CMS Expert Guide for taking security in Spain

Yes - subject to certain capacity requirements, including, in particular, the corporate authorisations mentioned in section 4 below and that the person signing the relevant guarantee has legal capacity (capacidad de obrar).

No - it is treated as a personal guarantee (aval or fianza).

No - provided that the guarantee is not delivered by a bank entity as a bank suretyship (aval bancario). 

Yes. Please see comments in section 4 below.

Yes. Please see comments in section 4 below.

Yes. Please see comments in section 4 below.

Financial assistance: A Spanish company cannot advance funds, grant loans, provide any guarantee or security interest or in any way provide any financial assistance for the acquisition of its own quota shares or the quotas shares or shares of other companies of its group.

Transactions which fall under financial assistance are null and void. In addition, directors of the company committing financial assistance or, if applicable, those of its controlling company, may be held liable and certain fines would apply. 

Corporate benefit: A Spanish company must derive a benefit from any transaction it enters into. Under Spanish law, a company is required to use its assets and credit for its own corporate purposes and for its own benefit. Therefore, the granting of an up-stream/cross-stream or even down-stream guarantee by a Spanish company may violate this rule if that company cannot prove that it obtains a benefit from the guarantee. The determination of whether a particular transaction (e.g., granting of a guarantee) complies with such requirement is a factual matter to be determined by the directors and by the relevant courts. This assessment needs to be made on a case-by-case basis, analysing all circumstances pertaining to the transaction (e.g., type, size, purpose, structure of the group, etc.). Directors of Spanish companies have to comply with fiduciary duties (namely the duties of loyalty and care) when performing their obligations, including the approval of such transactions. Directors may be liable and exposed to sanctions and claims for failure to comply with this requirement. Sometimes certain limitation language is included in the finance documents and in the corporate resolutions with the aim to contractually limit the guarantee obligations of the Spanish company/guarantor to an amount equal to the amount of the proceeds of the guaranteed parent/sister company debt (whether under a facility or debt securities) that is directly or indirectly on-lent to that guarantor by the parent/sister company borrower under intra-group loans. 

Corporate authorization: When the management body of a Spanish company grants security interest or guarantees it should be made - with proper justification. Prior shareholder approval is required for significant transactions, such as the acquisition, disposal or contribution to another company of assets whose value exceeds 25 percent of the company's balance sheet.

Transfer pricing rules: require that transactions between related parties be conducted at arm’s length terms, i.e. consistent with what unrelated parties would agree to in a similar transaction. Non-compliance with transfer pricing regulations can lead to tax adjustments and penalties.

According to the Spanish Civil Code, guarantees are perfected by the concurrence between the express consent of the guarantor and the creditor. The Spanish Civil Code does not require any formality for the granting, but it is market practice in Spain that it is granted in writing and formalized in a public document, either by means of a policy (póliza notarial) or a public deed (escritura pública), which facilitates the creditor's monetary enforcement as a fast-track enforcement proceeding (procedimiento ejecutivo).

Yes.

The secured obligations may be present or future, including amounts that are not yet known, provided that such secured obligation is properly identified.

Yes. 

The validity of a guarantee/security is linked to the validity of a principal and guaranteed obligation. The guarantee/security is extinguished at the same time as the principal and guaranteed obligation (unless the parties agree otherwise). 

The indemnity could be recognised if it is expressly agreed in the relevant agreement.

Yes. 

Guarantee will continue as long as the guaranteed/secured obligations remain outstanding, unless the parties agree a definite term.

Yes. 

Please note that all entities appearing before a Spanish notary, in case the guarantee / security is notarised, must have a Spanish tax identification number (N.I.F.) which is obtained with the Spanish tax authorities. It is market standard, as Spanish law requires that any party entering into any notarial deed has a Spanish identification number (NIF). In this regard, for the purposes of obtaining a tax ID of a foreign entity, the directors of such company shall also obtain a foreign person identification number (NIE). 

No. 

Spanish law does not envisage parallel debt schemes where “parallel obligations” which mirror the obligations of the underlying debt owed by such borrower/issuer are created in favour of the security agent for the same amount and payable at the same time as the underlying debt. The reason for this is that security rights under Spanish law need to be based on a legitimate reason and are considered as “accessory” or “ancillary” in nature to the principal obligation. Accordingly, all lenders of a syndicate are required to be a party to the relevant security document.

Unless otherwise provided in the relevant guarantee/security agreement, a general rule is that security follows the principal obligations and no consent of the debtor is required for a change of the creditor, accessory obligations follow the principal obligation. 

