Banking and Stock Market Operations: A Comprehensive Guide

Posted on Nov 4, 2024 in Law & Jurisprudence

ITEM 8: BANK CONTRACTS

8.1 The Banking Traffic Actors

The banking business involves credit intermediation conducted through banking contracts. Entities trade with the money of their customers. The main actors in this traffic are banks (credit institutions) and customers.

Entities: Legal Regime

• Law 26/1988 of July 29 on Discipline and Intervention of Banks
• Royal Legislative Decree 1928/1986 of June 28 on Transposition of Community Law in Spanish Regarding Credit Institutions

Credit Entities: Companies whose primary activity is the regular receipt of public funds with the obligation to return them and apply them to self-lending and similar operations.

Types of Entities

• Credit or Bank Deposits: Typically include banks, savings banks, and credit unions.
• Non-Banking Credit Institutions: Listed in Article 39 of the Law of Discipline and Involvement of Banks, including leasing companies and mortgage companies.

Sources of Banking Law

These are the rules governing bank contracts, which are agreements between banking credit institutions and their customers. They relate to banking and brokerage activities in credit. Bank contracts are not covered by specific legislation, so governing rules can be derived from sources like Articles 2 and 50 of the Commercial Code:

• Regulations from the Ministry of Economy and Finance
• Bank of Spain Circulars
• Banking customs (difficult to prove)
• Contract terms (clauses that banks repeatedly use in contracts)

Contract terms are the most important in practice. To protect banking customers, the law mandates transparency for banks, requiring clear information on interest rates, commissions, and expenses. The Ministry of Economy and Finance’s order of December 12, 1989, and the Bank of Spain’s circular of September 7, 1990, regulate these transparency obligations.

Conflict Resolution

Banking clients in conflict with an entity have three options:

• Law Courts
• National Committee of the Stock Market: Can penalize banks that fail to comply with reporting duties (only for investors in the stock market)
• Customer Service Department: Exists in every bank but may not always favor the customer. Clients can escalate to the Commissioner for the Defense of Banking Services, who addresses complaints and provides information. The Commissioner is more objective and their decisions are usually binding for the bank. If the Commissioner doesn’t rule in the customer’s favor, the courts are the final recourse.

8.2 Classification of Bank Contracts

• Active Banking: The bank provides credit to the customer, who must repay it with interest.
• Passive Banking: The client gives credit to the bank, which must repay it with interest.
• Neutral or Management Banking: The bank neither gives nor receives credit but charges a fee for services.
• Parabanking Operations: Transactions by banks that are not typically banking activities.

8.3 The Checking Account

An accounting tool that reflects banking operations between customers and banks. It’s distinct from the commercial contract of the current account, which involves reciprocal credit provision and excludes payment or compensation until the account is closed.

Difference Between Checking Account and Commercial Current Account

• The commercial current account involves reciprocal lending, absent in the checking account.
• In the commercial contract, neither party can access their credit until the account is closed. The checking account provides a liquid balance.
• The commercial current account offsets credits and debts only at closure, while the checking account is continuously self-clearing.

Legal Nature of the Bank Account

Defined solely by the general conditions set by banks.

Classes of Bank Accounts

• Individual Accounts: Held by a single person (natural or legal).
• Collective Current Accounts: Held by two or more owners, requiring joint consent for transactions or allowing individual transactions without consent.
• Immobilized Accounts: Show no interest or fee movements for less than four years.
• Abandoned Accounts: Similar to immobilized accounts, but balances are taken over by the state after 20 years of inactivity.
• Special Savings Accounts: Offer higher profitability and are restricted to specific groups of people.

8.4 Passive Banking Operations: Bank Deposits of Money

A contract where the customer delivers money to the bank. It’s a regular deposit, meaning the bank can use the money and return the same amount with interest. It’s a real contract, perfected upon delivery of the money, and unilateral, as only the bank is obligated to return the money with interest.

