In the last 25 years, Spain has gone through a major modernisation effort of its judicial system.  This has particularly benefited the field of asset tracing and recovery.  Indeed, the Spanish legislature has been well aware of the importance of this particular area to ensure the respect of the constitutional right to an effective legal protection.  Thus, Spain has developed a powerful system of asset tracing and recovery, particularly in comparison to other jurisdictions of the same continental legal tradition, which includes compelling tools like debtor’s assets disclosure orders and even electronic tracing and freezing of the debtor’s bank accounts.

Civil asset tracing tools

Spanish civil proceedings are particularly well equipped to carry out an extensive tracing of the assets of the debtor. The tools for asset tracing and recovery available to the claimant are generally the following:

The debtor’s assets disclosure obligation

Unless the claimant provides the Court with a list of assets of the debtor, enough to cover the due amount, the Court will automatically request the debtor to disclose such assets, specifying any charges and liens, and, in the case of real property, if occupied, the name of the occupants and their rights in the property.

The disclosure order must include the penalties, such as contempt of Court measures, that could be imposed if the debtor: does not submit the list of assets; includes assets belonging to others; excludes assets; or does not disclose any existing charges and encumbrances.

Contempt of Court instruments consist mainly in the offence named “enforcement frustration” in the Spanish Criminal Code applicable when the assets disclosure is untruthful, causing a delay or obstacle in the enforcement proceedings, or the debtor does not submit the disclosure of assets. 

On the other hand, the list of assets will always be considered incomplete in the case the debtor possesses assets owned by third parties and does not justify the right in the assets and the conditions of such possession.

The offence of enforcement frustration is punishable with: imprisonment of three months to one year or a fine (natural person); and fine of six months to two years (legal person); the same penalty is imposed to the serious disobedience offence, another crime that may come into consideration in the case of non-disclosure by the debtor.

Finally, the Court may also impose periodic fines on the debtor who does not duly disclose his assets.

The Court’s tracing powers and third parties’ obligation to provide information

At the request of any claimant unable to designate assets of the debtor for enough to cover the due amount, the Court will request financial entities, agencies and public registries, as well as other natural and legal entities, to provide a list of assets of the debtor according to their records.

In this sense, it is worth mentioning the “Neutral Judicial Point”, an instrument of electronic access that centralises the asset information of any person linked in a number of different ways to Spain (see paragraph VII).

The collaboration of private and public persons, including financial entities and public bodies, is particularly relevant given that bank secrecy and tax secrecy are not applied in Spain to prevent asset tracing.  Both banks and tax authorities have the obligation to cooperate with Courts during enforcement and cannot refuse to facilitate the financial information of the debtor at their disposal.  Likewise, any third party who has a relationship with the debtor (employers, clients, etc.) is obliged to collaborate with the Court, providing information on the debtor as requested.

Periodic coercive fines

As in the case of the debtor’s disclosure order, the obligation of third parties to provide information on the debtor is reinforced by the potential application by the Court of periodic coercive fines to those who refuse to provide the information at their disposal.

Case triage: main stages of fraud, asset tracing and recovery cases

Pre-litigation

Strategy

Prior to initiating any judicial action, it is necessary to first determine the best strategy in the specific case, be it civil or criminal. 

As we have previously indicated, Spanish criminal proceedings allows the participation of the victim and of the party economically harmed by the crime, in virtually identical terms to those of the Public Prosecutor.  However, as the requirements for the success of a criminal action are strict, in many cases, it may be advisable to file a civil action instead. 

On the other hand, criminal justice faces an increasing workload that causes investigations to last longer than civil proceedings.  Civil declaratory proceedings in the first instance in Spain can last approximately a year-and-a-half, although times vary greatly depending on the workload of each specific Court.

The determination of the proper strategy may also cover the analysis of potential actions against the directors of a legal entity, or the possibility to file for forced insolvency proceedings against the debtor, provided that the requirements for such specific proceedings are met.

Pre-litigation asset tracing possibilities

The pre-procedural phase includes the solvency investigation of the debtor, as well as some assets tracing. 

In Spain, for example, the Real Property Registry contains information about the owner and the existing liens in relation to all real property in Spain. 

Access to the Real Property Registry is public, provided it is based on a legitimate interest, which is applicable in the cases of solvency analysis or assessment of the legal situation of a specific property, among others.  Information from the Real Property Registry can be obtained online at an affordable price.

On the other hand, the Companies Registry is also a good source of information on companies and other legal entities with compulsory registration in said Registry (cooperatives, economic interest groups, branches of foreign companies, etc.)

Access to the Companies Registry is also free and contains information on the annual financial statements (mandatory deposit), the identity of the directors, the founding partners, the registered office, etc.

Finally, vehicles and other moveable assets are also easily traceable via the corresponding public registries covering the ownership and the existing liens on such assets.

During the proceedings

Preparatory litigation inquiries

Although in Spain, a civil law jurisdiction, there is no institution similar to the common law “discovery”, there is the possibility of preparing a trial requesting the exhibition of certain documents necessary to prepare the lawsuit and that are exclusively in the possession of the other party. 

Provisional measures

Asset tracing tools can also be used (with the exception of the debtor’s disclosure order) to locate assets that allow the enforcement of precautionary measures ordered by a Court.

Among these precautionary measures, applicable to both civil and criminal proceedings, are the preventive seizure, the administration or judicial management of productive assets, the precautionary registration of the existence of a claim regarding a registrable asset, the deposit of moveable or personal property, the formation of inventories of assets, the intervention and deposit of income obtained through an activity that is considered illegal, etc.

Enforcement

It is the phase during which, by excellence, the ATR discussed above are predominantly used.

The lack of assets that may be subject to a freezing or seizure order allows the creditor to open mandatory insolvency proceedings against the debtor.  The insolvency proceedings allow, in addition to the rest of its inherent purposes, to determine the potential personal liability of the directors of the legal entity in the causation of the insolvency, which could force such directors to cover the deficit of the insolvency estate with their personal assets.

Contact us for any questions or comments.