Purchase of Real Estate in a Bankruptcy Procedure

Spanish Supreme Court Ruling 315/2019 suggests the following controversy.

In order for the purchase of a property, acquired from a company in a bankruptcy procedure, to have access to the Property Registry … must it be accompanied by the deed of sale, the judicial approval of the liquidation plan, or the judicial authorization of specific sale?

The ruling examines whether the registrar is competent to control whether the acquisition is in accordance with the specific liquidation plan/sales authorisation.

The question of the registrar’s competence has been resolved by the ruling. It establishes that the registrar must require the testimony of the court decision authorizing the sale. Lets look at it in detail.’

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Factual Background

The factual situation analyzed by the Spanish Supreme Court´s ruling above is as follows:

• An individual buys a real property included in the assets of a company in a bankruptcy procedure.
• The sale is documented in a public deed, and is signed by the Receivership.
• The registrar did not register the purchase and formulated a negative qualification, deciding to suspend the registration, alleging:

1. 1. That the liquidation plan´s testimony was not accompanied.
   2. That it was not accredited that the transfer of real estate complied with the provisions of the liquidation plan.

Against this qualification, the buyer formulated a demand of impugnation of the registry qualification.

It was accepted in the first instance, declaring that the registrar intended to review the powers of the Receivership, according to the liquidation plan. The Court of First Instance concluded that the registrar had assumed the functions of a court.

The Court of First Instance’s decision was appealed by the Registrar. But the Court of Appeal rejected his appeal, stating that the Registrar’s qualification: “exceeds the limits of the qualifying function of the Property Registrars” (sic).

Against the ruling of the Court of Appeal, the Registrar, formulated an appeal before the Supreme Court. As said, the controversy is about the competence of the Registrar to review compliance with the requirements of the liquidation plan. The content of the ruling is also applicable to sales resulting from specific judicial authorizations, within the bankruptcy procedure.

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Resolution

In view of the foregoing, the Supreme Court ruled, in the judgment under analysis, in favour of the Registrar, and maintained that:

• It is up to the Registrar to control the access of the deed of sale to the register.
• He must control that the deed has been granted by the Receivership as the seller of the real estate.
• The Receivership has appeared, because the debtor’s patrimonial powers were suspended.
• This control by the registrar is not replaced by the control previously carried out by the Notary. In reference to the review made by the notaries of the faculties of the selling party, in purchases and sales.

And it reaches such conclusions, in accordance with the content of Article 40.7 of the Spanish Bankruptcy Law:

When the debtor violates the obligations of this article, only the Receivership is entitled to void them (unless they have been validated). Any creditor can only ask the Receivership for explanations about the action. This action will be processed at the insolvency procedure plea and will expire with the satisfaction of the creditors ´agreement. No registration of these acts is possible until they are validated, confirmed, or have expired. This control by the Registrar only affects the existence of an authorized Liquidation Plan. But it does not affect the fulfilment of the conditions or requirements of the Liquidation Plan.

If this article has been of interest to you, we also suggest that you read the following article:

Rescission in the Bankruptcy Procedure. The Reintegration