Amendments to Spanish Public Limited Liability Companies Act

   On 16 November 2005, Act 19/2005, of 14 November, on the European Public Limited Liability company domiciled in Spain (the “Act”), came into force. The Act incorporates an additional chapter in the current Public Limited Liability Companies Act (Articles 312 to 338). This new chapter implements Council Regulation (EC) 2157/2001, of October 8, on the Statute for the European public limited liability company and introduces some additional and significant amendments to regulations governing public and private limited liability companies in Spain.

   With regard to the European public limited liability company, the Act seeks to encourage the establishment of this new company form in our legal system, by making the relevant amendments to the Public Limited Liability Companies Act and to the Securities Market Act. Nevertheless, the European public limited liability company in Spain will not be in force until the act that implements Council Directive 2001/86/CE, of 8 October 2001, supplementing the Statute for a European public limited liability company with regard to the involvement of employees, is passed. Only then, and as long as the provisions established within said directive are complied with, will a European public limited liability company be able to establish in Spain.

   In our view and for the time being, the amendments to the Public Limited Liability Companies Act (Ley de Sociedades Anónimas or “LSA”) and to the Private Limited Liability Companies Act (Ley de Sociedades de Responsabilidad Limitada or “LSL”) are even more paramount, since they are immediately applicable. Please find below a summary of these amendments:

          (i).                        Contributions in kind (Art. 38 LSA)

   The regulation stating that the certificate of the relevant stock exchange’s governing body will be equivalent to a report issued by an independent expert appointed by the Commercial Registry, is raised to the status of a law. This does not prevent an expert report being requested in such cases instead of the governing body’s certificate.

        (ii).                        Meeting out of term (Art. 95 LSA)

   This modification puts an end to much debate between scholars and judges by stipulating that ordinary general meetings will be deemed valid regardless of whether they have been called beyond the time limit.

      (iii).                        Calling of the General Meeting (Art. 97 LSA)

   In essence, the deadline for calling the General Meeting is established at one month, substituting the fifteen days limit previously in force (except for mergers and split-offs, where the one month limitation period was already in force). This new term applies for any General Meeting called from 16 November 2005.

   Likewise, for five days after the publication calling the relevant meeting, any shareholders with a minimum 5% of the share capital will be able to request, by certified written notice to the company, an extension of the call adding one or more points to the agenda. If such communication is provided in time and form, directors have to publish the extension of the call at least fifteen days before the date set for the Meeting. The non-compliance of the obligation to publish said extension will result in the Meeting being null.

   In addition, whenever the assistance to the Meeting by telematic means is permitted (in this regard, the regulation seems to refer to the attendance to the Meeting in real time via remote communication computer system and not to voting or delegation via remote communication prior to the Meeting), the call will have to establish the terms, systems and methods of exercising the shareholders’ rights in order to allow the Meeting to be validly held, as well as possibly having to send any discussions and proposals by the attendees, prior to the establishment of the Meeting. Likewise, any responses to questions posed during the Meeting by said shareholders in the exercise or their right to information will be carried out in writing within the following seven days.

      (iv).                        Term of director’s position (Art. 126 LSA)

   The maximum term is extended up to six years. However, this term may be reduced by the by-laws but must apply to all the directors equally. Moreover, Article 145.1 of the Commercial Registry Regulation, concerning the point at which the managers’ appointment will be deemed expired, now has the status of a law: hence, once his/her term has concluded, this appointment will expire when the next General Meeting takes place or when the legal term for deciding on the accounts of the previous fiscal year has elapsed.

        (v).                        Capital reduction (Arts. 165 and 170.2 LSA)

   The capital reduction agreement (Art. 165) and the purchase offer in the event of reduction by acquisition of treasury shares (Art. 170.2) shall be published in the Commercial Registry’s Official Gazette and in one newspaper with large circulation in the province where the company is established (previously it was published in two large circulation newspapers).

      (vi).                        Simplified mergers (Art. 250 LSA)

   The merger procedure applicable to the take over of affiliated companies (whether direct or indirectly) is simplified standing that, as already accepted in certain cases, the preparation of reports by managers or independent experts will not be necessary either. A similarly simplified merger procedure will apply to reverse mergers and mergers between sister companies (entirely participated, be it direct or indirectly, by the same parent company).

    (vii).                        Liability for social obligations (Art. 262.5 LSA and 105.5 LSL)

   The manager's liability for social obligations is limited to those arising subsequently to the date of the event causing the dissolution. However, in the event of a claim, the debt will be understood to be subsequent to said date. Consequently, in order for a manager to be released from said liability, he/she will have to prove that the relevant debt is prior to the event giving rise to the dissolution.

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   On the basis of the above and with a view to the following 2006 General Meetings, it would be advisable to check and, if relevant, to amend the by-laws and the General Meeting’s and Board of Directors’ regulations in order to adapt them to the new provisions of the LSA. In any event, regardless of whether the relevant public documents are finally amended, the above mentioned provisions are in force since 16 November 2005.

Madrid, 18 November 2005