Types of Deposits

• Demand Deposits: Customers can access their money at any time. May be linked to a savings account. Differences include:
  • Current account movements are reflected only in internal bank accounts, while savings accounts have double-entry bookkeeping.
  • Current accounts allow access to money by check, savings accounts do not.
  • Current accounts allow overdrafts, savings accounts do not.
• Fixed-Term Deposits: The return is linked to the amount and duration. Larger amounts and longer terms yield higher returns. Some banks issue transferable certificates of deposit (CDs) as payment instruments.
• Regular Bank Deposits: The bank safeguards items delivered by the customer (usually in sealed envelopes or boxes) for a fee. Largely replaced by safe deposit boxes.

8.5 Active Banking: Bank Loan

The customer is obligated to repay the bank the borrowed amount plus fees, interest, and costs, under stipulated terms. It’s a real contract, perfected upon delivery of the money, and unilateral, as only the customer has obligations. Though not legally required to be formal, banks usually require a deed.

Obligations of the Customer (Borrower)

• Repay the borrowed amount, either in a single payment or installments.
• Pay interest, calculated based on a fixed or variable interest rate (e.g., Euribor).
• Pay an origination fee (1-2% of the loan amount).

Termination of Employment

Usually occurs upon full repayment. Early termination can be triggered by the customer’s failure to fulfill obligations or misrepresentation of information to obtain the loan.

Syndicated Loan (a form of bank loan)

Involves multiple lenders when a customer requires a large sum that a single bank is unwilling to provide. A “lead bank” coordinates with “associate banks” to complete the transaction. Each bank signs a separate loan agreement, making obligations independent.

Opening of Credit

A commercial contract where the bank makes a sum of money (credit ceiling) available to the customer (always an employer), who can use it as needed. It’s a consensual contract, perfected upon agreement, and bilateral, as both parties have obligations.

Differences Between Credit and Loan Agreement

• A loan provides the entire amount at once, while credit allows multiple withdrawals.
• A loan is a real and unilateral contract, while credit is consensual and bilateral.
• Credit allows a fluctuating balance, unlike a loan.

Types of Credit Availability

• Opening Credit on Current Account: Implemented through the current account, with withdrawals and repayments recorded.
• Opening of Secured Credit: The customer provides a guarantee (personal or collateral) to secure the credit.

Bank Discount

The bank provides the customer with the discounted amount of a claim against a third party, becoming the new holder of the credit right. The customer pays interest in exchange for immediate liquidity.

Bank Rates

• Non-Bank Discount: The receivable is not reflected in an exchange document.
• Exchange Discount: The receivable is reflected in an exchange document (bill of exchange or promissory note), which can be:
  • Trade Discount: Arises from a prior legal relationship (e.g., sale of goods).
  • Financial Discount: Not rooted in a prior relationship, implemented by issuing letters or notes.

Discount lines facilitate regular or periodic discounting without renegotiating terms. Discount rediscounting occurs when a bank discounts receivables with another bank (often the Bank of Spain).

Grounds for Termination of the Contract

Extinguished when the debtor pays the third-party credit. Early termination can occur if the bank believes the third party won’t pay or if the customer breaches obligations.

8.6 Banking Neutral or Management

a) Integrated Operations in the Special Reference Service Box for Transfer and Direct Debit Receipt

The cash service involves the bank making payments and charges on behalf of the customer. Key operations include:

• Check payment
• Cash income
• Bank transfer
• Recovery of payroll and pensions
• Debiting of bills

Bank Transfer: The customer instructs their bank to transfer funds from their account to another account (their own or a third party’s).

Domiciliation of Receipts: The bank makes payments or collects receipts on behalf of the customer, eliminating the need for the customer to handle these transactions directly. Requires prior domiciliation of the receipt.

b) Transactions Not Included in the Service Box: Special Reference to Documented Credits and Safe Service

• Documentary Credits: An agreement between a bank (issuing bank) and its customer (originator of the loan and buyer of goods) where the bank pays the beneficiary (seller) upon delivery of documents related to the purchased goods.
• Types of Documentary Credits:
  • Revocable: The issuing bank can change the terms without notifying the seller.
  • Irrevocable: The issuing bank is bound by the terms and must rigorously examine the documents.
• Safe Deposit Boxes: Have replaced closed bank deposits. The bank provides the customer with a box in a secure location, accessible with a dual-key system (one key for the bank, one for the customer). Combines features of lease and deposit contracts, with lease characteristics predominating. The bank is responsible for loss or damage, except in cases of force majeure. Liability is limited, often by insurance coverage.

