Supreme Court refines approach to prohibition of financial assistance in Spanish capital companies

The Ruling 190/2025 of 6 February issued by the Spanish Supreme Court has highlighted the need to assess the specific circumstances of the case when declaring the nullity of acts involving financial assistance in capital companies. 

Financial assitance rules

In general terms, financial assistance includes any financial aid, understood in its broadest sense – money, loans, guarantees or equivalent transactions – granted by a company to a third party for the purpose of acquiring the company's own shares (or the shares of its parent company or the group, depending on whether it is an S.A (a public limited company) or an S.L.(a private limited company). This prohibition stems from European legislation, specifically from the Second Directive 77/91/EEC, the purpose of which is to preserve the integrity of the company's share capital and safeguard the interests of creditors and shareholders. 

This directive on the coordination of safeguards seeks to prohibit the use of the company's own assets to finance the acquisition of the shares of the company without any actual contribution of funds. Subsequently, Directive 2006/68/EC introduced the possibility of making this regime more flexible by allowing Member States to authorise certain transactions under strict conditions. So far, Spain has maintained a cautious position and has hold out the prospect of incorporating it.

The Spanish legislation regulating the prohibition of financial assistance is currently included in articles 143 and 150.1 of the Capital Companies Act LSC). These articles forbid these types of transactions, with only two limited exceptions for public limited companies: schemes to facilitate the purchase of shares by employees and the day-to-day operations carried out by credit institutions. In the absence of a specific civil penalty, article 6.3 of the Civil Code shall apply. This article establishes that any act which is contrary to mandatory rules shall be null and void.

Case law in Spain continues to maintain a broad and substantive concept of the financial assistance applicable to any transaction which, directly or indirectly, transfers the cost or risk of the acquisition by a third party to the company, thus establishing a link between the assistance and the acquisition. 

Case-by-case approach

However, the judges have moved from a more strict stage – where the guarantees, the funding and, in certain cases, the original acquisition of shares were almost automatically invalidated if they were deemed to be prohibited – towards a more case-by-case approach. They seek to preserve the original acquisition transaction, unless it is deemed to be invalid.

Likewise, it seems that the doctrine and the judges are, without relaxing the prohibition, adopting a more flexible approach in certain cases such as restructurings and leveraged buyouts, provided that those transactions are carried out in strict compliance with the legal requirements, the safeguard of the company's and the creditor's interests is ensured and the transparency of the transaction, the existence of a legitimate economic purpose and the absence of fraud or abuse of rights has been asserted.

Subject of the Supreme Court judgment

In its recent Ruling 190/2025, the Spanish Supreme Court refines the remedy and the scope in matters relating to financial assistance and avoids automatic responses in favour of rendering a case-by-case judgement. 

The dispute in this case started with an agreement between the shareholders of the company Eurohouse Gestión de Viviendas, SL, which intended to acquire 100% of the shares of the company Hotel El Hórreo SA. Eurohouse arranged two mortgage loans with Caja de Ahorros de Galicia to finance the purchase of two properties owned by Hotel El Hórreo. Hotel El Hórreo itself acted as the non-debtor mortgagor and encumbered the properties to secure the loans. 

However, the funds were not used to purchase the two mortgaged properties; instead, they were used to pay the price of 100% of the shares of Hotel El Hórreo to its former shareholders. Thus, Hotel El Hórreo ended up securing the funding of its own acquisition with the two properties. As the loans had not been repaid, the financial institution initiated mortgage enforcement proceedings in 2014. In 2017, Hotel El Hórreo sued Eurohouse and the financial entity, and  Hotel El Hórreo requested the  invalidity of the mortgage on the grounds that it constituted prohibited financial assistance.

The Court of First Instance and the Provincial Court dismissed the claim, and the Supreme Court confirmed the dismissal. 

The Supreme Court found that there was prohibited financial assistance. Hotel El Hórreo encumbered its assets to secure a third party debt, which was ultimately intended to finance the acquisition of its own shares. However, the court refused to render void the acts involving  the financial assistance.

It was not appropriate to annul the share purchase agreement and the financing agreement, as they were not challenged during the proceedings. Furthermore, the court refused to cancel the mortgages, for two main reasons.  

Firstly, the bank acted in good faith. It granted the loans for an apparently legitimate purpose, that is, the purchase of the two mortgaged properties – and was unaware of the diversion of the funds. Therefore, annulling the guarantee would cause the bank unjustified prejudice. 

Secondly, the nullity action was brought by the company itself, now controlled by the purchasing shareholders. The court had to ascertain the facts and tried to prevent that those who orchestrated the transaction could make use of the prohibition to take advantage for their own benefit. In short, the claim was abusive. The current shareholders of Hotel El Hórreo received the money with which they paid the price of the shares and, if the mortgage were annulled, they would keep the funds and release the properties from the encumbrance. 

The Supreme Court decided to dismiss the appeals and reject the nullity of the mortgages, maintaining the security against the financial institution because  it had acted in good faith. 

Osborne Clarke comment

The decision of the Supreme Court defines the case-by-case approach to financial assistance and moves it away from the notion of automatic nullity. The legal response must be aligned with the protective purpose of the rule. 

Furthermore, it reinforces the protection of third parties who are acting in good faith – in particular, the diligent financial institution that was not involved in the diversion of the funds. 

Finally, it underlines the relevance of asserting the facts and the proscription of unjust enrichment. The prohibition cannot be instrumentalised by those who design or benefit from a transaction to neutralize their obligations.