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Individual Guarantor Discharge - Subjective Debt Relief Operation


I. Critical points

  • The case concerned a dispute between a financial institution and a real estate management company. Our client, who was subsequently discharged, guaranteed the fulfilment of the latter's loan obligations, among other persons.
  • A payment order was issued against all the parties involved for part of the debt in question with a view to initiating enforcement proceedings, despite the earlier abusive conduct of the financial institution, which was also recognised by a court decision.
  • The correct legal handling of the case led to the rapid release of our client from the disputed debt following the following actions: (a) the filing of valid legal remedies against the payment order in question, (b) the meticulous presentation to the financial institution of the financial situation of the client and the objective impossibility of satisfying it, (c) the achievement of an interest in a compromise, following the waiver of the valid legal remedies as 'compensation' for the discharge granted.

II.  Legal Background

A financial institution holds a claim of millions of euro against a property management company. In order to recover this amount, a payment order is issued and served by cheque on the alleged debtor company and the natural persons concerned, including our client. The latter brings a series of well-founded legal actions (opposition, additional grounds for opposition, application for suspension of the enforcement of the enforcement order and for the deletion of data on negative financial conduct from the records of the company Tiresias SA and action for the release of the guarantor), contesting, in substance, a) the validity of the contested order and b) the entire debt in general.

On the application for suspension of the enforceability of the contested title, an interim measures decision is issued which presumes the validity of the main remedy of the opposition and the additional grounds of the opposition and suspends the enforceability of the title as well as the appearance of the contested order in the databases of Tiresias A. In particular, it is held that the contested financial institution showed intransigence and indifference to the settlement of the debt in question, refusing to accept the advantageous proposals of the first debtor, which were adapted to the circumstances of the then prevailing economic crisis, despite the fact that it was not possible to satisfy the debt in any other way.

Following the above positive judgment for our client, the latter initiated a series of negotiations with the financial institution in question, explaining his inability to meet the debt in question, in the absence of any assets, while requesting, at the same time, his release in 'exchange' for the waiver of the legal remedies he was claiming.

III.  Strategy

The key points for the successful outcome of this case in favour of our client were:

  • The meticulous processing of all the documents of the contested payment order as well as the case history in general, and the filing of an exceptionally well-founded opposition (with the main defences being: the limitation period of the claimed claims and the improper exercise of a right). 
  • The systematic supplementation of the filed opposition with additional grounds for opposition and the "freezing" of the opposing parties' executory title until the final adjudication of our well-founded claims, depriving them, on the merits, of the possibility of seizing our client's assets.
  • Targeted negotiation with the financial institution which initially denied our client's individual discharge by assuming this action as a reduction of the collateral provided in favour of the disputed claim. In particular, through meticulous and enlightening discussions with the opposing financial institution it became clear that: 

a) according to Article 484 CC, the debt forgiveness to one of the debtors (the guarantors, in this case,) if nothing else is inferred, has a subjective function and does not affect the institution's claim against the other debtors. In other words, the discharge of our principal would not deprive the institution of the ability to turn to the other co-guarantors, who had property to the satisfaction of the institution.

b) the provision of 863 CC ("The guarantor shall be released if the creditor has waived collateral which existed exclusively for the claim for which the guarantor has given a guarantee, with the result that the guarantor has been damaged"), is intrinsic in law. This means that the prior agreement between the guarantor and the creditor not to release the former from the guarantee, if the conditions of CC 863 are met, is strong and valid. Such an agreement existed, in this case, in the financing agreement (this is the so-called waiver of the objection under Art. 863 CC). Thus, the release of our principal from the disputed guarantee would not grant the other co-sureties the right to request their own release as well. 

c) that such a request, if any, by the other guarantors for his own release would require their loss, which, in this case, could not be substantiated. That is because the financial institution, by granting the debt waiver in question in favour of only one guarantor, would not infringe the rights of the other guarantors, since, in any event, the releasee could not be satisfied, in the absence of assets, that the other guarantors would not be able to recover all or part of the claim in order to reduce the debt accordingly. Therefore, there was no deterioration in the position of the other guarantors that could lead to the loss of the other collateral of the institution.

d) the financial institution makes that waiver by reasonably waiving a guarantee which provides no security, while at the same time ensuring that our client waives any claims against it, including claims in tort for moral damages, as well as any legal remedies which would involve the parties in lengthy and costly legal proceedings.

IV. Result 

All of the above actions, which were considered from the outset, led to a favourable decision in favour of our client, which found that the financial institution had engaged in abusive and anticompetitive behaviour. This decision made it clear to the opposing parties that the remedies exercised on behalf of our client were extremely well-founded and that their anticontractual conduct could establish further (tortious) liability for compensation in favour of the former. The ensuing negotiations led the institution to release our client from the entire alleged debt of millions of euros by means of a settlement agreement reached, ensuring that the client waived his claims and remedies and was immediately released from the legal proceedings in question, which were cancelled.

V. Conclusion

It is extremely common in credit agreements with financial institutions to obtain guarantees from several persons (of different financial standing) in favour of the original debtor, in order to secure these claims more fully. The latter emphatically refuse to release a single guarantor, even if it is 'mathematically' certain that they cannot be satisfied from the assets of the person concerned, pending the overall settlement of the debt. However, our experience in this case teaches us that a strong (through robust pleadings) defence and targeted argumentation (tailored, of course, to the needs of each individual case) can lead to seemingly "impossible" solutions. It is, however, important that the purpose of each settlement is achieved in each case through mutual concessions, which also provide the financial institution concerned with the necessary 'counterbalance' to their own requested concession, as was the case here.

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