April 2009
COMMERCIAL LAW
NEW LAW ON STRUCTURAL MODIFICATIONS OF
COMMERCIAL COMPANIES
KEY INNOVATIONS
· The rules
applicable to corporate restructuring
transactions of the different types of commercial companies
are
unified
(More Information)
· The rules for
challenging a merger are amended,
and leveraged buy-outs and
merger of
90%-owned companies are now
regulated under the new Law
(More
Information)
·
Subdiarization of industry is regulated as a new form of spin-off,
subject to the provisions applicable thereto
(More Information)
· Cross-border
mergers and international transfers
of a corporation’s registered office are regulated for the first time
(More Information)
· The quantitative (10% for listed
companies and 20 % for unlisted companies) and temporal
limitations (5 years) for the
acquisition of treasury stock by
public limited companies (sociedades anónimas) are
extended
(More Information)
· Preemptive
rights are abolished in
the case of non-monetary contributions,
and in certain cases, the
requirement of an independent expert’s report
is eliminated in these types of
transactions
(More Information)
· Preemptive
rights of the holders of convertible
debentures are eliminated,
and the ability to exclude
preemptive rights of the shareholders in the
issuance of convertible debentures is expressly provided for
(More Information)
· There is an express provision for the
principle of equal treatment of
shareholders
(More Information)
· The Law will
enter into force three months from the publication thereof in the
Official Gazette (BOE), except for provisions relating to
intra-EC cross-border mergers, which
entered into effect on April 5, 2009
(More
Information)
INDEX
1. Domestic structural modifications
(More Information)
1.4 En bloc transfer of assets and liabilities
(More
Information)
2. International mergers and transfers of registered office
(More Information)
2.1.1 Intra-EC cross-border mergers vs. internal mergers
(More Information)
2.2 International transfer of registered office
(More
Information)
2.2.1 Transfer abroad of the registered office of a Spanish
company
(More Information)
2.2.2 Transfer of the registered office of a foreign company to
Spanish territory
(More Information)
3. Amendment of the Spanish Public Limited Companies Law (More
Information)
The new Law 3/2009, of April 3, on structural modifications of
commercial companies (Ley sobre modificaciones estructurales de las
sociedades mercantiles -LME-), published in the Official
Gazette (Boletín Oficial del Estado -BOE-) on April
4, 2009, entails a profound reform of our legal system in various areas
of corporate Law. The objectives of the LME are the following:
(i) To implement into the Spanish legal system Directive 2005/56/EC
regarding cross-border mergers of limited liability companies;
(ii) To amend the Spanish Public Limited Companies Law (Ley de
Sociedades Anónimas -LSA-) by incorporating Directives
2006/68/EC on formation of public limited liability companies and the
maintenance and alteration of their capital and 2007/63/EC on the
requirement of an independent expert’s report on the occasion of merger
or division of public limited liability companies, together with certain
optional clauses contained in Directives 78/855/EEC and 82/891/EEC
regarding merger and spin-off of public limited companies,
(iii) To conform the rules on preemptive rights to subscribe
convertible debentures to the December 18, 2008 Judgment of the Court of
Justice of the European Communities; and
(iv) To harmonize, unify and expand the rules on structural
modifications to the different types of commercial companies, as well as
to authorize the Government to restate the laws governing limited
liability companies within a single legal text.
The LME will enter into force within three
months of the publication thereof in the BOE, except for the provisions
relating to intra-EC cross-border mergers, which entered into force on
the day following publication thereof. As regards transitional rules,
the LME will apply to proposed structural modifications that have not
yet been approved by the participating company (ies) prior to its entry
into force.
Given the broad scope of the LME, set forth below is a very brief
summary of the key innovations made to the rules on commercial
companies, grouped into three areas:
1. Domestic structural modifications.
2. International mergers and transfers of registered office.
3. Amendment of the Spanish Public Limited Companies Law.
1.
DOMESTIC STRUCTURAL MODIFICATIONS
1.1 Transformation
- The instances of possible transformation are expanded
and the rules applicable to the transformation of the different
types of companies are unified.
- The requirement to prepare a transformation balance sheet closed
as of the day prior to the date of adoption of the resolution is relaxed,
so that now any balance sheet closed within six months prior to
the date of adoption of the transformation resolution may be used.
