THE INHERITANCE CONTEST: GREAT UNKNOWN
The inheritance contest is a very broad topic, the present article only allows me to make an approximation without prejudice to the fact that it can be treated in more detail on other occasions.
Introduction: Insolvent inheritance
The inheritance contest is a complex procedure that is regulated through the Bankruptcy Law 22/2003, of July 9, but as its name says, we cannot leave aside the civil law of succession, we must keep in mind that the inheritance contest is assimilated to a creditors’ contest, therefore, a train collision occurs between bankruptcy and civil regulations, where both regulations, at the same time so different, must be combined.
Entering, then, into the matter, let us consider that we may find ourselves in front of a “poisoned” inheritance, which is nothing more than an inheritance in which there are more liabilities than assets, that is to say, that the debts of the inheritance are superior to the assets that make up the relict estate, therefore, it will become an insolvent inheritance.
Faced with this situation, everything can be complicated, especially for the heirs of this, because depending on what they do at the time of acceptance, one or another consequences can be derived, for this reason, prior advice from a lawyer
It is necessary to differentiate between the bankruptcy of the inheritance that originates from an insolvent inheritance and that which originates from a bankruptcy of creditors where the bankrupt debtor has died and, when this fact occurs, the bankruptcy of creditors becomes a contest of the inheritance automatically, being competent, in any case, the Commercial Judge.
General aspects of the inheritance contest
The Bankruptcy Law (LC) starts from the principle of unity from a triple perspective: legal, disciplinary and system unity. Legal unit that involves containing in a single rule all the procedural and substantive aspects that attend to the insolvency situation of the common debtor, thereby overcoming the previous regulatory dispersion; unit of discipline which supposes applying the bankruptcy procedure to all debtors, whether they are natural persons – regardless of their status as traders or not – or legal persons (art. 1.1 LC). Exceptionally, it is possible in art. 1.2 LC the competition of the inheritance that may be declared – despite not having legal personality – as long as it has not been accepted purely and simply. The most relevant thing, however, is that the common debtor – natural or legal person -, or the inheritance, are insolvent, whatever the nature of the obligations that they cannot meet regularly; and, a system unit that means establishing a single procedure for all insolvency situations – the bankruptcy process – articulated in two phases: the so-called “common phase”, in which the active and passive mass is determined, through the inventory of goods; and a second, alternatively represented by the agreement between creditors and common debtor, which in the case of inheritance will be between the creditors and whoever represents them, or the liquidation of the estate of the bankrupt or the causer, with the satisfaction of the credits under the principle of par conditio creditorum.
I will do a brief analysis of the articles of the Bankruptcy Law that deal directly with the inheritance contest.
In art. 1.2 the subjective presupposition is collected, where an important limit is established and to be taken into account, it says the following:
“The contest of the inheritance may be declared as long as it has not been accepted for the heir or one of the heirs pure and simple”.
Therefore, in accordance with the Bankruptcy Law, bankruptcy may be declared in cases of lying inheritance or, accepted for the benefit of inventory, given that if been accepted purely and simply, the heirs with all their assets will be responsible for the debts of the causer.
If we see what art tells us. 3.4 LC: The creditors of the deceased debtor, his heirs and the administrator of the inheritance may request the declaration of insolvency of the inheritance, which has not been accepted purely and simply .
The request made by an heir will produce the effects of the acceptance of the inheritance for the benefit of the inventory. The term is two months from when it was known or should have been to know its state of insolvency, and with the requirements required in the Bankruptcy Law, the Commercial Judge being competent.
In the Civil Code of Catalonia (CCcat), art. 461-20 determines the effects of the acceptance of the inheritance for the benefit of inventory. This point is very important because the effects of a pure and simple acceptance to an acceptance for inventory benefit are very different for the heir. The heir who accepts the benefit of inventory does not respon of the obligations of the causer or of the hereditary burdens with his own personal assets, but only with the assets that become the inheritance.
Therefore, in this case of acceptance for the benefit of the inventory, the estates of the causer-heir are not confused. It is clear that the rights and credits of the heir against the inheritance and the obligations of the heir in favor of the inheritance subsist.
The assets of the inheritance cannot be confused with the heir’s own to the detriment of the hereditary creditors or the heir until the debts of the causer and the hereditary burdens are fully settled.
However, the inventory benefit allows the heir to acquire the inheritance, take possession of it and administer it. However, in order for the heir to be able to enjoy and integrate the assets received as an inheritance into his personal patrimony, he must provide for the following:
First, the heir must pay the known creditors of the causer as they appear, under his responsibility. Then, you must collect your credits with the cash you find in the inheritance or from what you obtain from the realization of the assets of the same inheritance, for example, the sale of a property, without prejudice to those who may adjudicate in payment of legitimate or legacies.
