The new regime of shareholders assemblies of Spanish commercial companies

Shareholders assemblies of Spanish commercial companies

The new regime of shareholders assemblies by Juan EscuderoA new reform of the Capital Companies Law[1] has been approved by Law 31/2014 of 3 December 2014 for the Improvement of Corporate Governance and it has focused on changes in the operation of the board of directors and in that of the general shareholders assembly of Spanish companies.

Some of the legislative changes address solely public limited companies ([2]), whereas another part applies both to public and private ([3]) limited companies alike.

These amendments are accompanied by a raft of changes to the legal status of company directors. Another section is devoted exclusively to improving the corporate governance of listed companies.

In this article we will be focusing only on those reforms which apply to the shareholders assembly of non-listed private or public limited companies, which make up the vast majority of commercial companies in Spain.

Origin of this reform

This reform of the law had its origin in a Report on the Proposal for Legislative Modifications of the Experts’ Commission on the Matter of Corporate Governance[4] published on 14 October 2013. This Experts’ Commission had (among others) the objective of elaborating a survey analyzing corporate governance issues in Spanish companies, as well as to draft a proposal for new legislative measures that could improve efficacy and responsibility in the management of Spanish companies, with the purpose in mind of Spanish legislation attaining the highest possible degree of compliance of international good governance principles and criteria.

For the achievement of this objective the Experts’ Commission made several proposals to the Government for reforms of existing company law, so that these proposals could be used as guidance for the necessary modifications that should be made to the Capital Companies Law, including many recommendations that had already been put forward by the Unified Code of Good Corporate Governance of Listed Companies[5].

Those proposals of the Experts’ Commission were utilized by the Spanish government to prepare the draft Law which was later approved in Parliament.

As regards shareholders’ rights and shareholder assemblies the changes are intended to reinforce the roles of the general assemblies and to promote greater participation of the assembly of shareholders in the day-to-day management of the company.

The assembly’s roles

Thus, the assembly’s roles have been revised and more clearly differentiated from those of directors and its general operation has been reviewed, introducing, for instance, separate voting on matters on which shareholders may hold different views. The law also makes some welcome clarifications on majorities required for valid adoption of resolutions.

Finally the regime of conflict of interest, which used to be applicable only to private limited companies, has been extended to public limited companies and some aspects of the shareholders right of information have been updated, so as to avoid an abusive exercise of this right.

Also a new system for the challenging of shareholder resolutions has been introduced in order to avoid an abusive use of these challenges, in order to block a company’s corporate life and as a means of harassment of other shareholders or directors.

1. Extension of the general assembly of shareholders’ exclusive competences

Up to now, article 160 reserved to the general assembly the adoption of the most fundamental and strategic decisions affecting a company’s life, such as the approval of the annual accounts, the appointment and removal of directors, amendments to the articles of association, share capital increases and reductions, elimination or limitation of preferred subscription rights, transformation, mergers, spin-offs, global transfers of assets and liabilities, winding-up, liquidation as well as other matters determined by other laws and by the articles of association themselves.

According to the new wording of article 160 of the Capital Companies Law, the approval of the general shareholders assembly shall be also required in connection with transactions which entail the “acquisition, disposal or contribution to another company” of “essential assets”.

“iuris tantum”

According to the new wording, such “essential” character of the asset shall be “presumed” whenever “the value of the transaction exceeds 25 % of the value of assets reflected on the latest balance sheet approved”. Unfortunately, the law does not clarify whether this presumption is “iuris tantum”, which would admit proof to the contrary, or “iuris et de iure”, which would not admit such proof. However, the most likely interpretation is for the latter and whenever this objective threshold is attained the decision shall have to be submitted to the general assembly without question.

What is clear is that other transactions where this threshold is not reached can also involve an “essential” asset and therefore necessitate shareholder approval. This could arguably be the case, for instance, of the assignment or transfer of substantial rights or contracts, such as significant industrial property rights or of a lease agreement which represent a significant part of a company’s activity, even if they are not quantified in the balance sheet. This type of transactions could also form part of such a “disposal” requiring the general assembly’s approval.

