiency of assets: a payment order is provided for credits against the assets if they are insufficient, since experience has shown that bankruptcies without assets constitute an extended form of bankruptcy conclusion.

At the present time, the bankruptcy procedure as a natural way of solving the business crisis is still a rare occurrence. In Spain, it is a cultural problem and the huge majority of companies in bankruptcy end up in liquidation: business-owners consider the filing of insolvency as a form of “dishonour“ and delay the commencement of proceedings, which leaves the liquidation of the company as the only possible conclusion.  

In a context worsened by our country’s economic crisis, the Courts have collapsed due to an excess of work, a lack of qualified personnel and low budgets, which also significantly delays the declaration of bankruptcies and their processing.

Although it is true that the Law makes a positive approach to the system for financing agreements and receivership, the new text does not seem to solve any of the problems that have arisen in recent years. The resources available to the Justice system for protecting interests in bankruptcies remain insufficient and a reform of the mercantile courts would also have been necessary; furthermore, the new Law does not provide solutions to the debt problems of families and individuals and, finally, special mention must again be made of the low-level satisfaction of ordinary creditors with the almost inexistent use of the bankruptcy procedure, which should be a natural way of solving corporate crises.

Leyre Barragán and Marina Bugallal
mbugalla@mariscal-abogados.com

The innovations introduced by this Act may be summarized in four points: the reduction of operation costs and organization of capital companies (along the lines initiated by Royal Decree-Law 13/2010 of December 3, in fiscal, labour and liberalization activities to promote investment and job creation), the introduction of modernization standards in company law, the abolition of the differences between public liability and limited liability companies and, finally, the transposition into domestic law of the European Directive mentioned above.

The Following is an examination of each of these points:

1. The Reduction of Operation Costs and Organization of Capital Companies

This modification involves firstly, the elimination of advertising requirements, official or private, in relation to the following matters:

i. The convening of General Meetings of Shareholders: the Memorandum and Articles may provide that notification will only be made by the publication of a notice in the website of the company or by any written means communicated individually to all members (Article 173.2 LSC).

ii. The agreements to amend Memorandums and Articles of Association of corporations: Article 289 of the Capital Companies Act, which required the advertisement of any modification agreement of the constitutional documents of the company on the web or in newspapers prior to entry in the Companies Registry is deleted.

iii. In the dissolution of the corporation: the dissolution is no longer required to be published in one of the large Daily Newspapers in the area of the company´s registered office in the event that the company has no website (section 369 LSC). Dissolution can now be entered directly into the Commercial Registry.

iv. During the liquidation period: it removes the obligation of publication of company accounts in the Official Gazette of the Mercantile Registry (BORME). It will be sufficient that the liquidators present the accounts at a General Meeting (Article 388.2 LSC).

Secondly, the Memorandum and Articles of Association of a company may establish different modes of organization and it will be the Board that chooses the mode it deems appropriate, without having to amend the constitution of the company (Article 23e) LSC).

2. Introduction of Modernization Standards in Company Law

On this point it is worth noting one of the rules in relation to the Board of Directors.

Administrators representing at least one third of the elements of the company have the right to call a meeting of the Board of Directors, following the failure without cause of the President of the Board to call a board meeting within a month of being requested to do so. (Article 246.2 LSC).

3. The Abolition of the Differences Between the Treatment of Public Liability and Limited Liability Companies

The elimination of differences can be seen principally:

i. In the calling of General Meetings (section 173 LSC) unifying the rules for both types of companies.

ii. The possibility of introducing into the Memorandum and Articles of Association causes for exclusion of shareholders to all companies (Section 351 LSC). This was previously only possible in limited liability companies.

ii. The appearance of inactivity as a cause of dissolution for any company (section 363.1a, LSC), an issue that before the reform was only possible for limited liability companies.

iv. The generalization of the default rule that directors of the company are automatically converted into liquidators on the dissolution of the company (Article 376.1, LSC) which also was previously only for limited liability companies.

v. In relation to the responsibility of the liquidators (section 397 LSC), establishing for both types of company that the liquidators will be accountable to the members and creditors for any damage caused wilfully or negligently, removing the requirement of fraud or gross negligence in relation to public companies.

4. The Transposition into National Law of Directive 2007/36/EC

The Directive aims to facilitate and promote the exercise of rights to information and voting rights of shareholders of listed companies in the European Union.