8.7 Settlement of Transactions Between Credit Institutions: Special Reference to Clearing

Bank Settlement: A mechanism for settling debts between banks arising from banking operations. It involves multilateral netting, unlike bilateral civil compensation. Requires a clearing house (Bank of Spain) where each bank has an account for clearing purposes.

ITEM 9: RECRUITMENT IN THE STOCK MARKET

9.1 The Organization of the Stock Market

The stock market is a pillar of the financial market, alongside the banking and insurance markets. It encompasses markets where securities and financial instruments are issued and traded.

Legal Regime

Law 24/1988 of July 28 governs the stock market, aiming to strengthen the Spanish stock market and create a single European securities market.

Classes of Stock Markets

• Primary Market (Securities Issuance): Securities are created and initially acquired. Operates on the principle of freedom of issuance, with limited administrative requirements and control by the National Securities Market Commission (CNMV).
• Secondary Market (Trading): Securities are traded after issuance. Requires rigorous administrative control by the CNMV and admission to trading. Investor protection and transparency are crucial. Two types:
  • Official Secondary Markets: Comprehensively regulated by the securities market law, with strong investor protection and transparency. Subject to strict CNMV control.
  • Unofficial Secondary Markets: Governed by internal rules, with limited CNMV oversight and reduced investor protection and transparency.

Official Secondary Markets: Private

• Stock Exchange Traded Equity Securities: Attracts investors due to the potential for high returns (and high risk). It’s the market with the highest trading volume, though not the highest number of operations (that’s the bond market).
• Technical Concepts:
  • Member of a Stock Exchange: An entity listed in Article 37 of the securities markets law, authorized to trade on the exchange.
  • Governing Body of a Stock Exchange: A corporation whose members are the members of the exchange, responsible for managing the exchange.
  • Society of Stock Exchanges: A corporation whose shareholders are the governing bodies of the four stock exchanges, managing the computerized trading system.
  • Computerized Trading System (BIS): An electronic system for trading securities listed on at least two exchanges (the “fifth exchange”).
  • Systems of Society: Responsible for registering and settling all stock exchange transactions.
  • New Market: A segment of the stock exchange dedicated to high-technology companies.
• Public Debt Market: Trades securities issued by the state, ICO (Official Credit Institute), and the European Central Bank (e.g., state bills and bonds). Has the highest number of operations. Governed by the Bank of Spain.
• Futures and Options Market: Trades financial instruments other than securities, including:
  • Futures Contracts: Investors buy a financial asset that doesn’t yet exist, paying the price on the purchase date.
  • Option Contracts: Investors decide on a specific date whether to exercise their option to buy.
  • Swap Contracts: Two investors exchange their investments.

Spain has two futures and options markets: one for futures and options on citrus and olive oil.

Objects of Negotiations

• Securities (Grouped in Emissions): Homogeneous securities that can be bought and sold en masse (e.g., shares).
• Financial Instruments: Primarily futures, options, and swap contracts.

9.2 Employment in the Primary Market

Newly issued securities are bought and sold. This market involves the initial purchase of shares in companies created through a process of successive foundation, involving the search for investors to buy the first shares.

9.3 Recruiting in the Secondary Markets

Securities and other financial instruments are traded. The most important and frequent contracts are stock contracts (buying and selling shares). Operations are classified as:

• Ordinary: Regulated by the CNMV.
• Extraordinary: Not specifically regulated by the CNMV (e.g., operations in foreign markets impacting the Spanish market, operations where intermediaries are empowered to deviate from CNMV rules).

Operations are also classified by performance method:

• Cash Transactions: Obligations are fulfilled at the moment of contract conclusion (payment and share allotment).
• Forward Transactions: Obligations are fulfilled within a specified timeframe. Can be:
  • Firm: The deadline for compliance cannot be altered.
  • Conditional: The deadline can be changed.