The legislator, their recommendation

The legislator has chosen to apply an objective and quantitative criterion, as opposed to the criterion which had been retained by the Report of the Experts’ Commission on the matter of Corporate Governance and the Unified Code of Good Corporate Governance of Listed Companies. Their recommendation in this respect for non-listed companies was that transactions on essential assets to be submitted to the shareholders assembly should be only those which entail an effective change of the corporate object[6], that is, those which signify a structural modification of the company.

Only for listed companies did they defend an objectivized criterion, such as the one that has now been approved for all companies. By extending the objective criterion to both types of companies (listed and non-listed) the lawmaker further reveals its intention to strengthen the power of the general assembly in all types of companies, regardless of their size.

In spite that it may give the impression that an objective threshold seems to bring about more legal certainty, in practice it may not be so in all cases, particularly in those companies which are not subject to mandatory auditing of their annual accounts, given the difficulty in evaluating certain assets, not devoid of a certain degree of subjectivity.

2. Intervention of the general assembly in day-to-day directors decisions

Through an amendment to article 161 of the Capital Companies Law, the possibility is opened for general shareholders assemblies of public limited companies (this possibility was already admitted for private limited companies) to impart instructions to directors (such as the board of directors) or subject to its approval decisions on certain matters which had been traditionally the preserve of directors, except where the articles of association provide otherwise.

Therefore, any companies not wishing for its shareholders assembly to be able to intervene in this way in the directors’ management duties will have to make the relevant amendments of their articles of association.

This change is in response to the Experts’ Commission recommendation that the assembly should take a more active part in the day-to-day corporate life. More precisely, according to the Experts’ Commission, a greater involvement of the assembly in administration matters is likely to reduce conflicts, lawsuits or accusations of mismanagement from shareholders against company directors.

The law reminds

However, the law reminds, in article 234, that, even if such limitations are included in the articles of association or they are registered in the Commercial Registry (and therefore have been publicized) and they have not been respected by directors (i.e. the latter not having submitted a certain decision to shareholders assembly approval when it is required), the representation of directors with respect to third parties will still extend to all matters comprised within the corporate object which is set out in the articles of associations, meaning that the company shall still be bound by their actions vis-à-vis such third parties.

Even if the matter is not comprised within the corporate object, the company will be bound in respect of third parties having acted in good faith (“bona fide”) and without serious fault or negligence. Still, it would be hard to think of a case where a third party would be considered to have acted in good faith or without negligence vis-à-vis a director acting beyond the corporate object, given that such third party would always have had the opportunity to consult the corporate object published in the Commercial Registry, which in Spain can be accessed by the general public.

3. Information rights of shareholders of public limited companies

The information rights of shareholders of public limited companies (i.e. not those of private limited companies) is also further regulated following the guiding principle of “bona fide” under the new wording or article 197 of the Capital Companies Law.

The legislator pretends to somewhat limit and delimitate the extent of information rights, which in the past have been used by some shareholders in an abusive way. Therefore the cases in which it is not required to provide this information have been extended and more clearly formulated.

In Spanish limited companies information rights can be exercised by any shareholders up to seven days before the general assembly by asking directors for any such information or clarifications as they may see fit on the items to be treated under the agenda or by asking them in writing any questions that they may consider pertinent. In such a case directors will provide such information at any moment before the assembly.

The information right can also be exercised by shareholders during the course of the general assembly by asking orally for the information or clarifications that they deem necessary on the items in the agenda, but if such information cannot be provided on the spot, then directors shall provide it in writing within the next seven days[7].

The reform provides

In the first place, the reform provides that, whereas in the past it was only the chairman of the board who could refuse the provision of information to shareholders if he considered that the provision of such information could damage the best corporate interest (which restricted the possibility of withholding information to cases where the company was administered by a board of directors), under the new wording of this article, this authority has been vested in the directors as a whole. This extends possible use of this authority to those companies which do not have a board of directors, such as those managed by a sole director, two joint directors, etc.

