Spain
Some of the key areas affecting the giving of guarantees and security are as follows.
Capacity
It is important to check the constitutional documents of a company giving a guarantee or security to ensure it has an express or ancillary power to do so and there are no restrictions on the directors' powers that would be preventative. The safe approach is often to have the directors of the company approve the giving of the guarantee or security by resolution. Likewise, if the guarantee or the security is going to encumber an asset which is considered as ‘essential’ for the relevant company (an asset shall be considered as essential if its value exceeds 25% of the total value of the assets of the company according to the latest approved balance sheet), the approval of the shareholders' must be also obtained by resolution.
Fiduciary duties
Although Spanish law does not recognize a legal concept of ‘corporate benefit’, there might be a breach of fiduciary duties by the directors of a Spanish company giving a guarantee or security to the extent that the transaction pursuant to which the guarantee or security is given is not found to result in the ultimate corporate benefit of the company (the referenced directors must act diligently and loyally in the best interest of the company (i.e., judgement business rule and risk/benefit approach) and, in any case, in accordance with any applicable laws and the company's by-laws).
Insolvency
Pursuant to the Spanish Insolvency Law, any agreement entered into by a Spanish company within the two-year period preceding the adjudication of bankruptcy may be set aside by the relevant insolvency court if the insolvency officials can prove that it was detrimental to the insolvent estate
Upstream restrictions
Spanish private limited liability companies (sociedades de responsabilidad limitada) cannot grant loans, issue guarantees or provide financial assistance in favor of shareholders or directors, unless such transactions have been authorized on a case-by-case basis at the shareholders' meeting.
Financial assistance
Under Spanish law, the scope of the financial assistance prohibition varies depending on the corporate nature of the relevant company:
- a public limited liability company (sociedad anónima) may not advance funds, grant loans, grant guarantees/security or provide any kind of financial assistance whatsoever for the acquisition of its shares or of the shares of its parent companies (sociedades dominantes).
- a private limited liability company (sociedades de responsabilidad limitada) may not advance funds, grant loans, grant guarantees/security or provide any kind of financial assistance whatsoever for the acquisition of its shares or of the shares of any of its group companies.
Breach of financial assistance regulations may result in fines for the directors of the company granting the guarantee or security, and may also result in the guarantee or security or the relevant underlying transaction being deemed void. Any objection to the financial assistance must be invoked by the shareholders (usually minority shareholders) or the company’s creditors.
Are there any restrictions on lending and borrowing?
Lending
Lending is only a regulated activity in relation to mortgages and consumer lending. In these circumstances, a lender that is not a credit institution or other entity registered with the Bank of Spain is required to register on a special administrative public registry before its commencing such lending activity (for foreign entities, the relevant registry is the State Registry created for this purposes within the Consumer General Directorate, or Dirección General de Consumo). There is no prior licensing requirement so this is a simple registration process.
Mortgage and consumer financing agreements are subject to a range of regulatory requirements that do not apply to unregulated loans. For example, for regulated mortgage contracts, there are particular restrictions around how:
- the loans are marketed, originated and sold;
- lenders administer the loans on an ongoing basis; and
- to deal with borrowers who fall behind with their payments.
Furthermore, regulated financing agreements have specific requirements around the information that shall be provided to the borrowers before the execution of the loan and during its life, how the agreement is drafted and formatted and what information must be included. In addition, borrowers under mortgage and consumer loans enjoy certain rights that they do not enjoy in case of non-regulated loans.
As far as exchange control regulations are concerned, there will be reporting requirements to the Bank of Spain on a Spanish resident who receives funds from a non-Spanish resident. The Spanish resident must comply with such reporting requirements (for statistical and information purposes only), if any, on a periodic basis. The timing of the reporting obligations depend on certain thresholds.
There are no additional restrictions that apply to foreign lenders making loans available to Spanish borrowers.
Borrowing
While borrowers are generally not regulated, it is advisable for borrowers to consider whether either the mortgage or consumer lending regimes apply to their activities, in which case they will benefit from the protections mentioned above.
