Corporate Law and Buy-Outs

/Corporate Law and Buy-Outs

Bad news for PE investors in Spain: no drag along right in SL´s unless minority shareholders agree

A recent decision from the Spanish Companies House Directorate (DGRN) has made clear to investors that no amendment of the articles of association to introduce a ‘drag along’ provision will be valid unless expressly accepted by the unanimously shareholders.

The decision, issued on 4 December 2017, clearly is bad news for majority shareholders and private equity investors alike.

The Spanish Companies House was concerned with the insertion of drag along provision into the company’s articles of an SL based in Barcelona, without the consent of the minority shareholders. The clause was drafted so as to give majority shareholders wishing to sell all or a substantial portion of their shares in the company to an unrelated third party the right to force the remaining shareholders to also sell all or a portion of their shares to such third party.

The decision from the Spanish Companies House Directorate now clearly sets out that any drag along clause must be expressly agreed and accepted by each of the shareholders to be valid. Otherwise, the article´s amendment will be rendered as invalid and null.

The regime for the insertion of drag along provisions under English law are not as tight as in Spain, being theoretically possible for a majority of shareholders to insert them without the consent of the minority. However, following the ruling of the Court of Appeal in Arbuthnott v Bonnyman, there is always a risk that the process will be open to challenge under the Companies Act 2006 which provides protection against the unfair prejudice of minorities.

2018-01-10T17:40:52+00:00 10 January, 2018|

Security granted over future claims and receivables: implications within an insolvency scenario in Spain

Future claims and receivables commonly form part of a full security package in the Spanish lending market. Common types of claims and receivables used as security include: 

  • Debts and other rights to the payment of money; 
  • Rights to require (in project financing, for example) performance of a non-financial obligation; and 
  • Rights to claim under insurances; and 
  • Cash deposited with banks 

Formalities are simple. If granted as a pledge, the security must be executed as a public deed. If secured as a chattel mortgage, the security must be registered.  

However, there has been much controversy over treatment – within an insolvency scenario – of any such security over future claims and receivables. Although regulated in article 90.1.6º of the Spanish Insolvency Act, treatment of such a common security under the Spanish insolvency rules. Although a special privilege was recognised to such secured creditors, construction of the insolvency rules by the Spanish courts has resulted, for years, in a real headache for creditors who – in most cases – were unable to benefit from the privilege ranking of such credits due to the law ambiguous wording. 

It has taken 13 years from the enactment of the Spanish Insolvency Act and two law amendments by the Spanish parliament to eventually clarify and homogenise treatment of such concrete within insolvency proceedings. Article 90.1.6º was redrafted on 2015 – with legal effects from the 22th of October of 2015. By such amendment, the Spanish Insolvency Law now expressly admits that credits secured by future claims and receivables benefit from a privilege position within the insolvency proceedings provided that:   

underlying claims and receivables granted as security arise from agreements or contracts entered into by the debtor before the insolvency proceedings starts”  

The brand new Spanish law approach to security over future receivables has been confirmed by the Spanish Supreme Court and is therefore binding to all minor courts.  

Although specific and detail analysis shall be rendered to every specific case, security granted over future claims and receivables are no undoubtedly safe against insolvency, provided of course that formalities are complied.  

It is also safe to say – as confirmed by the Spanish Supreme Court – that such privilege shall be understood as well as applicable to security over future claims and receivables granted before October 2015. 

2017-12-30T18:10:46+00:00 19 December, 2017|

Choice of English Law in Lending Agreements shall remain unaffected after Brexit

When lending and taking security in Spain, Direct Lending Funds do normally the Facility Agreement to be governed by the laws of England and Wales (normally the LMA agreements will be used as a starting point for negotiations). Security documents, on their side, are usually governed by the laws of the country where the security itself is located. In the case of Spain, Spanish laws are mandatory for security over real estate property pursuant to section 10.1 of the Spanish Civil Code.  