Secondly, under the new wording of this article, the cases in which directors can refuse the provision of the information requested has been extended to three specific cases: (a) where it is unnecessary for the protection of the shareholder rights; (b) where there are objective reasons to think that this information could be used for extra-corporate purposes; or (c) where its disclosure might be harmful for the company.

In private limited companies the law has not been changed on this aspect and the only possible reason for refusal is still limited to directors considering that providing the information could be harmful to the best corporate interest.

However there continues to be an exception to that possible refusal in both types of company (public and private) and it applies when the request for information is supported by at least 25 % of the shares representing the share capital, which percentage can be lowered by the articles of association of public limited companies[8]. In this case, there are no possible grounds to refuse the provision of the information requested.

Sections added

Finally, two new sections are added (indents 5 and 6), only applicable to public limited companies. In indent 5 it is clarified that any failure to provide information requested verbally during the course of the general assembly shall only entitle to demand any damages caused as well as specific performance of the obligation, but it shall never be grounds for challenging decisions adopted in that general assembly.

This limitation has been introduced in order to avoid a common practice which consisted of asking for information during the course of the assembly with the only purpose of artificially creating an argument for later challenging the relevant decision, instead of with the legitimate intention of obtaining the necessary information to exercise properly the voting rights. Therefore, any challenging of corporate resolution on the basis of undue refusal to provide information will require that such information be requested before the general assembly is held.

For its part new indent 6 provides expressly that any abusive or prejudicial use of information rights by shareholders shall entail the obligation to indemnify for any damages caused to the company.

All these provisions combined are likely to render shareholders of public limited companies more cautious when using their information rights.

4. Separate voting of different matters

As regards voting, the completely new article 197 bis (which applies to public or private limited companies alike) requires that voting must be separate for those items which are “substantially independent” from each other.

The objective of this new rule is to avoid the manipulation of results by means of grouping together the voting of various unrelated items, with regard to which the shareholders may hold different views.

Furthermore, indent 2 of the new article provides that by all means, the following matters must be subjected to separate voting (even if in the agenda they can be reflected together):
(a) the appointment, the ratification, renewal or dismissal of every single director;
(b) the amendment of every single article (or group of articles dealing with the same subject) of the articles of association;
(c) any other matters specified by the articles of association.

5. Conflicts of interest

The regime of shareholders’ “conflict of interests” in article 190 of the Capital Companies Law, which used to apply up to now only to private limited companies, has been extended (with certain adjustments) to public limited companies as well. Therefore the regime of conflicts of interests has now been unified into one single article applying to both types of company.

In general the shareholder of both types of companies has an obligation to refrain from voting in connection with matters where he is likely to be subject to conflicts of interest.

Some of those matters (including some of the most serious ones) are expressly listed in the newly worded article 190, and they are the following:
(a) voting in connection with the authorization of the transfer of his own shares, which would otherwise be subject to restrictions arising from the law or the articles of association,
(b) his exclusion from the company,
(c) his release from obligations or recognition of rights to him,
(d) the granting to him of any financial support or
(e) discharging him from his director’s loyalty obligations, that is, if the shareholder also happens to be a director.

These matters are very similar to those which already applied to private companies, but their application has now been extended to public companies as well.

It must be noted that in the case of public limited companies, the application of the prohibition to vote in cases (a) and (b) is subject to its being expressly contemplated in the company’s articles of association, in the sections regulating, respectively, the transfer of shares and the exclusion of shareholders.

In those cases where the shareholder is thus forbidden from voting, his shares must be excluded when counting the majority required in each case.

Right to vote

The real novelty in the treatment of conflicts of interest lies in that, from now, in the cases in which, in spite of not being listed in the mentioned “black” list, there is still a conflict of interest, the affected shareholders are not deprived of their right to vote.