The consent of the borrower and the other obligors is not required for the transfer to take place. 

Whenever the transaction is structured as a loan/facility/credit and the relevant transaction benefits from a guarantee from a Spanish entity or any Spanish law security duly notarised (which is usually the case), the assignment and or transfer of the creditor position shall follow certain formalities. 

If the loan, credit or facility agreement was notarised, the assignments must be notarised.

Whether or not amendments to or ratification of guarantee/security is needed depends on scope and nature of changes to the principal obligation and on terms of guarantee/security, including on how broad or specific the description the guaranteed/secured obligations. 

Generally, the consent of the lenders is expressly required and a change to the secured obligations would generally require the ratification of the security / guarantee. 

All amendments to a notarised security agreement must be also notarised. 

Depending on the change, registration may be necessary if we have registrable security interests. 

Notwithstanding the above, the amendment of the principal obligation needs to be assessed on a case-by-case basis depending on the nature and terms of amendment.

In practice, all guarantee/security documents over assets in Spain are Spanish law governed security documents. 

Security documents over, for example: (i) real estate assets located in Spain; (ii) shares of companies incorporated in Spain; and (iii) credit rights arising from accounts opened in Spain, among others, must be governed by a Spanish law security document. 

Others, such as guarantees may be governed by foreign law, which choice (i) should be recognised and enforced in Spain to the extent such foreign law is not contrary to public policy of Spain and does not apply to procedural matters or to the choice of remedies to protect or enforce in Spain a party’s rights under the relevant agreement and if it is covered by an international convention but (ii) does not limit the effect of any mandatory rules of Spanish law.

Submission to foreign courts of disputes in connection with a private legal relationship, provided the said legal relationship involves a foreign element (i.e. a non-resident as a counterparty), is not contrary to Spanish law and should, in principle, be enforceable in Spain. 

The jurisdiction of Spanish courts is, however, mandatory if the dispute is within the exclusive or special jurisdiction / competence of Spanish courts, e.g. relates to real estate property or insolvency of a Spanish party, among others. 

As a general rule, recognition may be denied under exceptional circumstances (e.g. if the relevant judgment is in conflict with public policy, if the defendant was not served properly with the notice of initiation of the proceeding, if the judgment is in conflict with a prior final judgment). 

Submission to arbitration is valid and enforceable. 

Recognition and enforcement of a foreign arbitral award or a foreign court judgment in Spain is subject to compliance with relevant enforcement procedures under Spanish law and ratified by Spanish international treaties (including the 1958 New York Convention).

The main point to consider in this regard would be what it is established under Royal Decree 571/2023 of 4 July on foreign investments, In particular, it should be noted that from the entry into force of this Royal Decree, intra-group loans of more than EUR 1,000,000 and with a repayment period higher than one year will be covered by this Royal Decree, and some reporting obligations are required.

Security granted by a company prior to insolvency may be revoked or terminated by clawback action if it is created less than two years prior to insolvency or bankruptcy and is viewed as harmful to the rest of the creditors.

The description of collateral must be sufficient for its clear identification. A mortgage is a pledge over immovable property.

Yes. 

Technically is possible, but only if formalisation/perfection requirements mandatory for any of the assets within the security document are fulfilled, but the assets must be specified.

Floating charges such as debentures do not exist under Spanish Law.

Yes. 

Please see section 4 above.

• Registered security (i.e. mortgages and pledges without transfer of possession): Must be notarised for their validity and subsequent registration in the relevant registry.
• Unregistered Security (pledges with transfer of possession): It is highly advisable in order to have access to fast-track enforcement proceedings (procedimiento ejecutivo).

The type of security that is subject to registration includes: real estate mortgages, chattel mortgages (for example, over planes, trains, machinery, IP) and pledges without transfer of possession (for example, over stock commodities, credit rights) share.

No renewal is required. 

• Registered security: Must be executed in Spanish language and shall include a copy in Spanish of the secured agreement. 
• Non-registered security: Can be granted in Spanish or other language, translation shall be needed in practice for enforcement. Common practice in cross-border transactions to have Spanish law governed security executed in Spanish and English (other foreign language). 

Executed in writing, contain mandatory terms provided by law and the following for each asset:

Yes. 

It gives the secured creditor priority in rank.

Registered security: has priority over unregistered encumbrances (even if registered security is created later than unregistered). The priority of registered encumbrances is determined by the date/time of the registration. The retention right provided by law has priority over other non-registered encumbrances. The priority of encumbrances over non-registered securities is determined according to the notarisation date because it shall not be effective against a third party unless the date of the pledge is evidenced by a public instrument (i.e. escritura pública or póliza). 

