Taking Aifos to Court

As it is already well known, since 23rd of July the AIFOS Bankruptcy has initiated a new chapter in this creepy story. The situation was foreseeable as the reputation of this company was well known. Aifos commercialized developments at very competitive prices and had very good marketing strategies. They did not have building licenses, sometimes they were not even owners of the land, and in the majority of the occasions they did not grant the bank guarantees ordered by law nor did they deposit the monies received in a special bank account as established by law. How could they keep this behavior for years should be a matter of a deep and serious study. The financial crisis and the sudden end of the property market boom provoked this predictable end.

Most of the victims of AIFOS already carried out a long relation with the company; phone conversations with the employees of the company, attempts to cancel contracts due to endless delays in completions, judicial process, appeals, enforcement orders etc…

At the end of all this track of tears, the bankruptcy proceeding is requiring more money and the perspective to recover something seems each time more unlikely. Is it worth getting involved in the Bankruptcy?

First problem appears to be a new Legal Fee from your Lawyer. When approaching your lawyer your first question will be: Do I have any chance to get back my money? It is more than natural to ask it, but it is a tricky question for the lawyer. The lawyer will have to face a double dilemma:

If he tells you that nothing can be done and that the best option is to give up, he will be responsible if other creditors,, that would have filed the credit, recover any monies. If he tells you that the perspectives are good he would lie. What do they do? They recommend you to file the credit in spite of the fact there is little hope of getting back a Euro.

It seems nonsense but at this point nobody knows if it is worth the action to file the credit. The unique information that the lawyers have are those news telling that there is a debt of more than 1000M Euros, being the assets of the company less than a fourth of the said monies. They also know how difficult it is to search for Aifos’ goods. On the other hand if the number of creditors giving up their credits is high, the chance for those who will file the credit will become higher.

Lawyers in Spain follow the Official Legal Bar Fee’s. According to these fees a bankruptcy proceeding is charged as a standard proceeding, therefore a percentage around 8-9% is applied over the monies at stake. In this case credit against the debtor. These fees are official but for guidance only, if there is an express agreement stating otherwise, lawyers are allowed to reduce their fees.

Do you really need a lawyer to file the credit? Formally you do not. The filing of the credit does not require by law the representation of a lawyer and a court agent. In fact, the law it is quite vague about its content. The communication should state; name of the creditor, amount of the credit, alleged qualification for the credit, and the original documents justifying its origin. The bankrupted had to communicate a list of creditors to the court while applying for the bankruptcy. Putting together this list with the credits that had been communicated by the creditors, the judicial administrators will issue a creditor’s list.

The filing of the credit and the formal appearance in front of the court represented by a lawyer and a court agent will have to be done in two separate documents and are independent actions. The filing of the credit is limited to the 30th of September, later you will be able to communicate your credit but it will be qualified as subordinate credit, the end of the queue. On the other hand you can designate a lawyer and a court agent to participate at the process whenever you want.

Therefore, what is the aim of using a lawyer? The filing of the credit is more difficult than it seems. You have to argue a qualification for your credit, you have to keep clear that you have a credit; (it is not the same to be pending to complete a purchase than to be involved in a judicial procedure against the developer for the refund of the monies, or to hold a promissory note against AIFOS).

It is recommendable that a lawyer will check the nature of your credit, its amount, interests and the documents to be attached. But it is one thing to communicate the credit and another to participate in the bankruptcy process. To do so, you need to be represented by a lawyer and a court agent, otherwise you will not have any communication from the court regarding the running of the process, you will not receive the judicial administrators report, you will not be able to chase any judicial decision about your credit or your contract and you will probably get lost at the creditor’s meeting at the end of the process.

The bankruptcy process is a very long process, usually years, very complex, and with a enormous amount of documentation to be analyzed, received and sent. If the process finishes with an agreement to pay, it will include a reduction and a deferred of the debt. A survey for years will be needed. Also the liquidation of the assets of the company and its distribution will require attending more creditor’s meetings as well as lots of working hours.

Moreover the Bankruptcy Act is relatively new, and there are a lot of uncertainties still pending to be solved by the High Court. Therefore it is not a “cushy” job for the lawyer. Even in the case that your lawyer will make the effort to reduce his fees, court agents do not usually bargain their official fees.

Finally to decide whether you should intervene actively in the process or whether you should give up. The main point is to analyze your credit from a financial point of view. It is recommended to participate, if you are in one of the following categories:

1º If you have a bank guarantee even if it has expired.

2º If you are pending to complete a property bought years ago and almost finished and the price is still attractive.

3º If you have a court resolution in your favor or you are already involved in a judicial process.

Antonio García
Senior Lawyer
ELS International Lawyers

Tel: (+34) 952 663 638
Fax: (+34) 952 477 953
Mob: (+34) 670 226 961
Email: antoniog@elslegal.com
Web: ELS Lawyers

Edificio Astigi I,
Bajo, Local 2 y 3,
C/Alberto Morgenstern,
29640 Fuengirola,
MALAGA. España.

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6 Responses to “Taking Aifos to Court”

  1. Dear readers,

    If you have any comments or queries you can either contact ELS directly via their website/email address above, or post a comment here

    Andrew Belles

  2. Jill Ge says:

    I would like to congratulate ELS on their no nonsense, plain English explanation of the process. Their article has answered a lot of questions.

    Is there a difference between AIFOS being ‘bankrupt’ or ‘in voluntary administration’ ?



  3. Dentists El Paso says:

    This was a great explanation to an otherwise confusing subject. Thank you for this post…

  4. Susanna says:

    We would like to mention that we are very pleased that you are happy with the explanations we have given on the Aifos bankruptcy proceeding.

    Is their a difference between AIFOS being ‘bankrupt’ or ‘in voluntary administration’?

    Actually following the 22/2003 Act, there is a unique proceeding called Concurso de Acreedores. The specialties of being forced or voluntary come from its application. While the voluntary bankruptcy is applied by the debtor at the edge of insolvency, the forced bankruptcy is applied by the creditor that was not paid. In this forced bankruptcy the Courts analyses the financial situation of the debtor company. If this lack of payment is due to a general insolvency of the company the court approves the bankruptcy. The administrators are removed from their charges, being the judicial administrators the ones who will assume the total control of the company. In the voluntary bankruptcy the judicial administrators only supervise the management of the company. Also the applicant creditor receives certain benefits and privileges over the rest of the creditors. Finally, there is a presumption about the qualification of the bankruptcy as guilty and in doing so the administrators are personally responsible for the company’s debts. In the voluntary bankruptcy there is no presumption and the guilt of the administrators should be proved or declared under certain circumstances ex: negligence in the accountancy.

    The Mercantile Court of Malaga received several applications of bankruptcy against AIFOS, of which none succeeded.

  5. bernard costelloe says:

    Great explanation of the process

  6. Un Cargill says:

    I was very pleased to find this site.I wanted to thank you for this great read!! I definitely enjoying every little bit of it and I have you bookmarked to check out new stuff you post.

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