ITEM 10: INSURANCE CONTRACTS

1. The Ideas of Mutuality and Homogeneous Risk Compensation Insurer as the Basis of the Phenomenon

Concept, Elements, and Essential Characteristics of the Insurance Contract; Typology

Insurance from an Economic Perspective: An operation where a large group of people subject to the same risks contribute to a common fund, accessible to each person when needed. Based on the principle of mutuality (solidarity among people facing common risks). The insurer uses premiums to form a joint fund, allowing coverage for individual policyholders as individual risks offset each other (law of large numbers).

Definition of Insurance Contract

Governed by Law 50/1980 of October 8. Article 1 defines it as a contract where the insurer, in exchange for a premium, compensates the insured for damages or provides capital, income, or other benefits in case of a covered risk.

• Elements Whose Risk is Being Hedged: The insured event.
• Premium: Price of insurance.

Essential Characteristics

1. It’s a consensual, bilateral, onerous (not free), and aleatory contract. Aleatory contracts involve uncertainty about whether either party will need to fulfill their obligations, unlike commutative contracts.
2. It fulfills various economic functions: preserving the insured’s assets, providing a preventive or savings function (life insurance, pension plans).

Personal Elements of an Insurance Contract

1. Insurance Entrepreneur (Insurer): Can only be specific legal entities:
   • Corporations
   • Mutual societies (fixed or variable premiums)
   • Social welfare mutuals (MUFACE)
   • Cooperative societies
   • Branches of foreign insurers
   The insurer must meet legal requirements for legal personality and administrative requirements (mainly solvency and authorization from the General Directorate of Insurance).
2. Insurance Broker: An individual who connects potential parties to an insurance contract, providing information to help customers find the best deal. Usually works with multiple insurance companies.
3. Insurance Agent: An extension of the insurer, concluding contracts on behalf of the insurer and collecting premiums (retaining a percentage).
4. and 5. Insured: The owner of the insured interest (the relationship between a person and a thing, or a person’s life or bodily integrity). Can sign the contract on their own behalf or on behalf of another person. If signing on their own behalf, they are also the policyholder.
5. Beneficiary: The person who receives the payout in case of death (life insurance). In non-life insurance, the term “beneficiary” may be used incorrectly for the person receiving the payout, but it’s more accurately an “accepting creditor.”
6. Injured Person: Specific to liability insurance, the person claiming compensation for damages caused by the insured.
7. Duration of the Contract: Typically annual, but varies depending on the type of contract. Cannot exceed one year for damage insurance (unless renewed with two months’ notice).
8. Types of Insurance Contract:
   • Property Insurance: Covers risks affecting the insured’s property.
   • Personal Insurance: Covers risks affecting the person’s existence, body, or health.
   • Compensation Insurance: The insurer compensates for the damage.
   • Sum Insurance: The insurer pays the agreed sum.
   • Service Insurance: The insurer provides a specific service.

The insurer provides the policyholder with a policy, the final document of the insurance contract. An interim certificate of insurance or coverage document may be issued while the policy is being prepared. The policy contains special conditions (specific to the contract) and refers to general conditions. Special conditions include policyholder details, price, risk extent, payment method, etc. A duplicate policy can be issued if the original is lost.

Real and Causal Elements of an Insurance Contract

1. Real Elements: The premium (insurance rates). The insurer sets the premium, subject to public administration control. Payment can be a single premium (paid at once) or regular premiums (paid in installments). If the policyholder fails to pay due to their fault and an incident occurs, the insurer is not obligated to pay.
2. Causative Factors: The risk (probability of an event occurring). The risk must exist at the time of contracting for the contract to be valid. The policyholder must declare all relevant circumstances known to them in a questionnaire provided by the insurer. The insurer cannot try to avoid or reduce compensation based on undisclosed information unless the policyholder acted in bad faith.