A new Section 2 is added to Chapter VI on the functioning of the General Meeting. Subsection 1 (Articles 514 521 LSC) contains general provisions in this regard. Subsection 2 (Articles 522 to 524 LSC) refers to participation in the General Meeting through a representative and Subsection 3 (Articles 525 to 526 LSC) refers to voting on resolutions. The purpose of the inclusion of these new provisions is to eliminate barriers for shareholders in relation to voting and the electronic participation in meetings.

In summary, this law brings Spanish legislation in line with the legislation of the European Union and tends to favour the development of enterprise, partly relaxing this regime and providing for more flexible operation and organization. To facilitate this development provisions imposing differences of regime that existed between public and limited liability companies have been removed which is an adjustment, clarification and harmonization of the system.

Finally, of note is that great importance has been attached to the use of electronic media: particularly the fact that the website of a company is considered as a tool of communication of basic legal information for company law and is a further guarantee of the rights of shareholders.

Mariscal Abogados

European Order for Payment Procedure (EOPP)

Regulation EU 1896/2006

In response to the perceived need for a uniform or harmonized procedure to obtain a judicial decision for the recovery of uncontested claims within the EU, Regulation 1896/2006 was enacted in December 2006 to create a first “uniform European procedure for civil disputes”.

The Procedure applies to all European Union Member States, with the exception of Denmark and deals specifically with “cross-border cases”. Article 3 of the Regulation defines a cross-border case as one, in which at least one of the parties is domiciled or habitually resident in a Member State, other than the Member State of the court seized.

Significantly, this procedure does not require the claimant to be a European resident (Article 7.5), and makes it possible to obtain a quick decision enforceable through the whole of Europe.

Article 7(e) of the Regulation does not require documentary evidence to accompany the application, only a “description of evidence”, this is to avoid high translation costs and to make the process more efficient as the debts that the EOPP generally deals with are not disputed.

However, a claim does not have to be uncontested to be made through this Procedure. A claim will only be determined as being uncontested during the procedure by the silence of the defendant who does not contest the claim after receiving a payment order. Finally, of note is the fact that there is no ceiling for the amount that can be claimed.

Procedure

• The regulation includes a form, Standard Form A set out in Annex I, to be used to apply for a European order for payment. A pecuniary claim must be for a specific amount that has fallen due at the time when the application for a European Order for Payment is submitted. This form can be submitted by post or even electronically.

• The procedure is based on the use of standard forms for communication between the court and the parties, in order to facilitate its administration and enable the use of automatic data processing. According to Article 1(a) of the Regulation the purpose of the EOPP is to simplify, speed up and reduce the costs of litigation in cross-border cases concerning uncontested pecuniary claims. Another purpose is to permit the free circulation of European orders, throughout the Member States, by laying down minimum standards.

• Once the order is issued in accordance with article 12, which is usually within 30 days of the lodging of the application, it is served on the defendant in accordance with national law by a method that has to meet the minimum standards laid down in articles 13, 14 and 15.

• The defendant may then, within 30 days, lodge a statement of opposition to the EOPP with the court of origin, using standard form F, which is be supplied to him together with the order for payment (Article 16). As opposed to normal procedural rules, the burden to initiate adversarial proceedings rests with the defendant.

• If he does lodge a statement of opposition, the proceedings continue before the competent courts of the Member State of origin in accordance with the rules of ordinary civil procedure of that state. If he does not do so, the court of origin will declare the European Order for Payment enforceable using standard form G (Article 18).

• After that, the order must be recognized and enforced in the other Member States, without the need for a declaration of enforceability, and without any possibility of opposing its recognition.

European Small Claims Procedure (ESCP)

The European Small Claims Procedure (ESCP) was introduced by means of Regulation (EC) No 861/2007 of The European Parliament and of The Council of 11 July 2007. According to the Regulation, the objective of such a procedure is to facilitate access to justice, and to simplify and speed up litigation concerning small claims in cross-border cases whilst reducing costs.

It created for the first time in Europe a uniform, speedy and affordable means of debt recovery for low value claims in cross border cases for consumers and businesses. The European Small Claims procedure came into effect in all Member States, with the exception of Denmark, from 1 January 2009. Petitioners in any of the EU’s member states can use the procedure to take action against a business they have dealt with in any of the other EU countries.

As with the EOPP detailed above, the European Small Claims Procedure (ESCP) operates on the basis of standard forms. It is set up as a written procedure unless an oral hearing is considered necessary by the court. The Regulation provides for four standard forms and establishes time limits for the parties and for the court in order to speed up litigation.