In practice, there is no suggestion that Brexit should cause parties to reconsider their choice of English law as regards the facility agreement. Under REGULATION (EC) No 593/2008 on the law applicable to contractual obligations (Rome I), the courts of each member state are required to give effect to the parties’ choice of law, regardless of whether that law is the law of an EU member state.  

Thereupon, where such parties have chosen English law to govern the facility agreement, notwithstanding Brexit, the Spanish courts – and those of any other EU member states except for Denmark – should respect such decision.   

English law, if selected by the parties, should therefore continue to be upheld following Brexit. The LMA has yet indicated that it has no current intention to adjust the governing law clauses in light of Brexit. 

2017-12-30T18:09:11+00:00 7 December, 2017|

Director´s Liability Upon De Facto Closure of a Spanish Company


This Article is subject to Spanish legislation and considers some of the issues that arise when creditor´s rights collide with company directors’ duties. We focus particularly on the role and relevance of breaches of directors’ duties in the context of the abandonment of the company. That is to say, prior to any proper insolvency being declared. 

Overall View 

It is well known that the two most popular corporate vehicles in Spain – S.L. and S.A. – provide limited liability both to directors and shareholders. However, limited liability does not imply a complete protection for directors, so they must carefully consider their actions and, indeed, their failures, to act in order to avoid future liabilities. 

The disputes in which Fitzwilliamare instructed range from disagreements about how the company should be operated and managed, to claims involving serious allegations of dishonesty and misappropriation of company monies/assets. 

Quite often, in the case of family run businesses and smaller companies, the directors will be substantial shareholders of the company. This can easily explain why, more often than not, claims are issued by creditors instead of by shareholders. 

Director´s Duties 

Directors’ duties are codified in the Spanish Companies Act. The general duties are: 

  • Duty of Care 

Directors must exercise the same care, skill and diligence that would be exercised by a reasonably diligent person. The expected standard is measured against both objective and subjective yardsticks. A director’s actual understanding and abilities may not be enough if more care, skill and diligence could reasonably be expected of someone in his or her position. 

  • Duty of Loyalty 

Directors must act in accordance with the company’s constitution, and only exercise their powers for the purposes for which they were given. The company’s constitution includes its articles of association, resolutions and any shareholders agreements, if existing any. Further, Directors must also do their best to promote the success of the company and exercise an independent judgment. 

It should be noticed that the Spanish legislation extents such duties to shadow directors so that they are also considered for any wrongdoing. 

Breach of Director´s Duties 

 Wrongful Trading   

Wrongful trading often refers to the company “trading whilst insolvent. However, this is only half the story. Directors may find themselves personally liable for wrongful trading where, at some point in time, they should have concluded that the company would not be able to avoid insolvent liquidation but continued to trade. In those circumstances the director may be ordered, by the Court, to contribute to the assets of the company for the benefit of its creditors. 

De-Facto Closure of the Company 

Nevertheless, more and more frequently, creditors find that the company, instead of being purely insolvent, has simply vanished. In such cases, although the company is still validly registered, no financial statements have been filed for years, there are no signs of activity at the companies premises and there is absolutely no trace of the director or any shareholder whom to speak so to claim to take the steps necessary to satisfy credits. This unfortunate situation is known as a “De-Facto Closure”. 

Derivative Proceedings: the ultimate but comprehensive solution 

It is an elementary principle of company law that Director´s acting in breach of their duties become liable to whom they due such duties, that is to the shareholders and to the company itself. Thus, strictly speaking, where a wrong has been done to a company by the directors -such us depriving it of any solvency- only the company or the shareholders can sue for any damage caused. 

There are however some exceptions to this rule, permitting creditors to bring a derivative claim in cases such as the De-Facto Closure. A derivative claim, if certain requirements are met, will make the Directors directly liable to the creditors for every single debt of the company from the De-Facto Closure. Creditors therefore have a good, and last chance, to benefit directly from the proceedings, which are not limited by any amount whatsoever. 

However, creditors intending to issue a derivative claim against company directors must make all possible haste to issue proceedings before any other creditor seeks the Court’s assistance in order to declare the creditor´s bankruptcy. Thenceforth, every creditor shall respect the principle par condition creditorum and no single derivative action might be issued. 