Effects of an Insurance Contract

• Duties of Parties to the Contract:
  1. Obligations of the Policyholder and Insured:
     • Duty of Declaration: (Article 10) The policyholder must declare all circumstances known to them that may influence the risk. Failure to disclose can lead to contract restriction or premium adjustments.
     • Duty to Report Increase in Risk: (Article 11) The policyholder must notify the insurer of any circumstances that increase the insured risk. Failure to do so can lead to reduced benefits.
     • Duty to Report the Incident and Provide Information: (Article 16) The policyholder must report the incident within seven days and provide all necessary information. Failure to do so can lead to reduced benefits.
     • Duty to Mitigate Consequences: (Article 17) The policyholder must take reasonable steps to reduce damages. Failure to do so can lead to reduced benefits.
  2. Obligations of the Insurer: The primary obligation is to pay compensation in case of a covered event, unless the incident was caused by the insured’s bad faith. Compensation must be paid within three months, and the insurer may be obligated to provide an advance payment. Late payment interest applies (Article 20).
• Damage Insurance: Seeks to compensate for property damage suffered by the insured.
  • Concept and Classes:
    1. Fire Insurance: Covers damage caused by fire.
    2. Theft Insurance: Covers damage resulting from theft.
    3. Land Transport Insurance: Covers damage to goods during transport.
    4. Cendant Profit Insurance: Compensates for lost profit due to a frustrated expectation.
    5. Fidelity Guarantee Insurance: Covers damage from breach of contract by the policyholder.
    6. Credit Insurance: Covers losses from bad debts.
    7. Liability Insurance: Covers damages caused by the insured to third parties.
    8. Legal Expenses Insurance: Covers legal costs incurred by the insured.
  • The Principle of Indemnity and Prohibition of Unjust Enrichment: The insured cannot profit from an insurance claim.
    • Relationship Between the Insured Sum and the Value of the Insured Interest:
      • Full Insurance: The insured sum equals the value of the interest.
      • Overinsurance: The insured sum exceeds the value of the interest (rare).
      • Underinsurance: The insured sum is less than the value of the interest (common). The rule of proportionality applies.
    • Subrogation of the Insurer: The insurer, after paying compensation, assumes the insured’s rights against third parties responsible for the damage, preventing unjust enrichment.
• Personal Insurance:
  • Life Insurance: The insurer pays an agreed sum upon the insured’s death or survival to a certain age. Mixed insurance combines both.
  • Accident Insurance: Covers bodily injury caused by a violent, sudden, and external event, leading to temporary or permanent disability.
  • Health Insurance: Provides a daily allowance for sick leave.
  • Pension Plans: Instruments for social provision, providing income in cases of retirement, disability, or death.

ITEM 11: THE CONTEST (BANKRUPTCY)

1. The Spanish System of Bankruptcy Law: Objectives and Guiding Principles

Bankruptcy law addresses situations where a debtor has multiple creditors and insufficient assets to pay all of them (Article 1911 of the Civil Code). Bankruptcy proceedings are characterized by the reverse enforcement of the debtor’s assets and the mandatory participation of all creditors.

Guiding Principles

The guiding principle is equal treatment of creditors, though not fully realized in practice due to the existence of preferred creditors. The law distinguishes three types of creditors:

• Privileged
• Ordinary
• Subordinated

Law 22/2003 of July 9 (Bankruptcy Law) governs bankruptcy proceedings. Key features:

1. Achieves legislative uniformity by consolidating procedural rules.
2. Regulates a single bankruptcy proceeding (meeting of creditors).
3. Applies the same proceeding to all debtors, regardless of urgency or employer status.

2. Quotes of the Competition (Bankruptcy)

Bankruptcy requirements are classified into two groups:

• Material Requirements:
  1. Subjective
  2. Objective
• Formal Requirements

A) The Material Budgets (Requirements)

1. The Subjective Estimates (Requirements)

Refer to who can be declared bankrupt (Article 1 of the Bankruptcy Law). Generally, any natural or legal person can be subject to bankruptcy, except for entities comprising the territorial organization of the State, public entities, and inheritances that have not been accepted outright.

2. The Budget Target (Objective Requirement)

Is insolvency, defined as the inability to meet obligations as they become due. Two types:

1. Current Insolvency: The debtor has ceased to pay obligations.
2. Imminent Insolvency: The debtor is currently paying but is expected to be unable to do so in the future.