Also, as with the EOPP, the European Small Claims Procedure (ESCP) applies only to cross-border cases, that is, cases in which at least one of the parties is domiciled or habitually resident in a Member State other than the Member State of the court where the action is brought. Domicile is determined in accordance with Articles 59 and 60 of EC Regulation No 44/2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters.

In practice what the EU has introduced is a standardised procedure to be used by all participating court systems. It was created in response the need for Community legislation that guarantees a level playing-field for creditors and debtors throughout the European Union . For claims under €2,000, (excluding all interest, expenses and outlays) a petitioner can fill in a claim form and send it to the court system of their Member State of residence. This saves the applicant from having to take action in foreign courts in foreign languages.

Procedure

• The claim is commenced by filling in standard claim Form A, as set out in Annex I, and lodging it with the court or tribunal with jurisdiction directly, by post or by any other means of communication .

• The claim form should include a description of the evidence supporting the claim and be accompanied, where appropriate, by any relevant supporting documents. The claim form, the response, any counterclaim, any response to a counterclaim and any description of relevant supporting documents must be submitted in the language of the court or tribunal.

• Where the court or tribunal considers the information provided by the claimant is inadequate or insufficiently clear or if the claim form is not filled in properly, it will give the claimant the opportunity to complete or rectify the claim form or to supply supplementary information or documents or ultimately to withdraw the claim.

• A copy of the claim form, and, where applicable, of the supporting documents, together with the answer form is then served on the defendant in within 14 days.

• Any counterclaim is submitted using standard Form A, and any relevant supporting documents should accompany the counter claim on the claimant within, again, 14 days of receipt. The claimant then has 30 days to respond to any counterclaim.

• If the court agrees that it is appropriate to use the small claims procedure it will give the defendant 30 days in which to respond. It will then make its ruling within 30 days. The court can also:

(a) demand further details concerning the claim from the parties within a specified period of time, not exceeding 30 days;

(b) take evidence in accordance with Article 9; or

(c) summon the parties to an oral hearing to be held within 30 days of the summons.

Enforcement

This Regulation was introduced with the objective of making it simpler to obtain the recognition and enforcement of a judgment given in the European Small Claims Procedure in another Member State. It provides for the enforcement of decisions in any of the member states without the need to go through the formal process of seeking mutual recognition of judgments (exequatur).

The enforcement procedures are governed by the law of the Member State of enforcement. A judgment delivered in a European Small Claims Procedure is enforced under the same conditions as a judgment handed down in the Member State in which it is to be enforced. Under no circumstances may the judgment be reviewed as to its substance in the Member State of enforcement.

Costs

The costs of the proceedings are borne by the unsuccessful party. As stated, purpose of this regulation was to better facilitate access to justice, because of this the regulation provides that the principles of simplicity, speed and proportionality should be kept in mind by the court when making any decisions in relation to costs. The regulation also provides that the details of the costs to be charged must be made public and the means of setting any such costs be transparent.

Conclusion

As can be seen from the above the EOPP and ESCP were introduced to create a simplified system for uncontested claims without having to make application to a foreign court. For both procedures representation by a lawyer or any legal professional is not mandatory. It is also important to emphasise that these procedures are in addition to and not in place of the existing national procedures for debt recovery.

Although there has been some reported use of the EOPP the potential and utility of these new procedures remains to be seen. The procedures do not appear to be used that frequently or appear to be widely known. Time will tell whether they will become a cornerstone of European Union civil debt recovery.

Mariscal Abogados

In Spain foreign judgments are recognized based on bilateral or multilateral treaties or understandings. Within the European Union, Enforcement of Judgments is covered by Regulation EC 44/2001 and EC 1346/2000 for insolvency proceedings. Outside of the EU the main international organisations concerned with developing and harmonization of these rules are the International Institute for the Unification of Private Law (UNIDROIT), the Hague Conference on Private International Law (HCCH or Hague Conference), and United Nations Commission on International Trade Law (UNCITRAL).

What does enforcement mean in civil and commercial matters?

Enforcing a court decision means complying with and obtaining the full right gained by the party that won the dispute. This may involve a request by a plaintiff for the return of a certain amount of money, the right to ask a defendant to do something or to refrain from doing something, or a request to have a right recognised by registration in public registries.