The above is a brief example of how complex situations can be sort out by taking proper remedies. Of course, there are plenty more mechanisms which can be tailored to suit your specific circumstances. 

Contact us at Fitzwilliam Solicitors and our dedicated team in Spain will be pleased to analyse your case to design the best strategy to protect your interests. 

2017-12-30T18:07:40+00:00 22 November, 2017|

Spanish Dormant Companies: Director be Aware

Perhaps as a consequence of the financial crisis, or due to any other reasons, the truth is that more and more clients come to us regarding their Spanish dormant companies. Most of them, who had set up the Spanish company a decade ago, had almost forgotten about its existence. However, on any given day they receive a formal requirement from the Spanish Tax Authorities (“Hacienda”) threating them to become personally joint and severally liable for the company´s debt (i.e. the company have been subject to a Tax Audit) or alternatively they realise that the Companies Registry has been closed. 

The above scenario is increasingly more common and the outcome almost inevitable. 


Tax Audit 

Dormant companies have most frequently cease fulfilling their tax obligations in Spain. If discovered by a Tax Audit from Hacienda the company would become liable for paying the debt itself along with sanctions and delay interests. 

Further and most importantly, pursuant to Spanish legislation those who were directors as for the time of the company committing the tax offence, or even shareholders, might potentially become personally liable for payment of the Company tax debts. 

At Fitzwilliam Solicitors we have broad experience in defending clients in such proceedings, although it must be highlighted that the Spanish Tax Authorities are increasingly more reluctant to accept the director’s allegations and proper legal advice is required. 


Filing Annual Accounts 

The Spanish Companies Act requires Spanish companies to file annual accounts at the Companies Registry. It is not always appreciated that this requirement extends to companies which have been completely dormant from incorporation or have become dormant at some point. 

Late filing implies the closure of the Companies Registry page (preventing almost any event to be filed for that Company) and the imposition of penalties which now amount up to EUR 60,000.  Such penalties are becoming more frequent in the recent months. This is a particularly unwelcome cost for a company with no income and no bank account. 


Due Diligence Report 

In light of the above, it becomes critical for a dormant company shareholder or director to deal with any contingency whether regarding taxation or accountings. At Fitzwilliam Solicitors we stronglyadvise our clients to do so by instructing the performance of a complete Due Diligence. 

The term due diligence (DD) refers to a complete research and deep analysis of a company itself from different points of view. Outcomes of a DD are set out in Due Diligence Report which shows the existence of any contingency in the Company´s obligations and allowing the client to decide what needs to be done to regularise the situation of the same. In essence, a Due Diligence is aimed to reduce uncertainty in all aspects of the company or specifically in those related to a specific field, such as taxation. 

In particular, a most typical Due Diligence Report focusing on taxation and accountings will: 

  • Provide complete information about any taxation or accounting wrongdoing committed by the Company in the relevant period; 
  • Allow making any missing accountings from scratch so that they show the true picture of the company and is compliant with Spanish legislation requirements; 
  • Allow the re-file of annual accounts in the Companies Registry so as to re-open access to the same and hide the imposition of any penalties whatsoever; 
  • Evidence any tax wrongs committed by the Company, so that they can be regularised before the Spanish Tax Authorities issuing a Tax Audit. Benefits from voluntarily regularising tax wrongdoings before being requested to do so by Hacienda are numerous and extremely beneficial for taxpayers. This will be treated in further depth in a separate post; and 
  • Provide enough information so as to eventually dissolve and liquidate the company. 


The above is a brief example of how complex situations can be efficiently planned by taking proper advice. Of course, each case is unique and requires its own specific approach. At Fitzwilliam Solicitors we are proud to offer our clients tailored solutions to the specific matters they may face, whether they imply applying Spanish or English legislation. 


Contact us at Fitzwilliam Solicitors and our dedicated team in Spain will be pleased toanalyse your case in order to design the best strategy to protect your interests. 

2017-12-30T16:10:27+00:00 4 October, 2017|