Both debtors and creditors can apply for bankruptcy. Debtors must provide documentation proving insolvency (Article 6). Creditors must prove insolvency, which is difficult, so Article 24 lists cases where insolvency is presumed unless proven otherwise by the debtor. These include:

1. Holding a certificate or court order for execution of assets that was insufficient to cover the debt.
2. General failure to pay debts.
3. Rapid liquidation and ruin of assets.
4. Widespread default on debts, including tax, social security, and wages.

Formal Budgets (Requirements)

The only formal requirement is a legal declaration of bankruptcy, which can only be issued by a judge upon request.

b) The Formal Budget (Requirement)

1. The Application of the Competition (Bankruptcy)

The debtor can include a prior agreement proposal and request liquidation of assets in the application. The bankruptcy proceeding can have up to three phases:

1. Common Phase: Occurs in all proceedings. Involves:
   1. A report by the Bankruptcy Administration identifying the debtor’s assets (active mass) and creditors (passive mass).
   2. Implementation of the effects of the bankruptcy declaration.
2. Convention Phase: Aims to reach an agreement between the debtor and creditors. If successful, the proceeding ends. If unsuccessful, it proceeds to the liquidation phase.
3. Liquidation Phase: The debtor’s assets are sold to pay creditors according to the Bankruptcy Law. Some contests may skip the convention phase or have a non-productive convention phase.

2. The Writ of Declaration of Bankruptcy: The Receivers

If the judge deems the insolvency proven, they declare bankruptcy. The declaration must specify:

1. Whether the bankruptcy is voluntary or involuntary.
2. The impact on the debtor.
3. The appointment of the receivers (bankruptcy administrators).
4. A call for creditors to submit claims.
5. The publicity given to the declaration (publication in the BORME, national newspapers, and property registry).

The Bankruptcy Administrators: One of the organs of the bankruptcy proceedings. Two types:

• Necessary Organs: Judge and Bankruptcy Administration. The creditors’ committee only intervenes in the convention phase.
• Non-Necessary Organs: Prosecution (intervenes only when public interests are at stake, e.g., criminal conduct by the debtor).

The judge is the principal organ, presiding over the Commercial Court, which handles bankruptcy proceedings, company securities, and some commercial contract issues (excluding insurance and banking contracts).

Bankruptcy Administration: Typically consists of three members (a lawyer, an economist/accountant, and a creditor). The judge selects them from a list. In simpler cases, a single administrator may be appointed. The administrators are closely supervised by the judge, submitting monthly reports and a final report (final list of creditors). They are paid according to a tariff based on the complexity of the case. They are subject to liability similar to that of commercial company administrators, responding for harmful acts contrary to law or due diligence. Two types of liability actions:

1. Bankruptcy Liability Action: Exercised by the debtor, creditors, or if the damage affects the active mass.
2. Individual Liability Action: Exercised by the debtor, creditors, or third parties directly harmed by the administrators’ actions.

3. Effects of the Declaration of Insolvency

A) Effects on the Debtor

1. Burdens on the Debtor’s Economic Powers: The judge can intervene or suspend the debtor’s economic powers (management of assets).
   • Voluntary Bankruptcy: Usually intervention, where the debtor manages assets with the Bankruptcy Administration’s approval.
   • Involuntary Bankruptcy: Usually suspension, where the Bankruptcy Administration manages the assets directly.
   Limitations do not affect non-attachable or very personal assets (clothing, part of wages).
2. On Certain Fundamental Rights of the Debtor: The judge can limit fundamental rights if necessary.
   • Force the debtor (natural person) to reside in the location of the court.
   • Order arrest.
   • Order interception of communications and correspondence.

B) Effects on Creditors

Creditors form the passive mass, except for creditors against the estate. Two types:

1. Bankruptcy Creditors: Privileged, ordinary, or subordinated. Integrated into the passive mass. Individual actions are prohibited after the bankruptcy declaration.
2. Creditors Against the Estate: Judicial and extrajudicial actions initiated before the declaration continue until judgment, which is binding on the bankruptcy judge. Creditors with secured loans have special arrangements and privileges.