When trying to enforce a foreign judgment in Spain a specific set of rules and procedures apply. The law which governs this procedure varies depending on the origin of the judgment, whether it was from a state within the European Union or from another foreign court.

European Union

The rules governing the jurisdiction of courts and the recognition and enforcement of judgments in civil and commercial matters in European Union (EU) countries is covered by Regulation no. 44/2001 adopted by the council of the European Community on the 22 December 2000. The Regulation

“… lays down uniform rules to settle conflicts of jurisdiction and facilitate the free circulation of judgments, court settlements and authentic instruments in the European Union.”

The Regulation provides that a judgment given in an EU country is to be recognised without special proceedings, unless the application for recognition is contested. A declaration that a foreign judgment is enforceable is to be issued following purely formal checks of the documents supplied. The regulation lists grounds for non-enforcement however, courts are not permitted to raise these of their own motion.

The Regulation further defines “Judgment” as any judgment given by a court or tribunal of an EU country, whatever the judgment may be called, including a decree, order, decision or writ of execution. Under no circumstances may a foreign judgment be reviewed as to its substance.

It is important to note that the regulation does not cover revenue, customs or administrative matters. Neither does it apply to:

• the status or legal capacity of natural persons, matrimonial matters, wills and succession;

• bankruptcy; (but does it apply to other charges)

• social security;

• arbitration.

Regulation 1346/2000 Insolvency Proceedings

This regulation establishes a common framework for insolvency proceedings in the European Union (EU) and has been incorporated into Spanish Law my means of the Insolvency Act (Ley Concursal). Its purpose regarding insolvency proceedings is to avoid assets or judicial proceedings from being transferred from one EU country to another in order to obtain a more favourable legal position to the detriment of creditors (i.e. “forum shopping”).

The regulation also provides for the automatic recognition of individual member state insolvency proceedings within the EU. Decisions by the court with jurisdiction for the main insolvency proceedings are to be recognised immediately in other EU countries without further scrutiny. The applicable jurisdiction for insolvency proceedings as provided by the regulation is the court of the member state where the debtor’s centre of main interests is located. However, restrictions on creditors’ rights (a stay or discharge) are possible only if the creditor has consented.

The regulation does not apply to entities with a centre of main interests outside of the European Union. The extent to which insolvency proceedings from outside of the European Union are recognised will depend on the domestic legislation and practice of each particular member state.

Procedure

• If the judgment required to be enforced in Spain is the decision of a court within the European Union application must be made to the relevant court for a declaration that the foreign judgment is enforceable in Spain (exequatur).

• The declaration of enforceability (“exequatur”) must be issued after certain formalities have been completed and must be served on the other party, who may only challenge it in the courts;

• It is possible that recognition of a foreign judgment may be refused if recognition would be contrary to public policy, irreconcilable with an earlier judgment, where the document initiating the proceeding has not been served in good time or the other party does not appear.

• Spanish law requires that all judicial decisions be notified to the other party prior to enforcement. This is in order to leave open the possibility for appeal or reaching an agreement without the need for enforcing the judgment.

These procedures can be quite complicated and it is always advisable to make the application for enforcement through a lawyer or any other legal professional.

Outside the European Union including USA

Spanish law regulates the recognition and enforcement of foreign judgments from non-European Union member countries in Articles 951-958 of the Code of Civil Procedure (Ley de Enjuiciamiento Civil). In order to execute a judgment in Spain application must be made in the appropriate jurisdiction within Spain.

Rules of jurisdiction

The basic principle of jurisdiction exercised in Spain is that it is determined on the basis of the country in which the defendant is domiciled, regardless of their nationality. In relation to judgments from countries outside the European Union Spain follows The Hague Convention (which came into force in Spain on 3 April 1997) which provides that the Courts of First Instance have jurisdiction over defendants whose domicile or place of residence is located within its territory.

Again, the applicant party will have to submit a written request for recognition or “exequatur” before the courts in Spain. The exequatur process consists of a review by a court to determine if the request for recognition meets the requirements established by Spanish law.

However, the judge may only examine the substance of the foreign judgment to ascertain whether or not it may be enforced in accordance with Spanish law. Article 954 of the Code of Civil Procedure establishes the specific legal requirements for recognition:

• the execution has been issued in pursuit of a personal action “acción personal”. The judgment must not affect the ownership of real property located in Spanish territory.

• the defendant must have been summoned properly before the court at the trial .

