Spain: Latest developments in Corporate Law and simplification of mergers and divisions
The Royal Decree Law 9/2012,in effect since the 18th of March, amends two major laws affecting companies: The Corporations Act and the Act of Structural Changes in Companies. The aim of the amendment is to get companies to use their company web site and electronic communications, not only to save on costs, but also for planning and implementing such complex and expensive operations as making a non cash investment to a public limited company, or a merger and division.
We would like to discuss these developments as they may help many business people in their daily struggle to optimise costs and company structures, and given the current crisis, many companies will need to restructure their organization, largely through mergers and divisions, to avoid the expense involved in maintaining an oversized structure.
Developments in the Law for Open Ended Companies:
a) In order to encourage the use of company web sites it is now compulsory for all listed companies to have one. The rest of companies will be authorised to have a web with its creation, changes, transfer and deletion regulated by law.
The way in which announcements must be posted, and the length of time for which they must be made visible, have also been stipulated and, MOST IMPORTANTLY, the law states that publications on a website will not be legally binding until this same website has been registered with the Companies Registration Office and published in its official bulletin the BORME. So, just having a web site is no longer enough, it must be registered!
To protect the rights of members, creditors, workers and third parties, and given that it is relatively straightforward to change a web site, a system of rules and responsibility of administrators for any damage caused has been established. This includes the consequences of being unable to access the website which could lead, say, to preventing the holding of General Meetings. In effect the law says that even if the website is temporarily down, inability to access the web site will not be sufficient reason for the non-completion of the legal time periods required to give notice of meetings and other company publications.
In the same way, the company and its members will be allowed to communicate with each other and send documents by electronic means.
As well as allowing companies to save on the cost of putting official announcements in the press and/or Borme, using the website will make for more fluid relationships between members and third parties. Don’t forget though that there are a series of legal prerequisites which must be completed for your corporate web and electronic communications to be legally valid. It is not just a matter of having a web site and uploading announcements, or of e-mailing documents to members. If things are not done correctly, everything could be declared null and void. Please let us know before you go leaping into your digital adventure!
b) If you are thinking of making a non monetary investment in a Public Limited Company you should note that 3 instances have been added where you may do so without needing an independent professional to value the asset to be invested. This will obviously cut down on the cost. In all cases where the increase comes from a merger or division, and for which a professional report has already been written, a new report will no longer be necessary. This is logical, as it was redundant to ask for a new valuation when one had just been carried out. Nor will a report be required if the investment being made is to give new shares to the members of a company who have been the object of a public offering of share acquisition (the famous take-over bid), as its public nature has already conferred sufficient objectivity on the value of the investment.
Reform of the Law of Structural Changes to Public Limited Companies
The Royal Decree Law softens the requirements for carrying out mergers and divisions, including transborder ones, making company restructuring operations less cumbersome and allowing companies to manouvre more easily in these times of crisis. We mention the most relevant:
Publicising the merger: It is no longer necessary to register the merger plan in the Companies Registration Office, sufficing to publish it on the company web site and put a free announcement in the BORME.
In its zeal to push us all into the digital age, this publication of the plan on the web site is now compulsory if the company has a corporate web site, the “traditional” deposit only being allowed for companies without a website.
Report by independent professional in case of mergers: An independent professional’s report is required when there is a public limited company participating in the merger. Up till now, this was only necessary when the resulting company was a public limited company. This means there will be more cases where a professional’s report is required, somewhat contradicting the savings idea of the amendment.
Information about the merger: In its zeal to push new technologies, the law says that if the company has a website, its members, bondholders and holders of special rights will no longer have the right to ask for the documents to be sent to them free, as stated in article 39, nor to consult them in the company offices. From now on, these documents must be published on the company website, from where they can be downloaded and printed out.
Unanimous agreement for merger: The merger agreement may be adopted without having to publish, or previously deposit, the documents required by law, in other words, without needing a merger plan or an administrators report. This is allowed when the merger is approved unanimously at a general meeting of shareholders in each and every one of the companies participating in the merger, irrespective of whether it is an SA or SL
Division: The procedure for some divisions has been simplified, eliminating the documentation prerequisites for them. For example, in the case of a division for incorporation of new companies, an independent professional’s report, an administrator’s report and a division balance sheet are no longer required, provided the shares of the new companies are transferred to the members proportionate to those they used to have in the divided company.
Creditor’s rights of opposition: The law expands the possibility for action by creditors in cases where the merger or division has been carried out without affording the necessary guarantees for exercising their right of opposition and now even allows the person affected to sue the company.
Special protection for members in the case of a merger by absorption of a company with a 90% stake: When the members wish to transfer the shares or shareholding stake to the merging company, but do not agree with their valuation in the merger plan, they can choose between asking the Companies Registry Office to name an accounts auditor, different to the one the company uses, or start judicial proceedings to ensure that these be acquired at a reasonable value.
As you can see, the law reform reinforces the rights of members and creditors aiming to avoid that in the midst of the slackening of formal requirements, any undermining of rights is overlooked. As a result, and despite the simplification, mergers and divisions continue to be complex and very technical procedures requiring a lot of careful attention. One small error in any of the steps can cause the whole operation to fail. For this reason we recommend you contact us before taking any action. We’ll design you a roadmap of the whole procedure and will take care of all the details.
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