Unregistered Security: The rank of a security can also be determined in the relevant agreement, i.e., the parties may agree on the rank of the relevant security, but for a security created later to other security over the same asset to have a preferential rank, it will require the acceptance for preference or concurrence of rank of the secured party of the first security that was granted.

Establishment of security and level of security regulation is generally:

Medium complexity.

Yes.

Please note that in rem security interests are highly advisable to be notarised in front of the Spanish notary (with physical presence at the notarial meeting). 

The market practice is to have the security documents executed by handwritten signatures. 

Yes. 

The Land Registry (Registro de la Propiedad) and the Movable Registry (Registro de Bienes Muebles) are publicly available and accessible online (one have to allege a legitimate interest). Any interested person with legitimate interest can obtain the information from the registers online or via a notary/registrar.

A security holder or the pledgor/mortgagor (or a person duly authorised by them such as a service provider or someone at a notary office), can apply for registration.

Quick - normally 3 to 5 business days to check if any encumbrances over registered assets exist. 

Low.

It would depend on the type of the registration/ deregistration/ amendment/ removal that will be made. 

All registrable amendments to be made to security interests that have been registered shall be subject to the payment of the relevant registration fees. 

Long.

The notarial fees are calculated on the basis of official charts applicable to the underlying value of the transaction at hand. When the base amounts are higher than €6,010,121.04 the notaries have some room to negotiate their fees, which are usually paid by the borrower. 

Quick – notarisation can be a matter of days if the parties have duly notarised and apostilled powers of attorney and reach an agreement about the terms and conditions. 

Certain registrable security interests are subject to the payment of a non-recoverable Stamp Duty (AJD). Such tax is payable by the secured party (is the taxable person), but it is an absolute market practice for the parties to negotiate that the borrower shall cover the Stamp Duty costs, on the secured amounts of registrable security interests (real estate mortgages, chattel mortgages and pledges without transfer of possession) provided that these are granted by means of a type of notarial deed that is called escritura pública. Mortgages always have to be granted in escrituras públcias, but pledges without a transfer of possession are usually granted by means of pólizas, which do not trigger the payment of taxes. The Stamp Duty rate is from 0.5% to 2%, depending on the autonomous community where it is subject to registration / where the real estate asset is located. 

Registrable security interests shall be subject to the payment of the relevant registration fees.

Yes.

No. 

To enforce a security in Spain you need to specify the amount due and payable under the principal obligation agreement, not only a breach under the principal obligation agreement

No. 

Please see section 28 (b) above.

No. Enforcement of security is not allowed just as a consequence of a security provider’s insolvency.

No. 

No. 

Spanish law does not provide for a mandatory period for curing (except for mortgages) a default. It is mandatory to notify the mortgagor/ pledgor and the debtor of the breach and specify the amount due and payable, regarding the other formalities it will be necessary to comply with the specific formalities for each type of enforcement proceedings and depending on the asset. 

Yes. 

It is expressly recognised under Spanish law (for example, for shares, receivables, insurance rights, among others). Notarial writ or agreement between the parties (if not already included in a security document), depending on the enforcement method.

No. 

In accordance with article 1859 of the Spanish Civil Code the creditor may not appropriate or dispose of things pledged or mortgaged, the pacto comisario is prohibited under Spanish law, unless the asset has been appraised by an independent valuator and that price is paid.

Yes - if parties agreed so in a security document or separate agreement.

Yes. - if parties agreed so in a security document or separate agreement.

Yes. 

For certain assets (i) the one foreseen in Royal Decree-Law 5/2005, of 11 March on urgent reform measures to encourage productivity and improve public sector procurement, as amended from time to time (for shares, bank accounts and certain type of receivables); and (ii) by way of set-off. 

Yes. 

They are highly advisable.  

In practice getting physical access to the collateral, including for arranging independent valuation, may be problematic, if the security provider actively prevents the enforcement.

Specific performance (including based on a court ruling) is problematic in practice. 

Fairly easy, debtor friendly, average (but quick for some types of security, e.g. bank account pledge, receivables). 

For court enforcement, in general the timeframe may vary from one year to 18 months, depending on the workload and location of the court. 

Enforcement before a notary shall be shorter and may take approximately 6-8 months, depending on the case at hand and on whether the enforced assets require appraisal, which would delay the procedure.

No. The laws in the area are rarely changed and if changed then to the extent necessary to improve the regulation and remove or regulate properly unclarity/inconsistency revealed during the practical implementation.