• That enforcement of the judgment must not be contrary to Public Policy.

It is always advisable to translate the judicial decision into Spanish. However, it is important to note that the other party can challenge a normal translation and, even though it is not strictly necessary, a sworn translation will be required. An Apostille is required most of the time.

Although you can make an application through the Spanish Ministry of Justice or the consulate, the most efficient and convenient method is to make the application for recognition through a lawyer in Spain.

Enforcement

Once the designated competent Spanish court approves the foreign judgement the enforcement procedure can commence. According to article 545 of the Spanish Civil Procedure Act the same court that recognises the foreign judgement is responsible for its enforcement.

The steps of the enforcement procedure will vary with the type of judgement. In case of judicial monetary claims the Spanish court will grant a period of 10 days to allow the defendant to oppose the enforcement of the judgment on the grounds established in Articles 556 and 559 of the Spanish Civil Procedure Act (which provide for prescription, payment or settlement and lack of capacity). At the end of the 10 day period the applicant then has a further 5 days to respond to the defendant´s objections. The Court will then deliver a final judgment ordering the enforcement of the judgment or dismissing the application.

Perhaps an important note at this point is, as detailed above the determination of jurisdiction in international disputes and the recognition and enforcement of foreign judgments can be a complicated and lengthy process. Best Practice therefore would be to ensure that jurisdiction and applicable law in the event of a dispute should be agreed to in detail by the parties to any cross-border agreements.

How we at Mariscal & Asociados can help you:

• Contact us at mail@mariscal-abogados.com

• We will attend the Court hearing on your behalf to get the judgment recognised.

• We will then assist you in having the judgment enforced

How should notice be communicated?

If the temporary movement of the employee involves a change of residence but not a permanent change and does not exceed 12 months over a period of 3 years it is sufficient to notify to the worker at least 5 working days in advance, where the transfer is for a period longer than 3 months.

If the employee refuses?

In case of temporary displacement, the employee cannot exercise the extinctive option in their contract of employment which would entitle them to receive compensation of 20 days per year to a maximum of twelve months salary, as this option can only be used when a transfer is final and permanent.

Social Security

If the temporary transfer actually takes place, as it involves the provision of services abroad it will be necessary to see if there is bilateral agreement in relation to Social Security signed with Spain in the country of destination. If this country does not have a bilateral agreement, the employee must make contributions in Spain as if there had been no transfer in order to keep their benefits intact on their return and to ensure that they do not suffer any loss. The employee must also comply with the Social Security regulations in the destination country while providing services in that country to ensure all contributions are recorded.

It is recommended that the company take out a travel insurance policy to cover any contingencies that the employee may suffer while working in countries which have no bilateral agreement on Social Security signed with Spain.

This article does not constitute legal advice.

Incoterms rules were first published in 1936 by the International Chamber of Commerce and in general are reviewed every 10 years. The most recent revision took place in 2010, therefore the purpose of this article is to detail the recommendations brought about as a result of that revision.

There are five revisions worth highlighting:

Firstly, of note is the elimination of four terms and the creation of two new terms, bringing the number of Incoterms to eleven. However, the rules allow for their continued use despite their elimination.

The terms eliminated are the following:

DAF: It is understood that the seller will deliver the goods to the buyer when the goods are delivered at a border, but the seller does not have to unload the merchandise.

This term is used regardless of the means of transport used, provided that the goods are delivered at a land border.

DES: The seller delivers the goods when they are made available to the buyer on board the ship. This term is only used when delivery of the goods is made on board a ship at the port of destination and provided that the transport was by sea, by inland waterway or by multimodal transport.

DEQ: The seller delivers the goods when they are made available to the buyer on the quay or wharf of the port of destination. This term is used when the carriage is performed by any of the methods mentioned in the previous term.

DDU: The seller delivers the goods when they are made available to the buyer at the named place, without having been unloaded from their means of transport. This term can be used regardless of the means of transport.

The new terms are: 

DAT (delivered at terminal): This term includes the terms DAF, DES and DEQ. It is used when the seller delivers the goods in a transport infrastructure or terminal

DAP (delivered at place): The seller delivers the goods at a place other than a transport infrastructure or terminal but without unloading them. In this case, the seller bears the costs of unloading the goods.

The second change is that Incoterms 2010 advise and suggest, but do not require, that goods transported in containers use Multipurpose Incoterms rather than Maritime Incoterms.