However, where the votes of the shareholders subject to that conflict have been “decisive” in the adoption of the resolution, what happens is that there is a “reversal” of the burden of proof of that decision’s conformity with the best corporate interest, and that conformity shall have to be proved by the shareholders supposedly subject to conflict or the company, as the case may be.

In this way, there is a de-facto “presumption” that the decision is against the best corporate interest (and therefore null), and this presumption has to be proven wrong by the shareholders subject to conflict. However, as regards the presence of a “conflict of interest” or decisiveness of the vote in the approval of the decision the usual rules of evidence apply and their presence must be proved by those shareholders challenging the validity of the resolution.

The resolution: in the best corporate interest

Therefore, in practice this means that, once that the other shareholders can prove that a given resolution (not in the “black” list) has been adopted thanks to the decisive vote of certain shareholder(s) subject to conflict, that decision will be presumed null, unless the latter shareholder(s) can prove that the resolution was adopted in the best corporate interest.

By exception, this reversal of the burden of proof does not apply whenever the conflict refers exclusively to the position that the shareholder in question occupies in the company (such as resolutions referred to the appointment, removal, dismissal of directors, and demand of responsibilities from them). Therefore in all these cases those shareholders challenging the decision will not only have to prove the existence of a conflict, but also that it is harmful to the company’s best corporate interest.

6. Amendments to the articles of association creating differences between shareholders

Another important change in the law applies to amendments of the articles of association (this time of public limited companies only) which affect the rights of one class of shares or a part of the shares within a given class.

Up to now, under article 293 of the Capital Companies Law, resolutions affecting directly or indirectly the rights of one specific class of shares had to be adopted by the general assembly as a whole observing all the requirements in the law (particularly as regards attendance quorums and formation of majorities) as well as by the majority of the shares of the affected class. Where there were several classes affected, it was be necessary to obtain the separate approval of each class of the affected shares.

On the other hand, if the modification affected only a part of the shares within one single and specific class (or in the only class of shares existing in the company) and in addition it created a “discriminatory” treatment between them, those shares affected and those not affected by the change should be considered as separate classes for these purposes, and therefore would require a separate approval by each group of shares, just as if there were several classes affected.

Discriminatory treatment, the real innovation

The real innovation brought about by the reform is that for the first time the law explains what is to be understood by “discriminatory” treatment for these purposes. Such discriminatory treatment is defined as “any change that, on the substantive aspects, entails an economic or political impact that is clearly asymmetrical on the ones and the other shares or on the owners thereof”.

By means of this definition a higher degree of legal certainty has been introduced for those shareholders who could be affected by one such modification. Even if this definition is not very precise and, to a certain extent, it can be argued that the focus has only shifted from the definition of the term “discriminatory” to the interpretation of the word “asymmetrical”, in general terms it will facilitate interpretation of this article.

This definition does not, however, entail a significant change, to the extent that the majority of the doctrine and court decisions had come to define this concept of “discrimination” in very much the same way.

Thus, for instance, according to past court resolutions a discriminatory treatment shall be perceived in the suppression of articles restricting the transfer of shares for some shares and not for the others, or in any other amendment that entails a reduction or elimination of a financial privilege or imposes an uneven system of cancellation of shares (in case of capital reduction). In these cases the separate approval of the amendment would be required by, on the one hand, shares affected and, on the other, shares not affected.

6. Direct exercise by shareholders of the action of directors’ liability

Instituting a lawsuit on behalf of the company on account of directors’ liability being engaged (as opposed to the action instituted by creditors or by single shareholders) has always been reserved principally to the approval of the general assembly by article 238, which could approve the commencement of this action by means of an “ordinary” majority.

Of course, the adoption of the decision could be proposed to the shareholders assembly by any individual shareholder, no matter how small his stake in the company was and even if the matter was not included in the agenda, but it had to be invariably attempted to be adopted by the assembly in the first place.

