Tag Archives: General Meeting

man-1071773_640

The representation at the general shareholders meeting of Spanish Limited Companies: The execution of a POA to manage all assets in Spain

Article 183 of the Spanish Corporate Enterprises Act (“Texto Refundido de la Ley de Sociedades de Capital”, hereinafter “LSC”) sets out the voluntary representation at the General Shareholder’s Meeting of the Limited Liability Company.

The article begins by listing who can represent the shareholder at the General Meeting. Specifically, the shareholders can be represented by another shareholder, the ascendant or descendant and by another member or person holding power of attorney granted in a public deed with powers to manage all the assets of the grantor/shareholder in Spain.

Said wording of the LSC anticipates as usual that Spanish Limited Companies are composed by a few shareholders, who in addition have family or friendship ties. Consequently, shareholders are not willing to let any person who is not part of their inner circle attend the General Shareholder’s Meeting.

In our opinion, this rule makes more difficult today’s common business practice for shareholders of Spanish Limited Companies, who are companies, to be represented by a third person employed in their internal corporate structure (v.gr. project manager, finance director, legal in house, etc.) or even by external lawyers. The reason why we think this legal provision is obsolete and should be removed is that the power of attorney to be granted to this representative natural person must be so wide as to allow the legal agent to manage all assets of the grantor in Spain. Even a general power of attorney for representation at Shareholder’s Meetings would not suffice for a valid representation of the Grantor.

Unfortunately, not only international trade is affected, but also domestic trade. In the event that a shareholder cannot attend a Shareholder’s Meeting and wants a third party to attend in on his behalf, and the requirements of article 183 LSC are not fulfilled, the agreements adopted may be null.

The discussion has supporters and detractors.

On the one hand, the General Directorate of Registries and Notaries (Dirección General de Registros y del Notariado, hereinafter, “DGRN”), has relaxed the abovementioned requirements, understanding that a power with broad faculties could be enough to attend and vote at Shareholder’s Meetings (RDGRN de 20 de octubre de 1992 [RJ 1992, 8575] y RDGRN de 10 de mayo de 1994 [RJ 1994, 4085]).

On the other hand, the case law has been inflexible and has defended the strict requirement of formality described (Judgement of the District Court (hereinafter, “SAP”) of La Coruña, Sec. 4ª, 26th october 2011; SAP Alicante, Sec. 8ª, 13th July 2005; SAP Barcelona, Sec. 15ª, 11th January 2008; SAP Madrid, Sec. 10ª, 17th October 2005).

Due to the split of views and interpretations, the Supreme Court has passed the Sentence of 15th April 2014, supporting the interpretation of the case law.

The truth is that this formal requirement is excessive and hampers business without reasonable cause, especially in a globalized and constantly changing world.

conference-595853_1280

Impact of reform of the Corporate Enterprises Act on the General Meeting

Last December 3rd, Law 31/2014 amending the Corporate Enterprises Act (hereinafter the “CEA”) to improve corporate governance was approved, subsequently entering into force on December 24. The main objective of the reform is to enhance transparency and good practices in the governing bodies of companies in order to achieve effective improvement of the corporate governance of companies, as well as greater efficiency in their management and administration.

In this information note we will focus on the changes affecting the General Meeting of non-listed companies.

Increased Powers of the General Meeting

        • The General Meeting of Joint Stock Companies (hereinafter, “JSC”) can now intervene in the management affairs of the company, a power previously reserved only to Limited Liability Companies (hereinafter, “LLC”).
        • The General Meeting will now have the power to take decisions on the acquisition, disposal, or transfer to another company of essential assets (an asset will be considered as essential when the amount of the transaction exceeds 25% of the value of the assets appearing on the last balance sheet approved).

 

Resolution of Conflicts of Interest

      • The primary aim of the reform in this area is to protect the company’s corporate interest, a concept which is expanded, as we will see below.
      • The reform extends to the JSC the prohibition against the exercise of voting rights by an affected shareholder where there is a transfer of shares subject to a legal or statutory restriction, expulsion of shareholders, release from obligations or the granting of rights, financial assistance or waiver of the duty of loyalty.
      • With the exception of the cases mentioned in the foregoing section, it is possible for shareholders to exercise voting rights in situations of conflict of interest, however, when those votes have been decisive for adoption of a resolution which is subsequently challenged, the shareholders having a conflict of interest bear the burden of proof. Those who challenge the resolution adopted must prove the existence of actual damage suffered by the company.

   Voting system

      • A clarification regarding majorities in JSC companies is introduced. The concept of “simple majority” (when there are more votes in favor than against, of the shareholders present in person or by proxy) substitutes that of “ordinary majority” which has been used until now
      • Obligation to have a separate vote on matters dealt with during the meeting that are deemed to be “substantially independent”. For this reason, it is convenient to separate resolutions of this type under different items of the agenda, in order to avoid distorting the vote. In any event, the appointment, ratification, reelection or removal of a director, as well as the amendment of different articles or groups of articles of the by-laws, and any other matter stipulated in the by-laws, must be voted on separately.

Exercise of the right to information

      • One of the main objectives of this reform is to avoid damage to corporate interests and, in view of this, the exercise of the right to information is defined in more detail. There is now no obligation to comply with the right to information not only in those cases in which corporate damage may be caused, but also when the information is not considered as necessary for the protection of shareholders’ rights, or the information could be used for non-company purposes. Consequently, the shareholder will be liable for damages caused by use of the information in a prejudicial or inappropriate manner.
      • The determination of whether or not the information needs to be provided will now be made by the directors of the company and not by the chairperson of the general meeting.

Challenging Corporate Resolutions

      • Changes introduced in this area aim to comply with the principle of preservation of corporate resolutions
      • Consistent with the previous paragraph regarding the right to information, the cases in which resolutions may be challenged on the basis of lack of information are limited, and some additional cases are established, for example, the non-decisive participation of unauthorized persons in the meeting (articles 204.2 and 204.3).
      • The former distinction between acts which are null and void and acts which are voidable disappears (from now on there are only “challengeable acts”), and therefore, the different time limits for challenging resolutions also disappear, and are replaced by a single time limit of one year. An exception is made in the case of resolutions contrary to public policy, which will not be time-barred.
      • The concept of “damage to corporate interest” is broadened (and now includes abusive agreements which are prejudicial to the minority, even if they cause no material damage to the company), since it is no longer necessary to prove material damage in order to establish a claim.
      • Requirement for shareholders to hold 1% of share capital to be able to exercise the right to challenge challengeable acts, but no percentage holding required to challenge resolutions contrary to public policy.
      • To challenge resolutions of the board of directors or any other collegiate governing body, shareholders must hold 1% of the share capital (previously, it was 5%)