Edgeworth Capital Luxembourg SARL & Anor v Maud

Article 97.2 of the Spanish Act on Insolvency did not extinguish a guarantee given by a third-party guarantor. The provision concerned collateral granted by a creditor specially related to the insolvent debtor, particularly security affecting the debtor’s estate. Its wording, context and purpose did not justify extending it to obligations undertaken by an independent guarantor. The fact that a provision appears in insolvency legislation does not, without more, bring its effect within the Insolvency Regulation.

The claimants acquired RBS’s rights under loan agreements and a guarantee given by the defendant. After the borrower entered a Spanish insolvency process, the defendant contended that Article 97.2 of the Spanish Act on Insolvency had extinguished the guarantee. The claimants argued that the provision applied only to guarantees or collateral granted by the insolvent debtor. The central issue was whether Article 97.2 extended to a guarantee granted by a third party.

1. Judgment for the claimants. Article 97.2 of the Spanish Act on Insolvency did not extinguish the defendant’s guarantee.
2. The words translated as “collateral of any kind” were capable of including third-party guarantees, but that was not their only possible literal meaning. Article 3.1 of the Spanish Civil Code required the wording to be considered in context, legislative history, social reality, spirit and purpose.
3. The statutory framework supported a narrower construction. Article 97.2 concerned the insolvency practitioners’ report, the insolvent estate’s assets and liabilities, the list of creditors and the consequences of failing to challenge that list. It gave no reason for regulating third-party guarantees.
4. The employment-related exception in Article 97.2 did not require the provision to cover third-party guarantees. The provision could operate in relation to collateral granted by the insolvent debtor.
5. The purpose of Article 97.2 was to address collateral granted by the debtor, including security affecting the insolvent estate, where claims held by persons specially related to the debtor were subordinated. No credible objective reason justified extinguishing a third-party guarantee.
6. It was unnecessary to decide the remaining issues. The court observed that, if Article 97.2 had the wider effect contended for, it would have had difficulty accepting that effect as falling within the Insolvency Regulation. The issues concerning submission to the Spanish insolvency proceedings and the indemnity were left undecided.

First-instance decision. No prior appellate decision was stated in the judgment.