- An obligation is established to make available to the
shareholders (unless otherwise agreed by all of them): (i) a
substantiating report of the directors, (ii) the
transformation balance sheet, together with an auditor’s
report when the company is required to audit its financial
statements, and (iii) the proposed bylaws of the resulting
company.
- Publication of the transformation resolution can be
replaced by individual written notice to shareholders,
creditors and holders of special rights in the company.
- A right of separation is recognized for shareholders that
did not vote in favor of the transformation, which will be granted
automatically when such shareholders become personally liable
for the company’s debts and do not adhere the transformation
resolution within a period of one month.
- Shareholders that become personally liable shall be liable
for all corporate debts, and those that limit their liability
will be personally liable for the existing debts for a period of 5 years
unless creditors express consent.
- Obligations for the full disbursement of share capital are
established when so required by the type of corporate entity, and for
the redemption of securities when issuance thereof by the
resulting company is not permitted.
- The period to challenge the transformation is reduced to 3
months.
1.2 Merger
- There is an extension of the content of the common merger plan,
which must also now include: (i) the bylaws of the resulting company, (ii)
a statement regarding the effect of the merger on industry contributions
and supplemental social-welfare benefits, (iii) a valuation of the
assets and liabilities being transmitted, (iv) the date of the financial
statements used to determine the terms of the merger (although the
exchange ratio will continue to be set based on the fair value of the
assets and liabilities of the companies participating in the merger),
and (v) the possible consequences of the merger on employment, on gender
in the management bodies and on the corporate social responsibility.
- With respect to the auditors, there is regulation of the rules for
liability of the independent expert that issues the report on the
merger plan, which shall have no liability if it shows that it
applied diligence and the standards inherent to the activity with
which it was entrusted.
- An independent expert report on the common merger plan
will not be necessary when so agreed by all of the shareholders of
the participating companies. This exemption does not include
instances in which any of the companies has incurred debt during
the prior three years in order to acquire control or essential assets
of other company participating in the merger.
- The rules regarding the common merger plan, the balance sheet and
information regarding the merger will not apply in the event of
unanimous consent of the General Shareholders’ Meeting, provided
that the merged companies and the resulting company are not public
limited companies (sociedades anónimas) or joint-stock companies
(sociedades comanditarias por acciones).
- As in the case of transformation, publication of the
resolution may be replaced by individual written notice to
the shareholders and creditors of the company.
- The period for challenge is reduced from 6 to 3 months, with
the establishment of rules for the validating effect of the
registration of the merger with the Commercial Registry (CR)
pursuant to which actions to challenge a merger that has already been
registered and that has been carried out pursuant to the provisions of
the LME will turn into a claim for damages.
- When so provided by the bylaws or by resolution of the General
Shareholders’ Meeting of the participating companies, shareholder
disputes regarding the exchange ratio will be resolved by an
independent expert appointed by the CR at the request of the objecting
shareholder who will determine the appropriate compensation, if any.
- Mergers between two or more companies when
one of them has incurred debt during the immediately preceding three
years in order to acquire control or essential assets of the other
company participating in the merger (Leveraged Buy-Outs, or LBOs)
are regulated with the following noteworthy aspects: (i) the rules may
be applicable to transactions other than LBOs, and (ii) there
is an expansion of the degree of information to be supplied in the
merger plan and the reports of the directors and of the independent
expert, who surprisingly (as this is clearly a legal and not a financial
issue) must make a pronouncement on the existence or non-existence of
financial assistance.
- For simplified mergers, there is regulation of the rules for the
absorption of 90%-owned companies, with the dispensation of the
need for preparation of reports by directors and experts when the
shareholders of the absorbed company are offered as an alternative the
repurchase of their shares or equity interests at the fair value thereof.
- In addition, for direct simplified mergers as well as the
absorption of 90%-owned companies, the requirement for a
resolution of the shareholders of the absorbing company is
eliminated (except when requested by the holders of 1% of the share
capital), the directors being authorized to increase share capital by
the amount necessary to cover the exchange if so provided in the plan.
- Indirect simplified mergers are considered equivalent to the
absorption of companies, although in these cases an independent
expert’s report is required, as well as an increase in capital
of the absorbing company, if applicable. Furthermore, if the
transaction causes a decrease in the net assets of companies not
participating in the merger, but that hold a stake in the absorbing
company or the absorbed company, the absorbing company must
compensate such companies for the reasonable value of their stakes.