Only in a subordinate way could individual shareholders holding (together or individually) at least 5 % of the shares institute directly by themselves the action against directors.

When can it happen

However, this occurred only in three limited cases, namely:
(a) where directors failed to convene the general meeting when it had been requested by one shareholder to that effect,
(b) if the lawsuit had not been filed within one month since the approval of the resolution prescribing the action, or
(c) if the shareholder resolution was against the commencement of any proceedings against the directors.

This meant that shareholders (even those holding a sizeable package of shares of 5 %) were invariably obliged to make an attempt for the shareholders assembly to decide to exercise an action of liability against directors and, only if that attempt failed, could they eventually try to exercise the action directly.

The new wording of article 239 has changed this and it includes a new paragraph which provides that, where the action is based on the infraction by directors of their “loyalty duties”, shareholders holding at least 5 % do not need to attempt first to have the assembly adopt that decision, but they can directly institute the action themselves. In the rest of cases they will still have to make that attempt. However, there will arguably be few cases where directors to be brought to account have not been defaulting on their loyalty duties.

Also, in case that the plaintiff shareholders totally or partially win the case against directors, the company will be bound to reimburse them for the legal costs in which they have incurred (provided they were necessary), except where such costs have already been awarded to them by the court’s decision.

7. Formation of ordinary voting majorities in public and limited companies

As regards the valid adoption of resolutions, the rule that already applied to private limited companies has been extended by the reform to public limited companies through a new wording for article 201 of the Capital Companies Law. Now the same criterion applies in this respect in both types of company.

Under this newly worded article a decision of the shareholders assembly shall be validly adopted by a “simple” majority, that is if “it receives more favorable votes than against from the capital present in person or by proxy”. Therefore this means that only “valid” votes count, and that abstention, nullified or blank votes must not be taken into consideration.

This clarification puts an end to a longstanding doctrinal debate which had been going on in Spain for several years on the interpretation of the term “ordinary” majority, which was the term used heretofore by the law. There were doubts as to whether it meant an “absolute” majority (i.e. more than half of the votes of total shares present in person or by proxy in the assembly, including abstention, nullified and blank votes) or whether a “simple” one was necessary. The legislator has opted for the latter, i.e. a “simple” majority.

Votes blank or abstains, is as does not attend the meeting

The criterion selected is coincident with the one which was retained by Council Regulation (EC) number 2157/2001 dated 8 October 2001 on the Statute for a European Company and the Report of the Experts Committee[9] which held that the shareholder who votes blank or abstains is manifesting his will not to participate in the adoption of the decision and therefore his position must be assimilated to that of the shareholder who does not attend the meeting, rather than that of the shareholder who votes against the decision.

In private limited companies this rule already applied, however the “simple” majority was (and still is) reinforced by the requirement that votes in favor of the decision must represent at least one third of all votes corresponding to the totality of outstanding shares.

8. Voting majorities on matters subject to reinforced quorums of attendance

As regards the adoption of general assembly resolutions in special matters subject to reinforced quorums of attendance to the general assembly which are listed in article 194 of the Capital Companies Law, new majority voting rules have been approved, which apply to public limited companies.

The matters subject to reinforced quorums of attendance are, namely, (a) the increase or reduction of share capital, (b) other amendments to the articles of association, (c) the issuance of bonds or debentures, (d) the suppression or limitation of the pre-emption rights on new shares, the transformation, (e) the merger, spin-off and global transfer of assets liabilities, and (f) the removal of the registered office abroad.

Such reinforced quorums of attendance consist in that, for the valid adoption of resolutions on those special matters, the general assembly must be attended (in person or by proxy) in the first call by shareholders representing at least 50% of the issued shares, whereas in the second call it shall be sufficient for at least 25% of the issued shares to attend in person or by proxy. This means that the adoption of decisions on those matters shall require the attendance to the general assembly of at least 25 % of the capital.