The third change is in relation to the maritime Incoterms. In Incoterms 2000 the risks passed from the seller to the buyer when the load or the goods passed the ship’s rail. In the new Incoterms the seller passes the risk to the buyer when the merchandise is loaded on to the mode of transportation.

The fourth change is related to security: the rules now explicitly state that the seller is obliged to work with the buyer to get information and manage the relevant documents. This cost is borne by the buyer.

The last change from the old Incoterms, refers to the efforts being made to apply Incoterms to “domestic trade“. The EU is a geographical area with very significant differences, therefore, to use Incoterms to European trade, except the LDP concept concerning taxes resulting from export operations, seems to be a logical progression. This is due, among other things, to the abolition by the U.S. of RAFTD. The International Chamber of Commerce is now making efforts to ensure that American traders use Incoterms between themselves.

Finally, the following recommendations for the use of Incoterms should be highlighted:

-It is recommended to avoid the use of ex-Works (EXW) as it does not allow for adequate control of transport documentation and could lead to fraud, conflict, and so on. In this case, the exporter may have trouble getting the SAD for exportation submitted to customs by the importer.

- It is preferable to indicate precisely the Incoterm used and the place of physical delivery of the goods

- It is advisable to deliver the goods at the place of origin with the FCA term because this information is known. It is preferable to make the goods available to the buyer in the country of destination before passing customs. In the case of an import, you should use term F, while in the case of an export, use term C.

-It is recommended to use “D” Incoterms only for low-risk countries.

- There is always a risk involved in International transportation, therefore, it is recommended to the party assuming the risk to take out an insurance policy.

Marina Bugallal
mbugallal@mariscal-abogados.com

In order for the creditor to begin the process, the debt must not have to been accrued in the 6 months previous to the presentation of the request and the creditor must be solely entitled to the debt. 

Involuntary (necessary) bankruptcy may also be commenced by the partners or board members of a legal entity, who are personally liable for the debts.  (3.3 Bankruptcy Act)

To initiate an involuntary (necessary) bankruptcy the application should be based on any of the acts lawfully prescribed by the Bankruptcy Act for this purpose.  These requirements are detailed in the Exposition of Motives II, which are “based on any of the facts … which allege insolvency as prescribed in the Act”.

It should be pointed out that to initiate aninvoluntary (necessary) bankruptcy the burden of proof lies with the creditor, requiring him to include in the initial application all the evidence available to him supporting his claim.   He must also prove his position as a creditor and any of the facts described in Article 2.4 of the Bankruptcy Act, namely the failure on the part of the debtor to pay:

-      Tax obligations payable during the three months previous to the application for Liquidation. 

-      Social security payments and other contributions during the same period

-      Wages, allowances and other benefits arising from labor relations for the previous three months.

Also the involuntary (necessary) bankruptcy proceeding can be initiated when the legitimate creditor can base it on the following facts:

-      Dismissal of the payments made by the debtor.

-      Existence of seizure proceeding in regard with pendant executions that affect to the debtor’s patrimony.

-      Hurried or ruinous misappropriation or liquidation of the debtor’s  goods.

Once the request for bankruptcy is presented to the Judge can:

1. Decide the application is complete:  the Judge on the same day or by the latest the following day, can dictate a decry of automatic admission of the application.  If there are defects in the application the Committal will still take effect following the rectification of any defects within a maximum of 5 days. 

At this point the judge will send a summons to the debtor, along with the application for bankruptcy, requesting that he appear before him in a maximum of 5 days.  The debtor can oppose the application but it must be done in the manner prescribed and offering the proofs that he deems support his opposition. 

The evidence of witnesses is not enough to prove the facts alleged by the creditor

It should be advised that at this point that it is possible that the creditor or any other person with a legitimate interest can request the judge to adopt Precautionary Measures to secure the assets of the debtor. To this end the judge can require the creditor to pay a bond to the court to indemnify the debtor against any prejudice or damages that the Precautionary Measures may cause.  

2. Find the Documentation inadequate.  If the paperwork or the application for a declaration of bankruptcy is defective and the creditor does not rectify it within 5 days, the Judge can dictate a decry of automatic in-admission of the application.  However, it is possible to appeal this decision.

3. Find acquiescence or inactivity on the  part of the debtor.   Bankruptcy will be declared without holding a hearing or an examination of evidence attesting to the state of insolvency of the debtor (Article 18.1 Bankruptcy Act).  This process then follows the same course as for a Voluntary Creditor´s Bankruptcy, when it is instigated by an insolvent debtor.