- The termination of a wholly-owned subsidiary by means of an
en bloc transfer of its assets and liabilities to the parent
company is treated similarly to a merger.
1.3 Spin-offs
- Legal rules: the LME generally refers to the rules on mergers.
- In addition to total and partial spin-offs, segregation or
subsidiarization of industry (transaction consisting in the en
bloc transfer by universal succession of one or more parts of the
company’s assets, each of which qualifies as an economic unit, to one or
more companies, and in consideration the segregated company -and not its
shareholders- receives shares of the beneficiary companies ) is
recognized as a new form of spin-off.
- Where applicable, the rules on spin-offs will also apply to
transactions by which a company makes an en bloc transfer of
its assets and liabilities to another newly-created company,
receiving in exchange all of the shares of the beneficiary company.
1.4 En bloc
transfer of assets and liabilities
- The concept of the “en bloc transfer of assets and
liabilities” as a method of liquidation of companies is dropped to in
favor of an instrument for the transfer of companies by means of
compensation other than shares of the transferor.
- In the case of a plural en bloc transfer (to various
beneficiaries), each portion of the assets/liabilities transferred must
entail an economic unit.
- Documentation requirements: (i) the transfer plan,
which must include identification of the transferor and the transferee,
the date of effect for accounting purposes, a valuation of the assets
and liabilities for distribution thereof among the transferees, the
consideration to be given, and the effects on employment, (ii) a
report of the directors, and (iii) the public deed.
- Similar to the rules on spin-offs, the transferees and the
shareholders of the transferor (if wound up) have joint and several
liability up to the net amount received, and the transferor company,
if not wound up, has such liability for the full amount of the
obligation.
- There is a provision for the same challenge rules as in the
case of mergers.
2. INTERNATIONAL MERGERS AND TRANSFERS OF REGISTERED OFFICE
2.1 International
Mergers
- The regulation of international mergers contained in the LME
distinguishes between (i) non-EC mergers, and (ii) intra-EC mergers.
- Non-EC mergers (i.e., mergers with the participation of at
least one Spanish company and one non-EC company) will be governed
by the provisions of the respective personal laws.
- Intra-EC cross-border mergers will be governed by the
provisions of Title II of Chapter II of the LME (and the express
provisions of Chapter I referring thereto), and on a supplemental basis
by the provisions of the LME governing mergers generally.
- Intra-EC cross-border merger is understood as a merger
between:
· Limited liability companies (sociedades de capital)
organized in accordance with the legislation of a State forming part
of the European Economic Area (“EEA”),
· Whose registered office, central administration or principal
center of activity is located within the EEA,
· When there is participation by at least two companies subject to
the legislation of different member States, and one of them is subject
to Spanish legislation.
- The limited liability companies subject to Spanish legislation that
can participate in cross-border mergers are public limited companies
(sociedades anónimas), joint-stock companies (sociedades
comanditarias por acciones) and private limited liability
companies (sociedades de responsabilidad limitada).
- Mergers with the participation of cooperatives (sociedades
cooperativas) or whose purpose is collective investment and
that meet the characteristics set forth in the regulation, are
expressly excluded from these rules.
- The treatment of intra-EC cross-border mergers is completed with
the introduction of a new «Title IV» regarding «provisions applicable to
intra-EC cross-border mergers of limited liability companies» in Law
31/2006, of October 18, on employees involvement at public limited
companies and European cooperatives (“Law 31/2006”).
2.1.1 Intra-EC cross-border
mergers vs. internal mergers
The specific regulation on intra-EC cross-border mergers contained
in the LME has some particularities with respect to the rules
set forth therein for internal mergers (i.e., mergers between
Spanish companies), including the following noteworthy provisions:
- It is provided that the fact that the legislation of at least one
of the affected States allows for cash compensation, which forms a
part of the exchange ratio, that exceeds 10% of the par value or, in
the absence thereof, the book value of the shares being exchanged,
will not be an obstacle for an intra-EC cross-border merger.
- The common merger plan must contain the following
statements, in addition to the statements generally required for
merger plans (see 1.2 supra):
· the advantages attributed to the experts who
study the merger plan, as well as to the members of the
administrative, management, monitoring or control bodies of the
companies that are merging; and
· if applicable, information regarding the procedures for
determining the terms for involvement of employees in the
definition of their rights of participation in the resulting company.