The adoption of decisions, new wording

The new wording of article 201 indent 2 (only applicable to public limited companies) provides that reinforced voting majorities for the adoption of resolutions on those matters will be as follows:

  • If the quorum of attendance has been greater than 50 % of issued shares the resolutions can be adopted with the favorable vote of an “absolute majority” (more than half of the votes present in person or by proxy in the meeting); and
  • If the quorum of attendance has been between 25% and 50% of the issued shares the resolutions can be adopted with the favorable votes of 2/3 of votes present in person or by proxy.

Reinforced quorums in private limited companies have remained unchanged after the reform. Thus, article 199, provides that share capital increases or reductions require the favorable vote of more than half the votes corresponding to all issued shares, whereas some other important resolutions require the favorable vote of at least 2/3 of the votes corresponding to all issued shares[10].

9. Challenging decisions of the assembly of shareholders

As regards the regime of challenging resolutions of the general assembly, this is a key part of the reform, given that it is one of the principal ways in which the best corporate interest and the rights of minority shareholders are protected from possible abuse by majorities.

The amendments seek two targets which had been laid down by the Experts’ Commission[11]: (a) maximizing the protection of the best corporate interest and the defense of minority shareholders’ rights and (b) avoiding an excessive and abusive use of the right to challenge decisions adopted by the assembly for opportunist purposes.

In order to attain the first objective of defending the best corporate interest, the new article 204 of the Capital Companies Law (which applies to public and private companies alike) has introduced new eligible grounds for challenging decisions and, as regards the second objective (avoiding abuse), it has limited some of the possible grounds for challenging decisions that existed prior to the reform.

New grounds for the challenging of decisions

Decisions which could be subject to challenge prior to the reform were: (a) those which are against the law; (b) those which are contrary to the articles of association; (c) or those which damage the company’s best corporate interest in the benefit of one or several shareholders or of third parties.

Among the new grounds which have been introduced by the reform (in addition to existing ones) is the infraction of a company’s rules of procedure of the general assembly (not only of those reflected in the articles of association), which reinforces the binding nature of these rules of procedure, which had not been recognized up to now.

  • Also, as regards the interpretation of the expression “damage to the best corporate interest”, it is clarified in a new paragraph that this shall include those resolutions “which, even not causing damage to the company’s assets, are imposed in an abusive way by the majority”.
  • Finally, it shall be understood that a resolution has been imposed in an “abusive way” when “not responding to a reasonable necessity of the company, it is adopted by the majority in order to obtain its own benefit, to the unjustified detriment of the remaining shareholders.”

In that way, abuses by the majority against the company and/or the other shareholders are expressly enshrined as a cause for challenging corporate resolutions and assimilated for these purposes to resolutions which are harmful to the corporate interest.

Other changes are intended to restrict the possibility of making an abusive use of the right of challenging shareholder resolutions. Thus a wholly new indent 3 is entirely dedicated to describe those cases not having enough substance to justify a challenge and where a challenge is no longer admissible.

Limitations of existing grounds for challenging decisions

Its new paragraph (a) refers to such minor infractions as those “of merely procedural aspects prescribed by the law, the articles of association or the company’s rules of procedure of the general assembly or, as the case may be, of the board of directors, for the convening or calling to order of the organ or for the adoption of the resolution, except where it is a breach referred to the form or deadline of the convening notice, essential rules of calling to order of the organ or of majorities required for the adoption of the resolution, as well as any others which have a significant nature”.

This first limitation intends to keep off limits any minor formal or procedural aspects which usually lend themselves to abuse of the right of challenge, to the detriment of the safety of legal traffic and the efficiency of corporate decision-making.

Thus, for instance, this keeps out of reach the possibility to contest shareholder assembly decisions on grounds of formal breaches which are scarcely relevant, and therefore to be considered as being of a minor importance.

These include, with regard to the convening of the general assembly, mistakes in the drafting of the items in the agenda but which provide enough details to enable shareholders to decide whether to attend or not. Also contemplated are errors in the calling to order of the meeting, such as small errors in the drafting of the list of attendees. All these minor mistakes will not have sufficient substance to justify the challenging of resolutions adopted.

