Rework, the Amend
June 2012 International Financial Law Review
I. Spain’s new companies law
First, rework. Then, amend. This has been the method adopted by the Spanish legislator when amending Spain’s companies law. In 2010, the various pieces of legislation governing different types of companies were consolidated in the amended Companies Law (“2010 Law”). The 2010 Law was partially amended in 2011.
The evolution of the role of corporate enterprises explains the historical approach of regulating different types of companies in separate laws. Nevertheless, there is now a unifying tendency aimed at creating a Spanish companies code. That tendency is reflected in Royal Legislative Decree 1/2010 of 2 July, which approves the consolidated text of the corporate law (the “2011 Law”).
The 2011 Law entered into force on 1 September 2010, unifying the regulation of the different forms of Spanish corporate entities, including the two most common: public limited liability companies (sociedades anónimas) (“Public Companies”) and private limited liability companies (sociedades de responsabilidad limitada) (“Private Companies”).
The 2011 Law is structured according to subject matters and not, as might be expected, in a general section applicable to all companies and specific sections applicable to each type of company.
The 2010 Law was passed by parliament at the request of the government. The scope of the request was limited to legislative unification and did not permit the amendment of the unified regulations. As such, although the 2010 Law brings the rules governing Private and Public Companies closer, many distinctions still exist. Indeed, in the preamble to the 2010 Law the Spanish legislator expresses an intention to continue legislating in order to consolidate the Public and Private Companies rules, but at the same time highlights the differences between listed and unlisted companies.
This dual objective underlies the recent partial reform of the 2011 Law by Act 25/2011 of 1 August partially reforming the Companies Law and incorporating Directive 2007/36/EC of the European Parliament and Council of 11 July on the exercise of certain rights of shareholders in listed companies. The main amendments made to the 2011 Law as regards unlisted companies are as follows.
II. New technologies
Spanish and European legislators have taken advantage of the possibilities offered by new technologies to achieve two goals in the most efficient way: reduce unnecessary expenses and reinforce shareholders’ rights. Royal Legislative Decree 13/2010 of 3 December on tax, labour and liberalisation measures to boost investment and create employment, had previously modified many articles of the 2011 Law with that objective.
The ubiquity of the Internet and electronic access to the Commercial Registry allowed the 2011 Law to eliminate expenses associated with communication between registries and announcements in printed media. In some cases, the obligation of publishing specific agreements in one of the most widely circulated newspapers in the province of a company’s registered office has been substituted by the requirement to publish agreements on the company’s website.
This explains the 2011 Law’s regulation of the “electronic site” (sede electrónica) of a company. Pursuant to article 11 of the 2011 Law, the company’s general shareholders’ meeting is the body in charge of approving the website. This approval must be filed with the commercial registry or otherwise communicated to shareholders. In this way, the legislator applies the traditional principles of judicial certainty and publicity to the use of new technologies. The same publicity requirements apply when removing or relocating the website. Unless otherwise established in the articles of association, the decision to remove or relocate the website may be agreed by the directors without the prior approval of the general shareholders’ meeting.
One of the most important innovations is that general shareholders’ meetings may now be called on the company’s website pursuant to article 173 of the 2011 Law. The 2011 Law allows corporate entities, excluding listed companies and those with bearer shares, to establish in their articles of association that the call for the general shareholders’ meeting may be published exclusively on its website. This amendment of the articles must be recorded with the Commercial Registry. Unless otherwise established in the articles, the call must be published in the Official Gazette of the Commercial Registry (Boletín Oficial del Registro Mercantil) (“BORME”) and on the company’s website, if it has one. If the company does not have a website, the call must be published in the BORME and in one of the most widely circulated newspapers in the province in which the company’s registered office is located. A company that publishes the call on its website and in the BORME may also publicise the same in newspapers.
Article 319 of the 2011 Law takes a similar approach to capital reductions of Public Companies. The reduction must be published in the BORME and on the company’s website or, in the absence of a website, in one of the most widely circulated newspapers of the province in which the company’s registered office is located. For Private Companies, a capital reduction involving the return of a stakeholder’s contribution must be notified to the company’s creditors through publication in the BORME and in one of the most widely circulated newspapers in the province in which the company’s registered office is located. If the company has a website, the information can be published there as well as in the BORME (art. 333 of the 2011 Law).
This increased use of websites led to the need to regulate the burden of proof regarding their content: a statement by the companies’ directors that something has been published on the company’s website is sufficient to evidence its veracity (art. 11.2 of the 2011 Law). Any legally admissible evidence may be used to prove otherwise. Future case law will likely simplify the burden of proof in order to avoid the possibility that proving that something was not published on a website becomes a probatio diabolica.
