Broad standing to promote the nullity of a contract in bankruptcy proceedings

The Judgment of the Supreme Court of December 22, 2023 under number 1823/2023 (ECLI:ES:TS:2023:5758) in which Mr. Ignacio Sancho Gargallo is judge acting as rapporteur, illustrates a case in which, during the common phase of the insolvency proceedings, the Insolvency Administration proceeded to sell 5,000 shares owned by the insolvent company that it held in an investee company, without obtaining the prior approval and judicial authorization of the insolvency judge.

One of the partners of said investee company requested the annulment of the sale of the shares by means of an insolvency proceeding, invoking the infringement of former article 43.2 LC (current article 205 TRLC), which states: “Until the approval of the agreement or until the opening of the liquidation phase, the assets and rights that make up the active mass may not be alienated or encumbered without the authorization of the judge”.

However, it should be noted that the said partner was neither a party to the sale and purchase agreement nor a creditor of the insolvent company, but was simply a party to the insolvency proceedings. Is he actively entitled to bring such nullity action?

Article 1302 CC establishes that “the action for nullity of contracts may be exercised by those bound principally or subsidiarily by virtue of them.” Insofar as Art. 1257 CC restricts the effects of the contract to those who granted them, it is logical that it is these and those bound by the contract who are interested in its validity and therefore legitimized to urge its nullity.

However, the case law of the Chamber has interpreted article 1302 CC in a broad sense, since it admits that there may be cases in which there may be other interests that legitimize the exercise of the action for nullity of the contract, even if they are not parties to it.

In the case analyzed, the Supreme Court understands that the interests affected by the infringement of former article 43.2 LC (current article 205 TRLC) exceed the contracting parties or obligors and therefore, the legal standing to bring an action for annulment extends beyond 1302 CC. The legitimate interest is very clear in the case of the creditors of the insolvent company, to the extent that the assets of the insolvent company are affected by the payment of their credits and, therefore, the TRLC legitimates them to exercise such nullity action. But what about the partner of the investee? To what extent does it have this legitimate interest to be able to exercise such action?

The interest that the latter argues is the condition of partner of the investee, whose shares are the object of sale, and that, as a result of such sale, the control of the company had been altered. Furthermore, the SC argues that “it is logical that, if the transfer was made in favor of one of the partners, there could be another interested party who would not have had the opportunity to opt for the purchase, since the legal procedure for the sale that would have given him that option had not been followed, and therefore he would have been affected by the irregularity that motivated the ineffectiveness”.

In conclusion, the Supreme Court reasons that, in this incident, the partner of the investee does have a legitimate interest to exercise the nullity action. And all the more so when such sale without the prior authorization of the insolvency judge has a negative effect on the general interest of the insolvency proceedings, which is the optimization of the value of the assets of the insolvent company in the liquidation phase.

Maite Blas Janssens
Illeslex Abogados

For further information on the contents of this document, please contact ILLESLEX at info@illeslex.com.

©2023 ILLESLEX | All rights reserved. | This document is a compilation of legal information prepared by ILLESLEX. The information or comments contained herein do not constitute legal advice. The intellectual property rights of this document are owned by ILLESLEX. No part of this document may be reproduced in any medium whatsoever, nor may it be distributed, transferred or used in any other way, either in its entirety or in excerpted form, without the prior permission of ILLESLEX.