Further to our last update, we now take this opportunity to provide you with some information
on the last developments at the insolvency procedure.
The Judge has started to deal with some of the petitions and although we have only received
a few rulings it is quite clear that he is adopting a general approach to this matter and
considering all purchasers as ordinary creditors.
He is also recognising your right to terminate the agreement and receive a refund plus
interest. The right to a refund of the deposit paid has been classed as an ordinary credit. On
the other hand, the right to perceive interest has been classed as a subordinated credit,
which places it at the bottom of the rank of credits.
As you are probably aware, the developer Herrada del Tollo SL filed for insolvency on the
19th May 2008. This date is quite important to understand the foundations behind the
Judge's rulings. The Judge has divided the claims between those claims where the property
was supposed to be completed before the 19th May 2008 and those where it was supposed
to take place after the 19th May 2008.
According to the few rulings that we have seen so far those purchasers who were supposed
to complete before 19th May 2008 will be considered ordinary creditors because the breach
of the contract took place before the date in which the developer filed for insolvency, which
as you know was the 19th May 2008.
Does the above mean that those who were supposed to complete after the 19th May 2008
will have to be classed as privileged creditors? Unfortunately not, as it appears that the
Judge has also considered those purchasers as ordinary creditors. His reasoning is that
although the breach of contract took place after the 19th May 2008 it was still quite clear that
the properties were never going to be delivered on time and therefore it can be deemed that
the breach also took place before the 19th May 2008.
As previously mentioned, the above is a topic that has divided the legal doctrine. Some
believe that purchasers should be classed as privileged creditors (or, using the right word in
Spanish, credits against the mass) and others believe that they should be classed as
ordinary. It appears that the Judge in our case believes that the latter should be applicable.
Lucas & Asociados have their own reservations about the Judge's decision and have
suggested protesting the decision. The protest will be raised before the Spanish Court of
Appeal (Audiencia Provincial) who will look into the case and may change the Judge's
decision or confirm it. Lucas & Asociados will proceed to protest the rulings as soon as they
are received and this will be done on an individual basis.
In the meantime, the Judge will continue to issue rulings for each petition. He is dealing with
more than 700 petitions and therefore it is quite likely that he will be dealing with these for
what is left of July and probably whole of September. As you probably recall from previous
updates, the Spanish Courts will close in August.