On November 30, 2013, the Spanish legislator approved a recent amendment to Spanish insolvency law, introduced in March 2013, to clarify that a claim transferred to Spanish “bad bank” Sareb, and subsequently sold by Sareb to a third party, will also be exempt from equitable subordination risk.

Background -

Equitable subordination in general terms essentially allows courts to re-classify the contractual payment priorities by lowering the rank of all or a part of a creditor’s claim below the claims of other creditors. According to the Law 22/2003 of July 2 on Insolvency Proceedings (the Spanish Insolvency Act), acquiring a credit from a “specially related party” of the debtor can lead to equitable subordination on the debtor’s insolvency. In particular, credits (e.g. credit facility loans) held by an entity or person holding more than 10 percent of a private company’s share capital, or those with more than 5 percent equity in a listed company, may be subordinated in an insolvency scenario...