In addition, certain economic figures must appear (see
paragraph 1 of Article 49.1 of the LME). Unlike the case with certain
internal mergers, such information may not be omitted.
- The report of the management or administrative bodies must
be prepared pursuant to the provisions of the general rules
for the report of the directors regarding the merger plan,
although there is a particularity regarding the addressees of
the report and the time at which it must be made available.
The directors must include in the report the opinion of the
employee representatives regarding the report, if they receive it
in time.
The report must always be prepared, as opposed to what
happens in certain instances of internal mergers in which no report is
required at all (simplified mergers).
- As regards the resolution of the shareholders regarding the
common merger plan, there are no significant differences with
respect to the rules for domestic mergers apart from:
· The possibility of making the merger subject to
the express ratification of the provisions provided for the
participation of the employees in the resulting company, and
· The right of separation held by the shareholders
of a Spanish company who vote against the merger plan, when
the company resulting from the merger has its registered office in
another member State.
- Rules are provided for controlling the validity of the merger
procedure by the Spanish commercial registrars. The
scope of control will depend on whether or not the company
resulting from the merger is Spanish (see Articles 64 and 65 of
the LME).
- Article 16 of Directive 2005/56/EC is implemented into the
Spanish legal system with respect to the participation of employees
in the resulting company by means of (i) the inclusion of a
general provision (Article 67 of the LME), and (ii) the modification
of Law 31/2006 (see 2.1 supra).
2.2 International
transfer of registered office
- Two cases are distinguished: (i) the transfer of the
registered offices of Spanish commercial companies abroad, and (ii) the
transfer into Spanish territory of the registered offices of companies
organized pursuant to the law of other States.
- Both instances will be governed by the provisions of
international treaties and conventions in force in Spain and the
provisions of Articles 92 to 103 of the LME, without prejudice to
the provisions for the European public limited company.
2.2.1 Transfer abroad
of the registered office of a Spanish company
- Directly covers Spanish commercial companies organized in
accordance with Spanish law.
- May only be performed if the State of destination allows
for the legal personality of the company to be maintained.
- For companies in liquidation or those that are in
insolvency proceedings, the registered office may not be
transferred abroad.
2.2.2 Transfer of the
registered office of a foreign company to Spanish territory
- The transfer of a registered office to Spain will not affect
the legal personality of the company. However, it must comply
with the requirements of Spanish legislation for the incorporation
of the type of company in question, unless otherwise provided by the
international treaties or conventions to which Spain is a party.
- Companies that intend to transfer their registered office
to Spain from a State that is not a part of the EEA must show
with an independent expert’s report that their net assets cover
the amount of share capital required by Spanish law.
2.2.3 Legal rules for
the transfer
- Chapter II of Title V of the LME (Articles 95 to 103), under the
heading «legal rules for transfer», contemplates the rules applicable
to a Spanish commercial company that transfers its
registered office abroad. These rules do not contain any reference
to the rules applicable to the transfer to Spain of the registered
office of a foreign company, which we understand that, outside of
possible international treaties or conventions that might exist, must
be established by the legal system applicable to the company that
transfers its registered office to Spanish territory. Specifically, it
governs:
(i) the content, deposit with the CR, and rules for publication of
the transfer plan, which must be signed by the directors of the
company;
(ii) the requirement of a report signed by the directors of
the company explaining and providing a rationale for the transfer plan
and the consequences thereof for shareholders, creditors and employees;
(iii) the required approval of the transfer by the General
Shareholders’ Meeting;
(iv) the rules for calling the shareholders’ meeting – which
must be called a minimum of two months prior to the date for
the holding thereof – and of the right to receive information;
(v) the shareholders’ right of separation, which, although
already expressly recognized by the Spanish LSA and Spanish Private
Limited Liability Companies Law (Ley de Sociedades de
Responsabilidad Limitada -LSRL-), is now set forth in a
more restricted manner, as the rule requires that the
shareholder voted against the resolution (while under the prior
rules any shareholder or partner that did not vote in favor of the
resolution and, in the case of public limited companies (sociedades
anónimas), even the holders of non-voting shares, were expressly
granted this right); and
(vi) the right of objection of creditors whose credits
were due prior to the date of publication of the transfer.
- The effectiveness of the transfer of the registered office
is subject to registration of the company with the Registry of
the new registered office.
