Apart from the compulsory implementation of some European Union (EU) directives in financial and securities markets, the most prominent legal news in commercial law during the past year in Spain has probably been the two main innovations in security legal devices, brought about by the Mortgage Market Law Reform 41/2007. Firstly, the global land mortgage was finally incorporated into the Spanish contractual set of techniques for securing financial debts. Secondly, the way has been opened for secured creditors to get perfection and validity of receivables pledges through the registration of such charges as non-possessory pledges in the Movable Assets Registry (new article 54 of the Movable Mortgage & Non-Possessory Pledge Law of 1954).

It is noteworthy that the General Directorate of the Registry has held a restrictive doctrine since the 1980s, refusing to permit the registration of land mortgages securing a bulk of present and futures debts, where such duties were not 'bound' to, or do not arise out of, a basic and unique commercial relationship. The Directorate further decided that this requirement was not fulfilled by the mere 'collection' of debts in a single current account. Although this doctrine was strongly influenced by the 'full specification rule' which governs the traditional practice of the employees who run the Land Registry in Spain, it had at last become a burden for territorial financing and has given rise to a continuous flow of conflicts and doubts as regards the scope of the freedom of contract in this field of law. Expressly, the General Directorate has demonised the global mortgage as a shortcut to incorporate the 'floating mortgage' into our law and to open the way to the inadmissible 'owner self-mortgage'.

The contractual and economical consequences of this restrictive construction were apparent. Every time the parties to the credit contract consider restructuring or refinancing the mortgaged debt or, simply, attempt to lend and borrow more money or provide for new and fresh advances, they ought to proceed by cancelling the previous mortgage and filing a new entry in the Registry. The landscape for creditor and debtor was awful. Cancellation of the old mortgage and notarisation of the new one are hugely expensive in terms of tax, time and cost.

Furthermore, if there were other junior charges encumbering the mortgaged land, these would profit from reaching a better ranking, advancing one-step in the file at the senior creditor's cost. In conclusion, Spanish finance credit could not resort to the mortgage device as a flexible and cheap security technique. In fact, land became an obsolete security tool as far as structured, revolving or, simply, flexible finance instruments were needed.

A strong academic commitment against that official approach, as well as the effective lobbying of financial creditors has finally succeeded against the formalistic prejudices, and the Law 41/2007 franchises for financial institutions the possibility to be granted global mortgages up to a contract-specified maximum amount. Only financial entities are allowed to use such global mortgages. There are no objective restrictions and the new law enables parties to agree to an 'all sums' clause, regardless of whether or not the original credit and the new advances are technically considered as applications of a common contractual ground.

Although some people feared chargers would be held up by its incumbent and, probably, unique globally-secured credit provider, the reality of the credit practice should dilute these fears. In real markets, commercial entrepreneurs can get access to only one main finance provider and no financial entity is prone to grant junior credit backed with a second-rank mortgage. It does not matter the nature and framing of the first rank charge: nobody credits on the basis of a second charge other than the first mortgagee. Nowadays, as before the new Law, the debtor who is aiming at vacating its original credit provider may resort to a new financer who advances money to cancel the senior debt and, accordingly, getting the first rank by subrogation. Lacking any real market for second mortgages, the reason historically given for banning global land mortgages is diminished.

Unluckily, one cannot so unconditionally bless the second security law innovation laid down in the Law 41/2007. But first of all, it might be worth taking a look at the current technique of charging intangibles (mainly monetary claims) as security.

Though we lack any specific legal provision, Spanish practice and case law fully allowed for present claims and receivables to be charged with a non-possessory (unregistered) pledge. There is no clear distinction as to whether pledge and security assignment of receivables are the same legal techniques. Therefore, in order to avoid the eventual reproach of violating the ban of pactum commissorium, it is more widespread in Spanish practice to bring about the encumbrance of receivables by way of pledge, trying to circumvent the courts hostility to the 'security ownership'. The encumbrance of receivables as pledge is the only security device that does not require any additional step for the charge to be perfected; the contract itself suffices. Like the outright assignment of receivables, the pledge of receivables may be brought about solo consensu. Nonetheless, the Supreme Court left the question open as to whether the opposability to third parties requires notification of the pledge. Future claims may be also charged and global factoring agreements are well known in Spanish practice.

Some professional and corporate trends have endeavoured to submit the encumbrances on claims and intangible movables in general to some kind of registration system. In the discussions held during the reform of the Spanish Insolvency Law (enacted in July 2003), the submission of a pledge on receivables to the rules of the Mortgage on Movables & Non-possessory Pledge Act, as requirement for getting prior rank among other creditors, was (unsuccessfully) proposed. There was a widespread opinion that held inefficient and unfair granting priority to charges that lack any publicity device. However, others believed the foreseen costs caused by filing in the Public Registry must be higher than the benefits arising out of an increase in publicity.

A filing system for creation and effectiveness of security rights has been adopted in the US Uniform Commercial Code and followed by some other major common law jurisdictions. However, the Spanish reform by Law 41/2007 is burdened with two mayor drawbacks.

First of all, the classical non-possessory (corporeal) pledge is an inadequate pattern to design a registration system for charges on receivables. The Non-Possessory Pledge Law of 1954 requires a 'full-title entry', according to the basic principle that public registries should not work as single short records or notices of contracts but should 'replicate' the whole deed and title of the contract. Moreover, without an automatic register system, this instead being trusted to the official registrar, each of the registrars is given full capacity to check the validity of the contract and to scrutinise the fulfilment of the registration requirements. Paradoxically, the non-possessory classical pledge is not granted any priority against other charges by the law. Moreover, article 56 of the law explicitly said that the registered pledge does not get priority. This inconvenience is not, however, the major hindrance to the use of the registered model. For the law provides no rules as to the protection of the registered holder vis-a-vis the creditor and assignees, whose rights attach to the asset after the registration entry is made.

Secondly, the new law fails to provide a coordination rule as to the relationship between the new registered pledge and the customary written pledge on receivables. Has the widespread use of no registered pledge on receivables become ineffective since the new law came into force? The answer to this basic question is now not clear in Spain. Is the registration system a compulsory requirement for getting priority? How should the eventual conflict between the registered pledge and the prior non-registered pledge or assignment over the same receivable or over the same bulk of receivables be settled? Does the new law affect the outright assignment of claims, as well as the factoring schemes and full assignments transactions for security purposes? Should the new system be opened to the procedural charges of execution creditors, as well as the tax and social security charges? There are clearly a lot of questions to be answered as a result of changes to Spain's mortgage market law reforms.

Angel Carrasco is a counsel at Gomez-Acebo & Pombo in Madrid.