Secondly, he will be able to deliver and fulfill the legacies, if the causer had foreseen them.
So far it seems to be very clear, because it can be complicated if hereditary creditors unknown to the heir appear, that once some or all legacies have been paid, if the hereditary remainder is not sufficient to pay them, these unknown hereditary creditors can claim his credits to the legatees.
As for the individual creditors of the heir, they cannot pursue the assets of the inheritance until all debts to the known creditors of the deceased have been settled.
And just in case, the CCcat foresees that the heir who acts fraudulently in the payments and realizations of goods or in the administration of the beneficial inheritance in general, loses the inventory benefit, which can have very important consequences and serious with regard to the inheritance contest, as we will see later.
As I have already mentioned, when the inheritance goes into bankruptcy, the procedure followed is in accordance with bankruptcy legislation, but Book IV of the CCcat refers to it in its art. 461-22, gives us a clue as to who has active standing to request the declaration of contestation of the inheritance, it tells us:
“the heir who enjoys the benefit of the inventory, if the legal requirements are met, has the duty to request the declaration of bankruptcy of the inheritance, and once declared, to proceed in accordance with bankruptcy legislation”.
The legislator had good intentions in providing for the inheritance contest, but it is incomplete. This article gives us to understand or can be interpreted as that the heir, whenever he has accepted the benefit of the inventory, has the duty to apply to the competent court for the declaration of contestation of the inheritance. And I wonder: is only this heir legitimized? As we well know, no. There are more subjects who can request the declaration of the inheritance contest. Therefore, at this point, even if we have bankruptcy legislation – which is also not too extensive in this matter, yes in the procedure, as if it were another bankruptcy, but not specifically with regard to the ‘inheritance within the competition’, I think the Catalan legislator could have regulated it more extensively and explicitly. What he tells us is true, but incomplete.
Subjective assumption: The lying inheritance. Type of acceptance
The subjective presupposition of the inheritance contest is the recumbent inheritance. When the inheritance is in a lying period and within the mass of the hereditary flow there are more liabilities than assets, we can say that this inheritance is insolvent, because it has more debts than liquid to be able to deal with them and therefore, reached at this point, the inheritance as a patrimonial mass will enter into competition, which is what will be called the competition of the inheritance.
The bankruptcy declaration will proceed against any inheritance that cannot cope with its own assets, the debts contracted by the causer during his lifetime.
But there is an important limit, the competition of the inheritance can be declared as long as it has not been accepted purely and simply. If the inheritance has been accepted purely and simply, there will be no return and the one who will have to answer for the debts contracted during the life of the causer will be the heir who has accepted.
Pure and simple acceptance
The art. 461-17.1 CCcat tells us that “if the heir does not take inventory in the time and in the established manner, it is understood that he accepts the inheritance pure and simple”. The consequence is the unlimited liability of the heir for the inherited debts, given that with this form of acceptance the heir is responsible for the obligations ions and hereditary burdens, not only with relict assets, but also with own assets (art. 461-18 CCcat), linking with the principle of universal responsibility in art. 1911 of the Civil Code (CC) “the debtor is responsible for the fulfillment of his obligations with all his assets, present and future”.
Acceptance for inventory benefit
Unlike what the CC presumes (the pure and simple acceptance of the inheritance) the CCcat seeks the defense of the heir, as provided by art. 461-17.2.
The requirements for acceptance for the benefit of inventory are regulated in art. 461-15 CCcat: in terms of time, the heir has six months from when he knows or can know the denunciation. It must be formalized before a notary or in writing addressed to the competent judge (acceptance in a private document presented to the Inheritance Tax Settlement Office is also accepted), the relict assets must be indicated (without the need to value) and debts and inherited burdens, with an indication of their amount. A penalty is established if, with the knowledge of the heir, not all assets and debts are included, or if it has been made in fraud of creditors. Those interested in the inheritance and the creditors of the causer are authorized to accept the benefit of the inventory.
As for the effects of this type of acceptance (art. 461-20 CCcat), we see that the heir is not responsible for the obligations of the causer or the hereditary burdens with his own assets, only those of the inheritance.
The rights and credits of the heir against the inheritance, for which payment can be made, and the obligations in favor of the inheritance subsist without being extinguished by confusion.
Until payment is made of the debts of the causer and the hereditary burdens, it cannot be confused to the detriment of creditors of the assets of the inheritance with their own.
Regarding the form of payment, hereditary assets can be sold to satisfy monetary obligations; or through dations in payment.
When the heir commits fraud to the detriment of creditors, art. 461-15.4 CCcat establishes as penalty the loss of the inventory profit.