4. If the debtor disputes the application:  the debtor must present his opposition in writing within 5 days of the summons and base it on the following facts: 

-      Non-existence of the facts (detailed in Article 2.4 of the Bankruptcy Act)

-      Existence of the facts but not insolvency

-      The debtor must prove his solvency and he must also show his books of accounts to the court

The Bankruptcy Act defines insolvency of the debtor as the inability to pay debts.  What is relevant for the purposes of declaration of insolvency is that the debtor is in a situation that cannot pay his debts as they fall due. 

5. In case ofnon-appearance of thecreditor, orthe appearance and failure of corroboration of his opposition: if the judge finds that the objective facts prescribed by the Bankruptcy Act exist and that there are other possible creditors he will call a hearing of the other creditors before deciding on the application. 

Once the involuntary (necessary) bankruptcy has been declared, the debtor´s powers of administration and disposition of its assets are suspended and transferred to the appointed Administrators of Bankruptcy.

Finally, it must be highlighted that although it is true that the law in Article 3.1 states that the request for a declaration of bankruptcy can be made by a single creditor, for the declaration of the necessary budget multiple creditors are required. If there are not multiple creditors at the time of the request, the judge can deny the commencement the insolvency process. 

Monika Bertram
mbertram@mariscal-abogados.com

Disclaimer: This article does not constitute legal advice.

This is a widespread commercial formula used to facilitate the entry and placement of products in international markets, the distributor usually being a local business that is familiar with the market in question. In difficult economic times like the ones we are currently experiencing, the distribution contract allows businesses access to other markets at a lower investment risk.

Agency and Franchising Contracts are also widely used in the context of distribution of products; however, this article will focus on distribution contracts.

In Spain the distribution contract is an atypical contract, with no specific rules for what it contains and also be a source of much discussion in existing case law and doctrine. However, it is necessary to take into account certain rules applicable to other types of contracts, which particularly those concerning competition.

Drafting the Agreement

The development or drafting of an international distribution agreement is not particularly different from a nationwide distribution contract, except for the following issues of vital importance:

- First, it is advisable to check if there are any specific regulations in those countries where the goods are to be distributed.

- Secondly, the competent courts and applicable law should be agreed in the contract. Given the importance of this issue in international contracts, the rest of this article is dedicated to this subject

Competent Courts and Applicable Law

Introduction

Proper regulation of this issue would remove many practical problems currently experienced involved in providing greater legal certainty to the parties to distribution contracts. This issue often poses considerable difficulties during negotiations, since both parties will usually insist in applying the law of its own country and will want any dispute to be resolved in their own domestic courts. It is therefore recommended that, despite any difficulties they may have during the negotiations, the parties should agree on an applicable law with a connection to the contract. Likewise, and for practical reasons, it is also advisable that the competent courts are those located in the country whose law is chosen.

International Arbitration

Another alternative for dispute resolution instead of making application to the courts is to provide for submission to International Arbitration. This formula presents the following advantages: firstly, speed of conflict resolution, secondly, it allows the parties submit to a body outside their respective countries and allows them to choose a neutral language, such as English for resolving any dispute. However, in our experience, the main disadvantage of this method is that it is not possible to appeal the result of an Arbitration even if it is possible to achieve a faster response. Arbitration may, therefore, pose a greater risk for both parties, especially when the decision is made by a single arbitrator.

Another disadvantage posed by arbitration is if one party doesn’t follow the decision made by the arbitrator, the other party may have to have to resort to the courts to enforce the decision. There may then subsequently be a risk that decision is not recognized by the courts which may cause long delays.

If there is no provision for the submission to the courts or the applicable law does not, the regulations on this issue should be taken into account. Let us first examine the applicable law in relation to international jurisdiction.

International Judicial Competence within the European Union

The rules of international jurisdiction vary depending on the defendant’s domicile. If the defendant is domiciled in a state of the European Union the Regulation 44/2001 (Brussels I ) will apply. If the defendant is domicile outside the EU shall the Organic Law of Judicial Power will apply.

Brussels I

First, we need to examine the jurisdiction clauses of Article 23 of Brussels I: the parties can determine in advance the competence of a court, provided the subject matter of the contract does not deal with any of the areas which are within the categories of the exceptions to the regulation.