C) Effect on Claims

1. Credits stop accruing interest after the declaration.
2. Installment payments not yet due become payable upon declaration.
3. Credits cannot be offset against debts owed to the bankrupt.
4. All claims must be calculated in monetary terms to determine the total passive mass.
5. Special rules apply to claims against the bankrupt by public bodies.

D) Effects on Contracts

Generally, the declaration does not terminate existing contracts. Three situations:

1. Neither party has started fulfilling obligations.
2. The bankrupt has fulfilled obligations, but the other party has not.
3. The other party has fulfilled obligations, but the bankrupt has not.

Parties must decide whether to fulfill or terminate contracts. Some contracts are automatically terminated (labor contracts, senior management contracts, contracts with the government).

4. Determination of the Active Mass

Comprises the bankrupt’s assets. Requires the Bankruptcy Administration’s final report, which includes an inventory of assets with detailed descriptions and encumbrances. The report clarifies ownership of assets (including undivided ownership) and excludes assets not belonging to the debtor. Special rules apply to:

1. Assets acquired during marriage (determining ownership for inclusion in the active mass).
2. Balances in collective accounts (determining the debtor’s share).
3. Cancellation (rescission) of certain transactions conducted by the bankrupt within two years prior to the declaration.
4. Inclusion of pending lawsuits that may affect the debtor’s assets.

5. Determination of the Passive Mass of the Competition (Bankruptcy). Classification of Creditors. The Debts of the Estate

Requires the Bankruptcy Administration’s final report, which includes a list of creditors. Creditors have one month to submit claims with supporting documentation. The list is initially temporary, as rejected creditors can contest it. The Administration classifies claims into three categories:

1. Privileged:
   • General: Secured by all the debtor’s assets.
   • Special: Secured by a specific asset.
2. Ordinary: The majority, neither privileged nor subordinated.
3. Subordinated: Paid last, including interest credits, fines, penalties, and claims by persons with a special relationship to the bankrupt (family members).

Order of Payment:

1. According to the agreement in the settlement with creditors (if applicable).
2. If liquidation occurs:
   1. Claims against the estate.
   2. Privileged claims.
   3. Ordinary claims.
   4. Subordinated claims.

Claims Against the Estate: (Article 84-2 of the Bankruptcy Law) Defined by:

• Not integrated into the passive mass (no notification or recognition by the Bankruptcy Administration).
• Paid before bankruptcy claims.
• Restrictive nature (only claims listed in the article qualify).

6. The Solutions of the Contest (Bankruptcy) and its Conclusion

A) Convention (Agreement)

The preferred solution, leading to a two-phase bankruptcy. It’s an agreement between the debtor and creditors on how debts will be paid. Both the debtor and creditors can propose it. Two types:

1. Advance Proposals: Submitted with the bankruptcy application or during the common phase. Requires approval by a certain percentage of creditors. If successful, the convention phase is skipped.
2. Ordinary Proposals: Submitted during the convention phase and require approval at the creditors’ meeting.

The bankruptcy ends when the debtor fully complies with the convention. If not, the liquidation phase is initiated.

B) Liquidation

. They turn into money any property of the bankrupt. This phase should normally be the 3rd stage of the competition. But there are contests in which the liquidation phase is the 2nd. Thing that occurs when the insolvent debtor as requested in the application and the judge verifies that either there is nothing to distribute, or create appropriate liquidating the assets it is not possible corporate reorganization of the debtor. The opening of this phase effects: 1. They become money every debtor’s assets. 2. The extended payments due. 3. The debtor’s economic powers are suspended. This means that the management of their assets in bankruptcy administration makes. 4. the credits begin to pay for the order established by law. 5. The judge also has to qualify as random contest or guilty. (You may reopen a competition if the debtor has more luck with it shall be paid to creditors). 7. Rating the competition.Only if you open the liquidation phase the judge has to rate the competition, must determine whether it is fortuitous and guilty. 1. If random, no special effect with the debtor, because the economic downturn is a result of chance. 2. He’s guilty as the judge considers that the bankrupt has become insolvent by its own negligence. When you plead guilty has serious effects on the debtor – the debtor is ineligible to administer property of others (2 to 15 years) – The debtor may not impersonate another person.