Information provided before the meeting: “inaccurate or insufficient”

As regards the challenging of decisions on grounds of breaches of the right of information, under the new paragraph (b) of indent 3, it shall be impossible to do it on grounds of “the inaccuracy or insufficiency of the information supplied by the company in response to the exercise of the right of information before the general assembly, except where the inaccurate or missing information has been essential for a reasonable exercise of the voting rights (or any other participation right) by the average shareholder”. This prevents the challenging of decisions if the information provided before the meeting was “inaccurate or insufficient”, unless this has proved an obstacle for the proper exercise of the voting rights.

Some other procedural errors (such as “the attendance of persons without a right to attend, except where their attendance has been a determinant consideration in calling the assembly to order”, or the “invalidation of one or several votes or mistakes in the counting of votes cast, except where such invalid votes or mistakes have been a determinant consideration in the attainment of the required majorities”) are also expressly considered as not having sufficient significance to justify the challenging of the resolutions adopted.

“frivolous” claims

To summarize, a number of situations have been described which have, in practice, been widely abusively used in the past to support the challenging of corporate resolutions on grounds of minor and irrelevant procedural breaches, given that they are not proof of any real damage to the best corporate interest which would justify their nullity. Considering the serious damage that this type of “frivolous” claims (better explained by strategic or specific shareholders’ interests, completely unrelated to the best corporate interest) have provoked in the management of companies, this part of the reform affords some welcome legal certainty and contributes to business efficiency.

Additionally, those resolutions which have been voided or replaced by the assembly for another valid decision before the challenge is filed shall not be eligible for being challenged. If they are voided or replaced after the filing of the claim, then the judge will render a decision whereby proceedings shall be shelved. In this way the filing of claims devoid of justification is avoided and the doctrinal debate which called into question whether it was possible to challenge this type of decision has been ended.

10. Unification of challenging grounds under one single regime

In a general way, under the new wording of articles 204 and 205 of the Capital Companies Law the old distinction between void (“nulo”) and nullifiable (“anulable”) resolutions is all but abolished, and almost all challenging grounds are subject to an equal statute of limitations of one year.

Up to now there used to be two clearly distinct categories of resolutions capable of being challenged. Thus “void” decisions were those which were illegal or against the law (including those against public policy), whereas “nullifiable” resolutions were those against the articles of association or which were harmful for the company and beneficial for a third party or a shareholder.

Both categories used to have different treatment when it came to their statute of limitations and the persons who could launch either type of proceedings. Thus, void resolutions (except for those contrary to public policy) were subject to a statute of limitations of one year, whereas nullifiable ones could only be challenged within 40 days.

Exceptionally, decisions adopted against “public policy”

Exceptionally, according to case law (although this was not expressly recognized by the written law, but only by the courts of justice) decisions adopted against “public policy” were not subject to any statute of limitations and they could be challenged “sine die”.

With the modification of article 205 virtually all decisions capable of being challenged receive the treatment formerly reserved to void ones and therefore they are subject to a statute of limitations of one year.

Special treatment continues to be expressly recognized in the law (not just by the courts of justice) for those decisions which “by reason of their circumstances, cause or contents”, shall be contrary to “public policy”, which will continue not to be subject to any statute of limitations. Therefore they can continue to be challenged at any moment since they were adopted without any time limitation.

In all cases, the statute of limitations starts to run from the adoption of the resolution or, where the resolution has been registered in the Commercial Registry, the deadline shall be counted from the date of publication in the Official Gazette of the Commercial Registry.

11. Standing to sue in the challenge of shareholders’ assembly resolutions

Also with the purpose in mind of restricting access to the challenge of resolutions by shareholders, in order to avoid further abuse, this action is reserved by the new wording of article 206 to those shareholders (of public or limited companies alike) who meet simultaneously the following conditions: (a) who became shareholders before the adoption of the resolution and (b) hold (separately or in the aggregate) at least 1 % of the company’s shares (this threshold can be further reduced by the articles of association).

