Real Estate Companies Hope For Renewal of Their Life-Saving Law

16/12/2014 – Cinco Dias

Spanish real estate industry hopes that the Royal Decree-Law 10/2008 will be prolonged for at least one year more. Otherwise, we could witness ‘an haemorrhage’, as the new chairman of property developers association of Madrid (Asprima), Juan Antonio Gomez-Pintado, put it. His Barcelona counterpart from corresponding group Apce, Marc Torrent added that ‘a year of being in force is an absolute minimum’.

In 2008, the Government of Jose Luis Rodriguez Zapatero approved the Royal Decree as a preventive measure against massive losses of property managers triggered by value drop-off. ‘Impairment losses deriving from Tangible Fixed Assets, Real Estate Investments and related Stocks, Payables or Receivables shall not be recognized in annual corporate reporting’, the regulation states.

Disappearance of the law would have impacts on the article 27 of the consolidated text of the Corporate Law, as well as on the Bankruptcy Law 22/2003 from July 9th.

The regulation mentioned above indicates that if the losses take the equity down to below two-thirds of the social capital (for limited companies) and if during a year the firm does not recover, it must cut in the equity by necessary amount. The article 363.1. applies to all kinds of companies when the net worth posts below 50% of the share capital, which would mean either dissolution or balance recovery through the capital increase or decrease.

The Royal Decree-Law 10/2008 has been rolled over year after year, even if it was originally established for years 2008-2009 only. In 2011, a very similar regulation was approved, called the Royal Decree-Law 9/2011, which stretched the compensation period to three years.

Last March 7th, the Goverment approved the Royal Decree-Law 4/2014 with an aim to renew Zapatero’s ruling once more as ‘the exceptional period ends in 2014’.

The current Government of Spain has to decide until March whether it is going to prolong the law, which has saved many real estate firms from liquidation, or not. The authorities claim respective clauses were added to the Bankruptcy Law.

However, that regulation would not be enough to stop dissolution of the companies, reckons Mr Gomez-Pintado, as maintenance of the Royal Decree-Law is crucial while the norms on giving the second chance to viable firms are being negotiated for the other Law. Barcelona Developer Association Head Marc Torrent agreed that although the sector is surely experiencing a turning point, it is not capitalized sufficiently to face lack of the Law as the fight is also against becoming insolvent.

The Royal Decree-Law 10/2008 repeatedly appears in annual reports of real estate firms. When it comes to the listed ones, some of them managed to improve considerabe parts of their balances this year.

For instance, Colonial pointed out that if it hadn’t been to the Decree, its land affiliate Asentia would have been dissolved on 31st December 2013. The firm, now having Villar Mir as the majority stakeholder, sold the troublesome branch this year.

Furthermore, Martinsa Fadesa avoided liquidation in 2013, in spite of having net balance in the red. Quabit admitted an 18.8 million euro deficit in its accounts, but instead thanks to the Law it is planning to float its own Reit now.

Finally, Reyal Urbis, currently in talks with creditors, was shown a 429.9 million euro hole in 2013 but it defended itself from total bankruptcy by including the Royal Decree-Law 10/2008 in its annual reporting.


Original story: Cinco Días (by Alberto Ortín Ramón)

Translation: AURA REE