Introduction
The action for rescission on grounds of fraud against creditors, provided for in Article 1291(3) of the Civil Code and incorporated into insolvency legislation, constitutes a fundamental instrument for the protection of the estate against acts carried out by the debtor to the detriment of creditors. In the context of insolvency proceedings, this action takes on particular significance, as it allows for the setting aside of valid legal transactions which, due to their fraudulent nature, have diminished the insolvent party’s assets.
The following section analyses the requirements, case-law foundations and practical details of rescission on grounds of fraud in the context of insolvency proceedings, as well as the criteria for its application by the courts.
Nature of the Insolvency Rescission Action
The purpose of the insolvency rescission action is to recover for the estate those assets or rights that have been removed from the debtor’s assets through acts carried out in fraud of the creditors, thereby guaranteeing the integrity of the estate and equal treatment among creditors (par conditio creditorum). It is not a matter of challenging void or voidable acts, but of revoking valid transactions on the grounds that they are detrimental to the estate.
Requirements for Rescission on Grounds of Fraud in Insolvency Proceedings:
According to case law and insolvency legislation, the rescission action requires:
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The existence of a valid and effective act or transaction
The contested act must be valid and must have produced legal effects. These are usually contracts, but they may also be unilateral acts, such as the provision of security in respect of third-party debts (Pontevedra Provincial Court 20 January 2012).
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Specific detriment to the estate (eventus damni)
It must be proven that the act has caused harm to the estate, hindering the recovery of insolvency claims. It is not necessary to prove total insolvency; it is sufficient to demonstrate that the act has diminished the assets available to satisfy the debts (Balearic Islands Provincial Court 12-2-16, Supreme Court 7-9-12).
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Fraudulent intent on the part of the debtor
No express intention to cause harm (consilium fraudis) is required, but merely awareness of the harm (sciencia fraudis). It is sufficient that the debtor knew the act harmed the creditors, without the need to prove deliberate fraudulent conduct (Supreme Court 3-11-15, EDJ 198473).
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Exercise within the statutory time limit
The action must be brought within four years of the act (CC Art. 1299). In insolvency proceedings, the time limit runs from the date on which the insolvency administrators became aware, or could have become aware, of the detriment (Balearic Islands Provincial Court 20-11-09).
Clarifications and Limits of the Insolvency Rescission Action
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Acts carried out during the insolvency liquidation phase:
Rescission on grounds of fraud is not applicable to the disposal of assets carried out during liquidation, as the debtor does not voluntarily dispose of their assets; rather, it is the judge who directs the process in accordance with the approved plan (AP Ourense 2-9-20).
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Ordinary transactions between related parties:
Case law has held that the conditions for the rescission action are not met when, for example, a shareholder uses dividends to repay loans granted to its subsidiary, unless specific and fraudulent harm is proven (Madrid Court of Appeal No. 2, 3 October 2023).
Relaxation of Case Law
The courts have relaxed the requirements for the rescission action, particularly regarding proof of prejudice and awareness of the harm. It is not necessary to have previously attempted enforcement against all the debtor’s assets, nor to prove absolute insolvency. It is sufficient to demonstrate that the contested act hinders the recovery of insolvency claims.
Conclusion
The action for rescission on grounds of fraud in the insolvency context is an essential tool for protecting the insolvency estate and ensuring equality among creditors. Its application requires a detailed analysis of the acts carried out by the debtor, particularly during the suspect period, and an assessment of the existence of prejudice and awareness of the harm. Case law has facilitated access to this action, allowing for greater protection of the insolvency estate.
To exercise this action, it is essential to have specialist advice in insolvency law and up-to-date knowledge of the applicable case law. At the Commercial Law Department of Belzuz Abogados, S.L.P., Madrid, we offer comprehensive support in defending the interests of the insolvency estate, identifying acts subject to rescission, and pursuing legal proceedings to recover assets and rights. Our team is available to companies, insolvency practitioners and creditors to ensure maximum legal certainty and effectiveness in asset protection throughout the insolvency proceedings.