III. Unification of the regulation of Public and Private Companies
The 2011 Law’s principal objective is to unify the regulation of Public and Private Companies. Although some specific provisions have been maintained, the unifying tendency is clear.
In relation to the obligation that a Public Company make provision for its board of directors in its articles of association, article 23 of the 2011 Law now allows the articles to establish various types of governing bodies. In this way, a company’s board of directors may be changed without modifying the articles and thereby reduce costs, a benefit that was previously only enjoyed by Private Companies.
Under the 2011 Law, the articles of association of all corporate entities may, subject to the approval of all shareholders, establish the grounds on which shareholders may be excluded and modify or delete the grounds previously established (art. 351 of the 2011 Law). Article 363 of the 2011 Law also establishes inactivity as a ground for dissolution of all corporate enterprises (where “inactivity” is understood as the cessation of the performance of the company’s principal corporate purpose or a period of inactivity of more than one year). Article 157.1 of the 2011 Law unifies the rules on breaches by Public and Private Companies and the sanctions that can be imposed on them.
Consistent with the European Union’s approach to protecting shareholders, article 197 of the 2011 Law provides enhanced protection to minority shareholders of Public Companies. If the Company’s articles of association do not address the information rights of minority shareholder, the refusal to provide information will not be accepted if the request is supported by shareholders representing at least 25 percent of the share capital. However, the articles of association may lower that requirement to five percent of the share capital.
Article 326 of the 2011 Law establishes as a condition for all corporate entities wishing to distribute dividends after a capital reduction for losses that, once the capital is reduced, their statutory reserve must be at least ten per cent of the new share capital. Private Companies may reduce their share capital to increase statutory or voluntary reserves (art. 320 of the 2011 Law). On the other hand, article 387 of the 2011 Law no longer obligates Public Companies to publish information on their dissolution or the public auction of real estate assets (in the event of liquidation).
As unified and amended, the 2011 Law creates a general framework on the exit rights of shareholders that contains just one provision of note: the exit right of Private Company shareholders who do not vote in favour of a decision to transfer an interest in the company. Two new grounds are added to the general framework: (i) the substantial modification of the company’s principal corporate purpose; and, (ii) after the fifth financial year following the company’s registration with the Commercial Registry, the shareholder who votes in favour of the distribution of profits may exercise its exit right within one month of a general shareholders’ meeting decision not to distribute at least one third of the legally distributable profits derived from the performance of the company’s primary corporate purpose during the previous financial year (only applicable to unlisted companies).
IV. Modification of rules applicable to directors
The 2011 Law reconciles the provisions applicable to the boards of directors of Public and Private Companies. Article 180 obliges directors of all corporate entities to attend general shareholders’ meetings. All directors have a duty of loyalty to the company and a duty to abstain from acting if they have a conflict of interest. Therefore, unless previously authorised by the company, directors may not carry out, whether in their own name or on behalf of a third party, activities that are identical or similar to those of the company’s corporate purpose. Article 231.2 obliges directors to communicate any stakes held, directly or indirectly, by them or by any related individual (as defined in art. 231 of the 2011 Law) in the share capital of any company with an identical, similar or complementary corporate purpose to that of the company, as well as the positions they hold and functions they carry out in such companies. An additional novelty is that article 246 of the 2011 Law allows directors who represent at least one third of the members of the board of directors to call a board meeting if the chair has not done so within one month of the director’s request.
The reform also introduces a new article 212 bis regulating companies that act as directors, which was incomplete under the previous law. Companies acting as directors must appoint an individual to represent them. The revocation of a representative’s appointment will only take effect when the company acting as a director appoints a new representative. Despite these amendments, it would be advisable for legislators to follow the approach they set out in the preamble to the 2011 Law and include a specific reference to the joint liability shared between the company and its representative.
Finally, the supplementary provision establishing the automatic conversion of directors of Public Companies into liquidators now applies to all corporate enterprises. Article 376 of the 2011 Law establishes that a company’s directors at the time of its dissolution will automatically become its liquidators unless otherwise established in the articles of association or if other liquidators are appointed at the general shareholders’ meeting at which the liquidation is approved. Liquidators will not be appointed if the dissolution is the result of the opening of the liquidation phase in the process of an arrangement with creditors.
Spanish law on non-listed companies has recently undergone three important modernising steps to: (i) further unify regulations on limited partnerships and Public and Private Companies in one text; (ii) further unify their legal frameworks; and (iii) introduce innovative measures that reduce costs. It is hoped that the law of corporate entities will continue to develop in the same way and result in the long awaited Companies Code.