Legal and statutory limitations to the transfer of shares in the context of structural modifications

Written on 23 Mar 2016

What procedure should be followed to guarantee the full efficiency of the transfer of shares, when the change in ownership is due to a restructuring process governed by the Structural Modifications Law?

Royal Decree 1/2010, of 2 July, by means of which the consolidated text of the Companies Law (the “Companies Law“) is approved, sets out the rules for inter vivos, mortis causa and forced transfers of shares in limited liability companies. Also, it is usual to reproduce this regulation in the articles of association of a company. Therefore, the validity and efficiency of the transfer of shares is subject to the fulfilment of these legal and/or statutory provisions

On the other hand, Law 3/2009, of 3 April, on Structural Modifications of Companies (the “Structural Modifications Law“) regulates certain transactions that, due to their nature and significance, benefit from a special procedure by which the assets and liabilities of a company are transferred to another through “universal succession”. This means that, unless otherwise agreed, the requirements of the individual transfer of each of the items forming the assets and liabilities object of the transfer need not be fulfilled.

As a result of the above, a conflict of both rules arises in those transactions regulated in the Structural Modifications Law and which involve a transfer of shares. When this occurs a prevailing regulation should be chosen:

  • Companies Law: A major part of the doctrine considers that transactions regulated under the Structural Modifications Law are inter vivos. Therefore, if transfers of shares are included in any of these transactions, they must be subject to the fulfilment of any legal and/or statutory provisions governing such specific transfer of shares. This conclusion is supported by the idea that those limitations to the transfer of shares are specifically set out in order to limit the entrance of third parties in a company’s share capital.
  • Structural Modifications Law: Another sector of the doctrine deems that universal succession should be the main procedure of any transaction regulated in the Structural Modifications Law. So that, unless a specific and exact regulation related to this issue is expressly set out in the articles of association, said transactions should not be governed by the provisions set out for the individual transfer of the assets and liabilities object of the transfer.

The truth is that the legislator has regulated, in a particular way, the traditional procedures by which shares are transferred (inter vivos, mortis causa and forced transfers of shares) but has ignored, in multiple amendments to the Companies Law, the regulations of the transfer of shares as a result of transactions regulated under the Structural Modifications Law. Taking into account that, the object of the latter is none other than establishing a new system that makes easier the transfer of the entire or part of the assets and liabilities among companies, by means of the mentioned universal succession

Also, up to the date of this article, the courts has not conveyed in an express, clear and brief way how to proceed in these situations. This was made clear in a recent judgement issued by the Provincial Court (Audiencia Provincial) of Madrid on 23 October 2015, by which the court avoided, expressly and voluntarily, evaluating which rule should prevail. However, the Provincial Court used the principle of consumption (principio de consunción) to resolve the case, in which there was a conflict between the regulations (specifically the Companies Law, the Structural Modifications Law and the Spanish Civil Code) and the interests being judged operated at different levels. In accordance with this principle, the rule that should be considered is the one taking into account the full value that the legal system pretends to maintain in relation to a specific de facto assumption, before considering the rule that only partially protects said value.

In view of the above, it is clear that, at present, to address the initial question an ad hoc analysis should be carried out for each of scenario in which a transfer of shares takes place as a result of a transaction regulated in the Structural Modifications Law, as this is a contentious issue.