Delayed registration of the nature of an essential asset

Written on 26 Jul 2021

Without prejudice to the fact that the commercial legislation sets out the need for the general meeting to authorise the acquisition of assets that are essential in a company, the question arises, from a real estate viewpoint, of whether it is possible to register with the Land Registry the nature of the essential asset after the acquisition has been formalised.

Since the reform introduced by Law 31/2014, of 3 December, to improve corporate governance, article 160.f) of the Companies Act sets out that the general meeting needs to authorise the acquisitions and disposals of any assets that are a company's essential assets.

In practice, it could happen that the general meeting does not expressly approve a transaction and that the company's representative does not declare if the asset is essential to the company. The question arising is if the essential nature of such an asset can be registered with the Land Property and how. In this respect, the General Directorate of Judicial Security and Public Faith has set out or confirmed some of the criteria on this matter through its Resolution no. 7408\2021 of 13 April.

In the factual situation of this resolution, the Land Registrar refused to make an entry to indicate the essential nature of an asset in the acquired properties, which the acquirer company applied for through a request submitted in accordance with article 110 of the Mortgage Regulations. In this regard, it should be pointed out the entries of the acquisition were made, without the marginal note including their suspension because of a fault or remediable defect, consisting in the omission of the declaration of the essential nature of the acquired assets, given that, on the date in which the acquisition title was granted, the current wording of article 160 of the Companies Act, was not in force.

The Registrar considered that not only the rectification of the entry is sought through a private document (the request submitted under article 110 of the Mortgage Regulations) in which not all the grantors of the public deed take part, but also, through said private document, what was not classified as a remediable defect could not be amended, since it would require the corresponding public deed. The appellant, for his part, contends that the request submitted does not seek a rectification but is a complement to the deed of acquisition (something that, in some instances, would be allowed via a private document under the Mortgage Regulations).

According to the General Directorate of Legal Security and Public Faith (Dirección General de Seguridad Jurídica y Fe Pública), the lack of an express declaration in the title of acquisition as to whether an asset is essential or not, is not on its own a defect that prevents recording the title of acquisition in the Land Registry, since the third acquirer, acting in good faith, and without gross negligence, is also protected in these cases (see article 234.2 of the Companies Act, applicable in the event that the company's representative is exceeding his powers, deriving from a judgement of the Supreme Court and that, as stated by the General Directorate, has not been revoked by article 160.f) of said law).

The General Directorate of Legal Security and Public Faith had already manifested itself in the same way and, sometimes, with the same arguments. Its resolutions dated 11 June 2015, 26 June 2015, 8 July 2015, 22 November 2017, and, more recently, 18 June 2020 could be highlighted.

Also, and regarding the preventive legal security that is obtained with the registration of an essential asset, the General Directorate of Legal Security and Public Faith points out that article 160.f) of the Companies Act does not state this registry protection measure, unlike in other cases, such as the registration of the nature of usual residence of the mortgaged property. Additionally, the General Directorate points to the changing nature that the essential asset may have, and that any third party, in good faith, is not unprotected even without the approval of the general meeting.

In summary, even if it is usual to provide a certificate of approval from the general meeting or the sole shareholder (or otherwise declare that it is not an essential asset), as a result of the notarial control made when granting the deeds of acquisition of properties, article 18 of the Mortgage Act should be taken into account. This article limits the objective scope of the classification to "the legality of the extrinsic forms of all types of documents, by virtue of which the entry is requested, as well as the capacity of the grantors and the validity of the dispositive acts included in the public deeds". Thus, the omission of an express declaration in the title of acquisition concerning the nature of an essential asset does not necessarily prevent recording the title of acquisition in the Land Registry. However, the defect must be corrected through a public deed of amendment, since the request set out in article 110 of the Mortgage Regulations is not enough.