What to look out for in Spanish transactions involving material assets

Article 160(f) of the Spanish Companies Act confers on the general meeting of shareholders, and not on the management body of the company, the power to approve transactions involving material assets as they can have a major impact on the company.

There are a number of key issues to look out for regarding good corporate governance of corporations that often go unnoticed. One of these issues is the approval of the acquisition, disposal or contribution of material assets by the shareholders in a general meeting. This issue, which can be regarded as a matter falling within the scope of competence of the management of the company, can be complex and, if not properly analysed and implemented, can jeopardise both the validity of the transaction and its efficient and timely implementation.

Article 160(f) of the Companies Act has raised many questions among companies governing bodies, notaries, registrars and judges who have to apply the doctrine as to its interpretation and practical implementation. What is considered an essential asset? What type of transactions are affected? How can it influence notaries when they have to document these transactions in a public deed or registrars when they have to register them? And what would be the consequences of carrying out this transaction if it has not been approved by the shareholders at a general meeting?

There are already judicial and administrative pronouncements on this matter, which, together with the contributions of the scientific doctrine, provide the keys to understanding and correctly applying this legislative article.

How to know if an asset is material or not

Under article 160(f) of the Companies Act, an asset is presumed to be material when the amount of the transaction exceeds 25% of the value of the total assets according to the last balance sheet approved.

Yet this quantitative criterion is not the only one that should be borne in mind. A qualitative criterion needs also to be taken into account (judgment 1045/2023 of the Supreme Court, dated 27 June, judgment 559/2022 of the Provincial Court of Salamanca, dated 6 September and judgment 418/2021 of the Provincial Court of Madrid, dated 3 November).

In other words, it must be considered if the transaction as a whole will substantially affect the legal and economic position of the shareholders or the legal and economic structure or activity of the company. It also needs to be considered whether the implications of this decision will produce results equivalent to those of other resolutions that typically fall within the scope of the competences of the general shareholders' meeting (such as structural modifications, significant amendments to the articles of association or the liquidation of the company). 

Therefore, in doubtful cases, analysis should always be carried out on the impact that the operation will have on the company's activity and corporate purpose, as well as on the shareholders' interest, before and after the operation is to be carried out: "essential assets would be those without which the company cannot continue carrying out the activity that constitutes its corporate purpose". 

Type of transactions affected

Article 160(f) applies both to transactions in which assets are disposed of or contributed to another company and those in which the company acquires those assets.

However, the purpose of article 160(f) is to also cover the cases of "subsidiarisation" and indirect performance of the activities included in the corporate purpose. It also includes operations leading to the dissolution and liquidation of the company; operations that entail a substantial change in the company's purpose or its substitution; and operations that due to their significance are comparable to a structural change in the company or a significant amendment of the company's articles of association.

Are financing transactions included?

The Supreme Court has established that financing transactions are not included in article 160(f) unless they involve, by way of guarantee, the disposal of material assets of the company (judgment 1045/2023 of the Supreme Court, dated 27 June). 

In addition, the Supreme Court has pointed out that financing transactions that are part of the ordinary management of the company or aimed at obtaining resources to carry out the company's business may be approved by the management body. Only those financing transactions that could jeopardise the company's viability or substantially modify the conduct of the business or the legal and economic position of the shareholders would require the approval of the shareholders in a general meeting.

Actions of notaries and registrars

In accordance with the doctrine of the Directorate General for Legal Security and Public Faith (Dirección General de Seguridad Jurídica y Fe Pública), (among many others, resolutions dated 19 July 2021 and 6 September 2023), if the material nature of the asset has been stated, the notary cannot authorise the deed that formalises the transaction unless sufficient evidence that the transaction has been approved by the shareholders at a general meeting is submitted (for example, by attaching the corresponding certificate of the resolution to the deed).

There is also no obligation to provide a certificate or a statement from a director (or the company's representative) confirming that the asset which is the object of the transaction documented in a public deed is not a material asset.

The omission of this express statement does not in itself constitute a defect that prevents registration.

And, in any event, the registrar may conclude the material nature of the asset when this is manifestly evident or when it is clear from the elements available in his or her examination.

Consequences of infringement

Would a transaction involving a material asset be valid without it being approved by the shareholders at the general meeting?

This is a much-debated question: one doctrinal sector argues that it would be valid in order to protect the security of legal transactions and bona fide third parties, while another argues that a transaction carried out by the directors without having been approved by the shareholders at the general meeting would be null and void and, thus, ineffective vis-à-vis third parties because it violates a mandatory legal rule of distribution of powers.

So far, judicial resolutions on this matter are scarce and have been issued by the provincial courts. For example, the Provincial Court of Salamanca ruled in favour of the nullity of the transaction for breach of the mandatary rule of article 160(f) and on the grounds that the interest of shareholders shall prevail over those of third parties, regardless of whether they have acted in good or bad faith (judgment dated 6 September 2022).

It remains to be seen which way the Supreme Court will rule. 

Osborne Clarke comment

We recommend analysing carefully how an acquisition, disposal or contribution of assets or a financing operation could affect the company's activity and corporate purpose as well as the interest of shareholders before carrying out any transaction.

It is essential that article 160(f) of the Companies Act is correctly understood and properly implemented in order to avoid potential nullity sanctions. In addition, where applicable, it is crucial to arrange a shareholders' meeting as far in advance as possible in order to obtain the shareholders' approval and, thus, avoid delays or blockages when formalising the transaction before a notary.