Last June 29, Royal Decree Law 5/2023 was published, adopting and extending certain measures, among which are the structural modifications of commercial companies, internal and cross-border, in relation to transformation, merger, spin-off and global assignment of assets and liabilities. This new Royal Decree Law repeals in its entirety Law 3/2009 (LME) on structural modifications of commercial companies.
The main difference with respect to Law 3/2009 lies in the fact that this new Royal Decree Law contemplates a general regime applicable to all structural modifications, gathering all those mentions that were common to the LME with respect to structural modification operations, also introducing a whole series of novelties, among which the following stand out:
- Structural modification project: the preparation of a structural modification project will be required for all structural modification operations, including transformation.
- Directors’ report: a section for partners and another for employees must be included and may be issued jointly as a single report or separately for each of the sections. However, if so agreed by the partners of the participating companies, their section of the report need not be issued.
- Report of an independent expert: the opinion of an expert on the adequacy of the cash compensation offered to shareholders who have the right to align their shares or holdings must be included. In addition, at the request of the directors, it may contain an assessment of the guarantees offered, if any, to creditors.
As a general rule, the expert’s report will be necessary in all the operations of structural modification, but, nevertheless, there are a series of assumptions in which it will not be necessary or will require nuances:
- In global transfers of assets and liabilities, it will be optional.
- In transformations, it will only be mandatory for transformations into Corporations or Limited Partnerships by shares, and the only purpose will be the valuation of non-monetary contributions.
- In cross-border mergers and spin-offs, it may be dispensed with if all the partners of the company so agree.
- Preparatory publicity: the administrators will have to publish on the company’s web page or, in case of not having one, to deposit it in the Mercantile Registry:
- The project of structural modification
- A notice informing the shareholders, creditors and representatives of the employees or, if there are none, the employees, so that they may submit observations to the company regarding the project.
- The independent expert’s report, when appropriate, excluding the confidential information contained therein.
- This publication shall not be required when the resolution has been adopted at a universal and unanimous meeting.
This publication shall not be required when the resolution has been adopted at a universal and unanimous meeting.
- Protection of shareholders:
o Right to align the shares or participations: the express recognition of the right of separation disappears and in its place a variant of this is included, recognizing the shareholders who vote against the agreement of structural modification the right to align the shares or participations in the cases of internal transformation (nationals), merger by absorption of a 90% owned company, as long as there are no reports from the administrator and experts, and in cross-border operations when the shareholders are subject to a foreign law.
o Challenge of the exchange ratio: it is still possible for shareholders to challenge the exchange ratio established in mergers and spin-offs, provided that they have not voted in favor of the approval of the merger agreement or do not have the right to vote. This right must be asserted before the Mercantile Court, instead of before the Mercantile Registrar.
– INTERNAL STRUCTURAL MODIFICATIONS
The novelties introduced by the new regulations within the framework of internal structural modifications are as follows:
- Special mergers: within the assumptions assimilated to the absorption of wholly-owned companies, the one in which the partners have an identical participation in all the merging companies is included.
- Leveraged merger: It will no longer be necessary, in the case of mergers subsequent to the acquisition of a company with indebtedness, for the expert report on the project to determine whether there is financial assistance.
- Segregation: When the segregation is carried out through the creation of new companies or in favor of wholly-owned companies, no report from the directors or any independent expert will be required.
The amendments incorporated in the above-mentioned cases relating to liability in the event of spin-off, special mergers and segregation, all of which are national, are aimed at unifying the regime established in the Mobility Directive for cross-border structural modifications.
– CROSS-BORDER STRUCTURAL MODIFICATIONS
One of the main novelties of this Royal Decree Law is the extension of the scope of the former LME, as it regulates intra-European and extra-European cross-border structural modifications:
- Transformation of capital companies incorporated in any Member State of the European Economic Area (intra-European) or outside it (extra-European) into companies subject to Spanish law and vice versa.
- Mergers, spin-offs and global transfers of assets and liabilities of capital companies incorporated in a Member State of the European Economic Area, when at least two of them are subject to the legislation of different Member States and one of them is subject to Spanish law.
- Mergers, spin-offs and global transfers of assets and liabilities involving capital companies incorporated in a State that is not part of the European Economic Area and one or more companies subject to Spanish law.
The general regime applicable to Spanish companies participating in cross-border structural modifications will be the general regime provided in the Royal Decree-Law for internal structural modifications, without prejudice to the specific provisions applicable in each case. In summary, the new regulation establishes the general obligation to comply with the legislation of the State of origin, insofar as it is applicable to the “participating” company prior to the transformation, merger, spin-off or global assignment. Likewise, to comply with the law of the State of destination, insofar as it is the law to which the resulting company is subject.
However, the figure of the “prior certificate” is incorporated as an instrument that controls compliance with all the necessary conditions and formalities, accrediting the legality of the transaction as regards the parts of the procedure that are subject to Spanish law. The prior certificate will be admitted (in the case of Spain) by the Mercantile Registrar within three months, although it may be delayed if the complexity of the transaction justifies it. This delay, for which no maximum period is established, is different from the three-month extension granted in the event that the Mercantile Registrar has well-founded suspicions that the transaction is being carried out for various abusive or fraudulent purposes. In such cases, the Commercial Registrar may also delay the applicable deadlines without any maximum time limit being stipulated. However, any delay in the established time limits must be notified to the company indicating the reasons for the delay. If it is clearly established that the transaction is being carried out for abusive or fraudulent purposes or with criminal intent, the Commercial Registrar may refuse to issue the pre-certificate and the company may appeal this decision before the Commercial Court.
The prior certificate will also be required of Spanish companies that participate in structural modifications with companies incorporated in States that are not part of the European Economic Area.
In fact, it is not a completely unknown figure because we already had precedents of certificates prior to the LME with the “pre-merger certification”, in the case of intra-Community cross-border mergers, and the “pre-transfer certification”, in the case of the former international transfer of the registered office, which was issued by the Commercial Registrar in view of the surplus data in the Register and in the deed filed, certifying the correct performance of the acts and formalities prior to each operation.
Within the framework of cross-border structural modifications, the main novelties, with regard to the protection of shareholders and creditors, are the following:
- Protection of shareholders: in all those cases in which a Spanish company must be subject to a foreign law, the shareholders may dispose of their shares or participations, provided that they have voted against the approval of the corresponding structural modification project. The partners of the merging Spanish companies or of the Spanish company being spun-off who do not have or have not exercised the right to align their shares or participations, but consider that the exchange ratio is not adequate, may challenge it and claim an effective payment.
- Protection of creditors: whenever a creditor has expressed its disagreement with the guarantees offered by the company and, if applicable, has filed a lawsuit, it will be recorded in the pre-certificate. In cases of cross-border conversion, creditors may sue the company in the courts of the company’s registered office in the State of origin for two years after the conversion has taken effect.
It should be noted that extra-European cross-border modifications do not form part of the scope of application of the Mobility Directive, so they have been incorporated unilaterally by the Spanish legislator taking advantage of the current regulatory situation. Their regulation follows the same structure as that of intra-European transactions, with some exceptions. For example, they cannot benefit from the interconnection between Mercantile Registries, so notifications will have to be carried out according to international registry cooperation practices.
This new Royal Decree Law entered into force thirty days after its publication on July 29, 2023. However, for structural modifications whose project has been approved by the companies involved prior to the entry into force of the Royal Decree Law, the previous regime, the LME, will continue to apply.
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