Recoveries in cross-border insolvencies—Edgeworth Capital Luxembourg SARL and another v Maud

Recoveries in cross-border insolvencies—Edgeworth Capital Luxembourg SARL and another v Maud

William Willson, barrister at South Square Chambers, analyses the judgment in Edgeworth Capital and considers the consequences for creditors seeking recoveries under guarantees in cross-border insolvency cases.

Original news

Edgeworth Capital Luxembourg SARL and another v Maud [2015] EWHC 3464 (Comm), [2015] All ER (D) 04 (Dec)

The Commercial Court interpreted the effect of art 97.2 of the Spanish Act on Insolvency 22/2003 dated 9 July 2003 (the Spanish Insolvency Code). It held that the Spanish Insolvency Code did not operate to extinguish a guarantee as a guarantee granted by a third party and that the claimants were entitled to judgment on the claim.

How did the issue arise?

The claimants had sought to enforce a guarantee pursuant to which they said the defendant owed them €40m (the defendant having agreed to guarantee a €200m loan facility by the claimants to a Dutch company of which he was a shareholder and which owns one of the largest pieces of real estate in Europe, ‘the Santander Asset’).

The defendant admitted the monies were owed. However, he claimed the guarantee was extinguished by virtue of art 97.2 of the Spanish Insolvency Code which provides that, where a creditor becomes subordinated as a result of being ‘specially related’ to the debtor company, then the Spanish Insolvency Court will order that ‘guarantees of all kinds’ held by the creditor are extinguished.

The defendant argued that this extended to third party guarantees. The claimants argued that although art 97.2 could extinguish a guarantee granted by an insolvent debtor who was the subject of Spanish insolvency proceedings, it did not extinguish a third party guarantee.

Did the Spanish insolvency proceedings extinguish t

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