The heir who enjoys the benefit of the inventory, if the legal requirements are met, has the duty to request the bankruptcy declaration of the inheritance, and once declared, to proceed in accordance with the bankruptcy legislation (art. 461-22 CCcat).
Target budget: Insolvency
The objective presupposition of the inheritance contest is insolvency. As I mentioned in the previous section, the inheritance with debts becomes insolvent when these debts cannot be covered with the assets of the inheritance.
To separate assets and liabilities from any patrimonial mass, an inventory must be carried out in which assets and liabilities will be divided. Assets are made up of all assets that are not encumbered or encumbered. The liabilities are the burdens of the asset and the debts that the causer had left unsettled before he died.
Therefore, the bankruptcy declaration will proceed in case of insolvency of the inheritance. The inheritance is in a state of insolvency that cannot fulfill its enforceable obligations, that is to say, a debtor who could not regularly fulfill its enforceable obligations and therefore, once he dies, these obligations become part of the liability of the hereditary amount.
Whoever submits the application for contestation of the inheritance must justify their indebtedness and their state of insolvency, which must be current and imminent. The inheritance is in a state of imminent insolvency if it is foreseen that it will not be able to fulfill its obligations at the time of its liquidation.
Conclusion
The current Bankruptcy Law, like the previous legislation, continues to leave many legal gaps with respect to the bankruptcy of the inheritance, and the Catalan civil regulations relating to Inheritance Law – nor the state one – do not contain any provision that in accordance with the bankruptcy configure the procedure of the contest of the inheritance and the endowment of content so that it alone can give way to the problems that arise in this regard.
One of the most controversial points is that in the inheritance contest, just like a creditors’ contest, it will be up to the bankruptcy administration to exercise the patrimonial powers of administration and provision on the relict estate – and as the law expressly mentions – without this situation being able to be changed, but we cannot go into it because that would give rise to a much more extensive article and it is not appropriate to extend it any further.
So it is clear that the existing regulation is insufficient. The Bankruptcy Law does not provide solutions to the problem of the insolvency of the inheritance, it has many shortcomings that can be justified given that the purpose of the law is not to solve inheritance problems, but bankruptcy. But we cannot be satisfied with this justification, we need more specific regulation.
Also, in practice, real cases are lacking, which is why not too much attention is paid to the study of this subtype of bankruptcy, but when there is one, neither courts nor the different legal operators involved in cases of creditors have doubts about the way to proceed.
The inclusion of a new Title within the Bankruptcy Law could be considered again, encompassing all the precepts that speak about the inheritance contest, giving form and coherence to the process. It would be a combination of succession and insolvency rules that could be very interesting.
Maria de Montserrat Romaguera and Edo
Lawyer
Member of the Catalan Association of Inheritance Law Specialists
THE API AND THE INHERITANCE COMPETITION
The task of the celery in the face of a situation of patrimonial insolvency is vital. Decision-making must be quick. The first of the precautions is to know the value of the patrimonial assets: in the case of a patrimony in which the liabilities are greater than the assets, immediate renunciation of the inheritance; in the event that the asset is greater than the liability (and the latter is wholly or partially in arrears) he can accept the inheritance but with precautions, the nature of the liability must be known, the enforceable nature of certain obligations, the its amount and its maturity. In any case, the inheritance must be accepted for the benefit of the inventory.
Accepted the inheritance for the benefit of the inventory, and finding the inheritance in a situation of insolvency, understood as the impossibility of attending to the ordinary obligations of the same, a bankruptcy of creditors of the inheritance must be submitted , as previously commented by the colleague, Maria de Montserrat. Therefore, it is not an option, it is an obligation.
And celery is no stranger to this process, as it can intervene at different times:
EXTRA-CONCOURSAL
- In the beginning, valuing the properties that are part of the assets of the inheritance.
- Intermediary in the search for buyers for certain elements of the assets of the inheritance that allow sufficient cash to face the liabilities of the same and get out of the insolvency situation.
CONCURSESION
- At the request of the bankruptcy administration with the aim of determining the active mass of the bankruptcy, or of the bankrupt, to contest the value of the properties given by the bankruptcy administration in the inventory of goods and rights.
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- Sale of production unit, presenting offers for the acquisition of production unit.
- Agreement phase, intermediary in the sale of certain assets with which to obtain cash to meet the payments committed in the same.
- In the liquidation phase, either through the management of the sale of the properties commissioned by the bankruptcy administration, or through the presentation of purchase offers within what is stipulated in the Liquidation Plan, or through the contribution of buyers in the public auction of the same.
The detection of the property insolvency situation in time, the knowledge of the current legislation and the appropriate response, allows api to provide a high quality service with high added value to its client, being actively present in the different stages of the process defending the best possible price.
RAFAEL CASTILLA ÁLVAREZ
Lawyer, Api
Vice-president COAPI Barcelona