March 2012

Public LAW


The Spanish State Official Gazette of Saturday, 10 March 2012, published Royal Decree-Law 7/2012 of 9 March, which creates the Fund for the Financing of Payments to Suppliers (“RD-L 7/2012”).

RD-L 7/2012 establishes the necessary means for the operation of the financing system created by Royal Decree-Law 4/2012 of 24 February, which provides the information duties and necessary proceedings to establish a financing mechanism to ensure payment by local and regional authorities to suppliers (“RD-L 4/2012”). RD-L 4/2012 clarifies and complements some of the provisions of RD-L 7/2012.

We summarise below the main novelties of RD-L 7/2012 in the form of responses to questions.

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How WILL LOCAL and RegionAL AUTHORITIES PAY ANY DEBTS THEY HAVE WITH suppliers AND what will be the effects?

The financing provided to local and regional authorities that apply for the special financing system will be carried out by means of direct payment to suppliers.

This direct payment will cause the Fund for the Financing of Payments to Suppliers (“FFPS”), set up by RD-L 7/2012, to be subrogated to the supplier’s rights vis-à-vis the local and regional authorities for the amount paid.

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What is the FFPS?

RD-L 7/2012 creates the FFPS as a public entity with separate legal personality and capacity to act, attached to the Ministry of Economy and Competitiveness. However, when performing functions concerning the involvement of local authorities in the State’s taxes, the FFPS is attached to the Ministry of Finance and Public Administration.

An Executive Council will be in charge of the FFPS’s management, which will be supervised by the State Public Accounts Department (“Intervención General del Estado”) and by the Court of Auditors (“Tribunal de Cuentas”).

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What are the FFPS’s functions?

The FFPS arranges credit transactions with the public authorities that apply for this financing mechanism. As for local authorities, credit transactions will be granted through the deductions in State taxes referred to in article 11 of RD-L 4/2012.

The FFPS will also cancel any outstanding debts of the public authorities, upon the instructions of the Ministry of Finance and Public Administration.

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How IS the FFPS financed?

The FFPS has the following resources to perform its functions:

  • An overall budget up to EUR 6 billion (EUR 1.5 billion to be paid in 2012). This amount will be financed with public debt.
  • The FFPS is authorised to:
    • Obtain financing from national and foreign capital markets, among other means by issuing securities, arranging loans and credits, and any other debt transactions. The FFPS is also authorised to carry out exchanges, purchases and conversions on the transactions mentioned above. However, they should be carried out within the limits established each year by the General State Budget Law.
    • Carry out management duties on its liquid assets.
    • Arrange transactions based on financial instruments, to minimise the financial risks.

All the debts and liabilities contracted to obtain financing by the FFPS will be guaranteed by the State vis-à-vis third parties. This guarantee will be explicit, irrevocable, unconditional and direct.

The State Credit Institution (“Instituto de Crédito Oficial”), as a payment agent, is in charge of the management of the transactions set out in RD-L 7/2012, through the payment of compensation.

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Can debts of the concessionaires of public services be included in the financing system of rd-l 4/2012?

RD-L 4/2012 refers exclusively to local authorities’ debts arising from works, supply and services contracts included within the scope of the Consolidated Text of the Law on Public Administration Contracts, approved by Royal Decree-Law 3/2011 of 14 November

RD-L 7/2012 now includes in this financing mechanism the debts arising from the management of public services contracts in the form of concession, provided that they fulfil all other requirements of RD-L 4/2012.

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Can all the LOCAL AUTHORITIES make use of this financiNG mechanism?

Only local authorities participating in the State’s taxes in accordance with the Law Regulating Local Finances (“Ley Reguladora de las Haciendas Locales”) may apply for this financing mechanism. As a result, the local authorities of Navarre and the Basque Country cannot apply for it, because of the special nature of their financing system (“régimen foral”).

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what about the Autonomous Regions?

RD-L 7/2012 states that the autonomous regions can voluntarily apply for this special financing mechanism, in accordance with the agreement reached by the Council for Fiscal and Financial Policy, held on 6 March 2012. The Governing Council, or the competent body, must approve a resolution which specifically agrees to the mentioned agreement executed by the Council for Fiscal and Financial Policy.

RD-L 7/2012 does not mention the use of the financing mechanism by institutions and dependant bodies of the autonomous regions, unlike RD-L 4/2012 with regard to local authorities. However, both legal rules should be interpreted with the final objective in mind, which leads us to consider that institutions and entities that are entirely dependant upon the autonomous regions can make use of the financing mechanism.

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what other novelties Does RD-L 7/2012 INTRODUCE IN RELATION to RD-L 4/2012?

RD-L 7/2012 also introduces the following novelties:

  • In the case of debts subject to fractional cancelation agreements with contractors, it clarifies that the outstanding amount will be the amount that remains unpaid at the time when the certified list of debts is published by the debtor local authority.
  • It develops the local authorities’ information duties in connection with the adjustment plans set out in article 7 of RD-L 4/2012.

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The information contained in this Newsletter is of a general nature and does not constitute legal advice