Article 2 establishes a general rule that in the absence of the agreement of the parties, jurisdiction will be based on the domicile of the defendant.

Article 5 (1) of the Regulation also provides for determination of special jurisdiction as where in matters relating to a contract, jurisdiction can be determined in the place of performance of the contractual obligation. To make use of this provision what is meant by place of performance of the obligation must be defined. To facilitate the interpretation of this question, the regulation specifies the place of performance of the obligation in two areas that are often the core of the distribution contracts, these are contracts for the sale of goods and for the provisions of services. Thus, it is established that the place of performance of the contract of sale of goods is the state in which the goods were or should have been delivered and, likewise, the place of performance of the contract of service is the state in which the services should have been provided. It is worthy of note that, as it is sometimes difficult to determine whether an international distribution agreement can be classified as a contract for the sale of goods or provision of services, the type of contract must be specified in the agreement.

If it is not possible to determine this, Article 5 (1)a), as general rule without referring to any specific contract, provides that a person domiciled in one state may be sued in another state if that state is where there was an obligation underlying demand. The Court of Justice of the European Union further distinguishes obligations in two categories:

- The primary or replacement obligation: the obligation underlying demand is one whose breach is invoked to justify the claims of the lawsuit.

- Obligations that must be met in different states: the Court will be determined by the importance of each obligation.

Organic Law of Judicial Power (LOPJ)

If the defendant is domiciled in a third state, jurisdiction is governed by the principle of the autonomy of will (Article 22.2). There is an alternative approach which attributes international jurisdiction to the Spanish courts when the defendants is domiciled in Spain, or when the contractual obligations were created or had to be performed in Spain.

Applicable Law

Contracts Signed after the 17 December 2009 are governed by the Rome I Regulation 593/2008. Article 3(1) provides for the general principle of the autonomy of will, that is, the applicable law is that which is chosen by the parties. Further, it is possible to choose a distinct applicable law for each part of the contract, and to change the applicable law during the life of the contract. Therefore, the parties to distribution agreements are free to insert valid clauses which elect the applicable law and jurisdiction for resolution of any issues.

If the parties have not agreed the law governing the contract, they can resort to the special rule for distribution agreements under Article 4 (1)(f), whereby the applicable law is the country where the distributor has habitual residence, to be determined at the time of the contract and is determined by the subject:

- For legal entities: the place of central administration.

- For individuals: the place where it carries out its principal professional activity.

However, the regulation provides exceptionally in Article 4 (4) that the provision of habitual residence shall not apply to the distributor when the contract has clear and manifest closer ties with other law. In any case, whatever the law applicable to the contract under the general rules, the application cannot go against the “mandatory rules” (Article 9), which are provisions considered as fundamental to a country for safeguarding its public or individual interests.

We see therefore that the question of the competent courts and applicable law, in the absence of express agreement by the parties, can be a complex and nuanced interpretation. This brings us again to the conclusion that it is essential to establish a forum and applicable law in the contract. In this way, legal uncertainty or any uncertainty in assessing the potential legal consequences of the conflict in question and future questions of jurisdiction are avoided.

Marina Bugallal & Leyre Barragán

The Monetary Process is a very simple procedure, and as noted, since May 4 last, facilitates claims not exceeding €250,000, provided the debt is monetary and is shown in a document. A lawyer or attorney is not required for this process.

What are the Principle Reforms?

The following is a summary of the main changes provided for in the Procedural Law Reform Act:

1. It raises the amount of the debt that can be claimed using this procedure to €250,000.

2. It grants competence to the Court Clerk to accept the written demands required to initiate the Monetary Process. The Clerk shall then report to the judge if he considers that the demand complies with the requirements for admission to the Monetary Process.

3. The reform provides that the parties to a contract can request a specific court, preferably in the jurisdiction of the debtor, to bring the suit.

4. No person can use the Edictal Procedure (by citation or summons through publication of edicts) in the Monetary Process, the only exception being to claim community expenses.

5. Where the debtor disputes the debt, the clerk will set a date for holding oral proceedings provided that the claim does not exceed €6,000. If the debt claimed exceeds this amount the case will have to be redirected to the Ordinary Process by making a corresponding demand.

6. In cases of debts claimed in excess of €6,000 which are disputed by the debtor, if the applicant does not submit the corresponding demand within one month , the Court Clerk can issue an “Archive Decree“, which may close the file.

This article is not intended to give legal advice.