What are common lending structures?
Lending in Spain can be structured in a number of different ways to include a variety of features depending on the commercial needs of the parties.
A financing can either be provided on a bilateral basis (a single lender providing the entire facility) or syndicated basis (multiple lenders each providing parts of the overall facility).
Syndicated facilities by their nature involve more parties (such as agents which fulfil certain roles for the finance parties), are more highly structured and involve more complex documentation. Larger financings will typically be done on a syndicated basis with one of the syndicate taking the lead in coordinating and arranging the financing.
Facilities will be structured to achieve specific objectives, e.g. term loans, revolving credit facilities,working capital loans, equity bridge facilities, project facilities and letter of credit facilities.
Within the last years, it has become increasingly popular to finance certain transactions (usually LBOs) through private placements issued by the borrower, which are subscribed by Alternative Capital Providers (instead of usual credit institutions). For more information, see Private placement.
Facility durations
The duration of a facility can also vary between:
- a term loan or credit facility, provided for an agreed period of time but with a short availability period;
- a revolving credit facility, provided for an agreed period of time with an availability period that extends nearer to maturity of the loan and which may be redrawn if repaid;
- an overdraft, provided on a short-term basis to solve short-term cash flow issues; or
- a standby or a bridging loan, intended to be used in exceptional circumstances when other forms of finance are unavailable and often attracting a higher margin.
Facility security
A facility can either be secured, unsecured or guaranteed. For more information, see Giving and taking guarantees and security.
Facility repayment
A facility can also be repayable on demand, on an amortizing basis (in instalments over the life of the facility) or scheduled (usually meaning the facility is repayable in full at maturity).
What are the differences between lending to institutional / professional or other borrowers?
Lending to institutional/professional borrowers is subject to less regulatory oversight and so less burdensome from a compliance perspective.
By contrast, lending in the context of mortgages and to consumers is a regulated activity and so additional protection will be afforded to borrowers. For more information, see Lending and borrowing – restrictions.
Do the laws recognize the principles of agency and trusts?
No, the concept of a trust or a split between legal ownership and beneficial ownership is not generally recognized under Spanish law. Therefore, for instance, if security is granted in favor of a security agent or security trustee instead of each of the creditors, there is a risk that the Spanish courts may consider that the security agent or security trustee may only enforce the security in respect of the amounts owed individually to such security agent or security trustee under the secured obligations, but not in respect of the amounts owed to the other secured creditors. Therefore, it is highly advisable that, if possible, the security is granted in favor of all the relevant creditors.
Regarding the agency role, it is possible to appoint an agent to act on behalf of other lenders. This appointment will be principally for administrative purposes however, for example for the purposes of receipt of notices on behalf of each of the lenders.
Are there any other notable risks or issues around lending?
Generally
Facility agreements and other finance documents are subject to general contractual principles and laws. For example, the Spanish courts have, in relation to payment obligations, the discretion to grant cure periods and to moderate the enforcement of any event of default having consideration to the debt and economic circumstances.
In relation to defaults, Spanish courts are reluctant to accept the early termination of a loan or the enforcement of security for reasons apart from non-payment of the financing or, in some cases, material defaults (e.g. financial covenants).
Specific types of lending
Mortgage loans
Specific to the area of mortgage lending is the issue of the Mortgage Credit Directive, which has been implemented in Spain through Law 5/2019, dated 15 March. This directive aims to prevent the irresponsible lending and borrowing practices that were exposed during the global financial crisis. The Law 5/2019 applies to mortgage loans granted for the purpose of acquiring or renovating a residential dwelling, or acquiring property rights over land plots or buildings. It imposes a number of requirements on real estate lenders, including the need to:
- conduct affordability tests before lending;
- provide standard information about the mortgage to enable borrowers to compare products; and
- ensure that staff are suitably trained.