The only exception where shareholders not reaching the required threshold (or having become shareholders after the decision) can challenge decisions is where the latter are against “public policy”.

Any shareholders not reaching the one percent threshold of participation shall, at most, be entitled to demand any damages eventually provoked by the resolution in question, but they cannot possibly demand its voidance.

The right to exercise the action continues to be recognized (as before the reform) to any directors and those third parties who can demonstrate that they have a “legitimate interest” in challenging the decision.

Also with the same purpose of limiting access to the action of voidance of corporate resolutions, those who, having had the opportunity to denounce formal defaults during the process of adoption of the relevant resolution (e.g. during the general assembly or the board, if they were present), have failed to do so at the proper time shall be barred from instituting this claim.


The reform has embraced almost all of the recommendations of the Experts’ Commission[12] in order to improve corporate governance and it has rightly focused on the two key organs which form the corporate structure of capital companies: i.e. the general assembly and the board of directors.

As regards the general assembly of shareholders more specifically, according to the preamble of the new Law, the changes are aimed at “reinforcing its roles and opening channels to enhance shareholder participation”.

Some of the modifications have been sourced from the Draft Commercial Code of June 2013, drawn up by the Section on Commercial Law of the General Commission of Codification.

Some others have consisted in reflecting into a compulsory norm what used to be simple voluntary recommendations of the Unified Code of Good Corporate Governance of Listed Companies[13]. Even so, the Experts’ Commission still considers that the voluntary character of good corporate governance codes, conceived as simple recommendations, is still a useful way to treat a great number of aspects of corporate governance.

Foot note

The conversion into mandatory norms of some of these recommendations (as the Law of reform has done) is justified by the growing recognition as basic and essential of certain aspects of corporate governance which up to very recently were not considered as such, as well as by a number of organizational deficiencies that the financial crisis had shown in many companies.

[1] Approved by means of Royal Legislative Decree 1/2010 of 2 July 2010 which basically consolidated into one single legal text the legal regulation of public and private limited companies, which up to then had been regulated by two different legal texts.

[2] “Sociedad Anónima”.

[3] “Sociedad de Responsabilidad Limitada”.

[4] An Experts’ Commission on the matter of Corporate Governance was created by a Resolution of the Spanish Council of Ministers of 10 May 2013.

[5] Approved by the National Commission of the Stock Exchange (“Comisión Nacional del Mercado de Valores” (CNMV) of 22 May 2006, later revised in June 2013, as a single document containing governance recommendations for the purposes of being used as guidance for the adoption of governance rules by listed companies.

[6] “objeto social” or corporate object, which makes an essential part of a company’s articles of association.

[7] In the case of private limited companies, shareholders information rights have not been altered by the reform and they can also be exercised before or during the general assembly in a similar way.

[8] Such reduction is only possible in public limited companies.

Spanish law

[9] An Experts’ Commission on the matter of Corporate Governance was created by a Resolution of the Spanish Council of Ministers of 10 May 2013.

[10] These include the authorization to directors to carry out similar business as that which makes up the corporate object, the suppression or limitation of pre-emption rights in share capital increases, the transformation, merger, spin-off, global transfer of assets and liabilities and the removal of the registered office abroad as well as the exclusion of shareholders.

[11] An Experts’ Commission on the matter of Corporate Governance was created by a Resolution of the Spanish Council of Ministers of 10 May 2013.

[12] An Experts’ Commission on the matter of Corporate Governance was created by a Resolution of the Spanish Council of Ministers of 10 May 2013.

[13] Approved by the National Commission of the Stock Exchange (“Comisión Nacional del Mercado de Valores” (CNMV) of 22 May 2006, later revised in June 2013, as a single document containing governance recommendations for the purposes of being used as guidance for the adoption of governance rules by listed companies.

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