The developer behind the Trampolin Hills Golf Resort in the Spanish province of Murcia has been forced into bankruptcy proceedings unable to pays its debts, according to reports in the local press. Administrators have been appointed to run the company, and creditors now have a month to register their claims. Trampolin Hills, in Campos del Río, had been struggling to survive since the market downturn and was dealt a fatal blow when the town hall refused to approve its plans to build 2,500 homes and a golf course. Investors who bought off-plan without a bank guarantee will now at the back of the creditor queue and face potentially huge losses. The bankruptcy will add further weight to the argument that developers should offer escrow facilities or bank guarantees as standard to protect consumers and help reverse the damage that cases like this do for the image of the industry. If you are a creditor of Trampolin Hills and wish to recover any money you paid, you must file a claim before December 3rd 2009 - more information . Where does this leave the property purchaser who has not yet completed? Under the terms of the Private Purchase Contract (PPC) that you have signed, you will usually be acquiring an option to purchase the Spanish property at completion. This is not a property right as such but a debt owed to you by the development company with whom you’ve signed your PPC. As in English law, there are different categories of creditors. These include: “Secured” creditors who have registered charges against the development company’s assets probably by way of mortgages or other loans – often manifested in an up to date Nota Simple of the property - the Spanish state tax and social security offices; “Favoured” creditors such as the company’s own employees and “Unsecured” creditors. Until completion it is usual that a property purchaser will be an “unsecured” creditor of the developer. This means that your rights in respect of your cash as deposited with the developer will mean that you rank behind the “secured” and “favoured” creditors. Spain has a developed and legally backed system of Bank Guarantees (Aval Bancario). The Law 57/68 establishes a system of bank guarantees - or insurance policies - to protect the amounts paid by the buyers in case of the developer’s failure to complete the development. The aim is to ensure that you do not lose your money should the property not be built for some reason. This is usually offered by the main funding bank which has provided the developer with their project finance. In practice, bank guarantees may not always reach the require level of protection as envisaged by the law. In our experience they need to be studied very closely to ensure that they are valid, up to date and signed by all relevant parties. To give you added comfort, you should seek from your Abogado written assurance that they have hold original versions of up to date – amended to include your deposit funds and any subsequent stage payments - fully signed and original Bank Guarantees from the developer’s banker. Should you find yourselves in a position where your developer has announced that they are entering into a formal creditor protection arrangement or they have filed for, Administrative Receivership, voluntary liquidation or similar you should consider whether it’s appropriate to give your Abogado instructions to seek to call upon the bank’s Guarantee. Whilst it may be difficult in practice to invoke this guarantee – it will usually require the intervention of your Abogado and possibly formal court proceedings – which may prove costly – it should provide you with long stop protection in the event of the collapse of the developer that results in the property not being constructed or completed. It is not the intention to overly simplify this process and for one reason or another it is likely that the bank providing the guarantee may seek to delay honouring or even refuse to honour their guarantee - so ensuring that your Bank Guarantee arrangements are at all times in “apple pie” order is very sound advice. If you developer does not appear to be in financial difficulties we’d recommend that you review your Bank Guarantee arrangements in any event. A difficulty often arises if a date of expiry of the Bank Guarantee is specified on its face. Such a date may be an “in any event” date meaning that the Bank Guarantee will expire whether or not the property is “legally” completed. You should check with your Abogado to ensure whether such a date is stated in your case and he/she should apply to have them renewed before they expire. It is usual that the developer and the bank will need to sign each Guarantee and any extension to it which in our experience may well not happen if the developer and their financier are in dispute over other liquidity issues. Finally, and this sounds like total stupidity, if your property is pretty much completed but your developer is threatening to file for creditor protection, Administrative Receivership or similar, it may be worth considering to complete on your property in any event. For obvious reasons, care and professional advice must be taken if you are considering upon such a strategy, but the net result of such completion will mean that the property is registered in your name. Instead of a debt owed to you by the developer you will have a property asset with an enforceable title. Story from The Rights Group and Eye On Spain

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Trampolin Hills Developer in Administration

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