A lender is only entitled to declare the early termination of the loan on the grounds of non-payment of monies due in the event that this has been provided for in the loan agreement and duly recorded at the Land Registry. In the absence of an early termination clause duly recorded at the Land Registry, the lender is only entitled to claim the principal and interest overdue but not the whole amount of the loan. If the mortgaged property is transferred before the payment of any overdue instalment and there are other instalments not yet due, the property will be transferred subject to the mortgage corresponding to that part of the loan pending payment.
Early termination of the loan cannot be declared (and therefore security may not be enforced) unless the default in payment extends to (i) 3% of the total amount of the loan or 12 monthly instalments, if default occurs in the first half of the term of the loan; or (ii) 7% of the total amount of the loan or 15 monthly instalments, if default occurs in the second half of the term of the loan.
Law 5/2019 also applies to real estate credit intermediaries who are defined as any natural or legal persons that, not acting as a lender nor a notary public, engage in a commercial or professional activity, in return for remuneration, whether pecuniary or in any other form of agreed economic benefit, consisting in bringing a natural person into direct or indirect contact with a real estate lender. Real estate credit intermediaries are subject to registration and supervision requirements.
This law also regulates the advisory service provided by the real estate lender or credit intermediary. The advisory service in relation to the real estate loan is a separate activity from the granting and intermediation of real estate loans.
Consequently, real estate advice is configured as an ancillary activity to the real estate loan or intermediation, so that it can only be provided by those who are registered as lenders or intermediaries.
Regarding the registration regime, depending on the geographical scope of action of the real estate credit intermediary or lender, lenders and real estate credit intermediaries must be registered with the Bank of Spain or with the competent body of each Autonomous Community.
The Bank of Spain shall be responsible for the management of the registration of:
- real estate credit intermediaries and lenders that operate or are going to operate with borrowers with domiciles located throughout Spain or in the territorial area of more than one Autonomous Community, provided that they have their head office in Spain, regardless of whether they additionally operate or are going to operate through a branch or under the freedom to provide services in other EU States, and
- real estate credit intermediaries and lenders who are going to operate in Spain through a branch or under the freedom to provide services, whatever the geographical area in which they are going to carry out their activity.
The management of the registration of real estate credit intermediaries and lenders that operate or are going to operate exclusively with borrowers domiciled within the territorial scope of a single Autonomous Community shall correspond to the competent body of said Autonomous Community, provided that the headquarters of its central administration is located in the same.
Credit institutions and Spanish branches of foreign credit institutions providing services subject to Law 5/2019 are exempted from the obligation to register, as they are already authorized and registered in their condition of credit institutions.
Leveraged lending
In case of leverage lending, it is important to bear in mind the issue of any potential financial assistance. For more information, see Giving and taking guarantees and security.
Are there any other notable risks or issues around borrowing?
Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD) which outlines certain measures for dealing with failing financial institutions, and which was implemented in Spain by Law 11/2015, of 18 June, on the Restructuring and Resolution of Credit Institutions and Investment Firms.
The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.
Article 55 of the BRRD gives authorities the power to ‘bail in’ obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail in’ describes a variety of write down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of Spanish or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.
There are some reporting requirements when a Spanish resident receives funds from a non-Spanish entity. All Spanish residents shall report to the Bank of Spain:
- own-account transactions with non-residents, however structured and/or settled (i.e. through accounts of residents in Spain or abroad, or through cash delivery); and
- the relevant balance of their total foreign assets and liabilities.
There is no requirement for Spanish residents to report to the Bank of Spain when the total aggregate amount of such transactions with foreign entities is less than €1,000,000 in any year, unless the Bank of Spain has specifically requested a report to be submitted.

César Herrero
Partner
DLA Piper Spain S.L.U.
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T +34 91 790 1656
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Jesús Zapata
Partner
DLA Piper Spain S.L.U.
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T +34 91 788 7373
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Juan Gelabert
Partner
DLA Piper
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T +34 91 790 1687
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Natalia López Condado
Counsel
DLA Piper
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T +34 672107449
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