Legal Status - MAY 2026
M&A: Scope of the non-compete in M&A transactions
International: New European framework for the control of foreign investment: key changes
DISPUTES
The first year of the Alternative Dispute Resolution Mechanism (ADRM): Have they really worked?
ALEJANDRO CASAS
Partner
Organic Law 1/2025 came into force on 3 April 2025. This new law represents one of the most ambitious and significant procedural reforms in the Spanish civil justice system in recent years. This legislation has made Alternative Dispute Resolution Mechanisms (ADRM) a mandatory prerequisite, requiring the parties to demonstrate that they have attempted to reach a negotiated settlement before bringing most civil and commercial disputes.
The aim pursued by the legislator was clear: to promote the consensual resolution of disputes, reduce the volume of litigation and, in particular, ease the workload of courts that have traditionally been overwhelmed. However, after almost a year of practical application, ADRM has proven to generate as many uncertainties as expectations.
The first clear conclusion is that the law has led to a significant increase in pre-litigation negotiations. The parties involved in the dispute have almost automatically incorporated preliminary communications, settlement proposals and formal requests prior to filing a claim.
Another mechanism that has gained significant importance following the entry into force of Organic Law 1/2025 is the so-called confidential binding offer, particularly in monetary claims. This mechanism has begun to be used not only as a genuine means of negotiation, but also as a procedural strategy to shorten the time limit for filing a claim; consequently, the binding offer may become one of the most significant elements of the reform, pending clear consolidation in case law.
In both cases—whether it be an attempt at negotiation or a confidential binding offer—the traditional preliminary certified mail (burofax) has taken centre stage, becoming the most widely used tool for attempting to demonstrate compliance with this legal requirement.
This is precisely where one of the main practical problems arises: the disparity in judicial criteria regarding which means are valid for proving this prerequisite for bringing a claim. Various decisions by judges’ panels and court rulings have accepted, without too much difficulty, the use of certified mails, notarial deeds and certificates issued by neutral third parties such as mediators or conciliators.
However, the situation becomes considerably more complicated when attempts are made to provide evidence of prior negotiations via email, instant messaging services or simple certified mails. Whilst some courts consider any reliable form of communication that demonstrates a genuine intention to negotiate to be sufficient, others adopt a much stricter and more restrictive interpretation, requiring additional safeguards to ensure its authenticity and reliability.
This lack of consistency is creating significant legal uncertainty. At present, whether a claim is accepted for consideration can depend mostly on the specific interpretation of the court to which the case is assigned. Whilst some courts interpret the law from a flexible and purpose-oriented perspective, others apply an extremely formalistic approach.
The practical consequence has been immediate: many professionals have chosen to safeguard their claims in legal proceedings by systematically sending certified mails (with content certification and acknowledgement of receipt). In practice, the certified mail has become almost the standard for legal certainty to avoid claims being dismissed.
However, this situation has also given rise to some controversy, as it might be argued that the law has ended up promoting a mandatory preliminary formality rather than genuine negotiation. In many cases, the attempt to reach an agreement consists solely of sending a standard letter drafted by a solicitor, in which a willingness to settle may (or may not) be interpreted. The risk is clear: turning the ADRM into a mere bureaucratic formality prior to litigation.
Also, there is another significant problem: the rise in procedural issues linked exclusively to compliance with the admissibility requirement. The first few months of the rule’s implementation have been marked by differing interpretations and disputes regarding the adequacy of the attempt at negotiation, the appropriateness of the means used to conduct it, and the suitability of the documentation provided to effectively demonstrate the existence of genuine negotiation.
In practice, if a case is dismissed on procedural grounds due to a formal defect relating to the adequacy of the ADRM used, this leads, in the vast majority of cases, a new claim to be filed, as lodging an application for reconsideration with the same court usually results in its dismissal, with the consequent loss of time; this situation is considerably increased if an appeal is lodged with the relevant Provincial Court, even if the Provincial Court ultimately upholds the appeal and overturns the first-instance ruling.
Furthermore, a significant debate has arisen regarding whether the failure to evidence compliance with the ADRM, constitutes a remediable or non-remediable defect. While some courts allow the defect to be rectified by subsequently submitting the supporting documentation, others take the view that the absence of prior negotiation directly precludes the claim from being admitted. This disparity is giving rise to significant regional differences, which increase legal uncertainty and, in turn, lead to a rise in the number of appeals cases.
In any case, it would not be fair to say that the reform has failed. The Act has succeeded in introducing into the Spanish legal debate an idea that until now had seen little practical application: the need to seek agreed solutions before automatically resorting to litigation, as some disputes are indeed being resolved before reaching the courts. And it is perhaps here that this Act may have the greatest long-term impact: in changing mindsets and in the willingness of the parties to negotiate in sincerity.
However, it is also clear that the first year of the Act’s implementation has been characterised by a certain degree of interpretative improvisation and a lack of uniform criteria, with a high degree of procedural formalism perhaps being the most notable feature. The purported ‘culture of settlement’ still coexists with a strong litigious mindset and with the feeling that the legislator has shifted the responsibility onto lawyers and judges to clarify essential aspects that the law left insufficiently defined.
It is undoubtedly the Provincial Courts and, above all, the Supreme Court that will ultimately establish, over the coming years, a consistent body of case law regarding the true scope of ADRMs, the requirements for proving prior negotiation, and the procedural consequences of failing to meet those requirements.
Meanwhile, the practical message seems clear: given the current disparity of criteria, the certified mail remains, at least for now, the undisputed best way for ADRMs in Spain.
May 2026
M&A
Scope of the non-compete in M&A transactions
ALBERTO CHENLO
Associate
Non-compete agreements are common in M&A transactions. Their purpose is to protect the buyer by ensuring that, once the transaction is closed, the seller does not attract the customers for whom a price has been paid.
Essentially, the aim is to prevent the seller—who has in-depth knowledge of the business they have transferred—from competing directly or indirectly in the same market as the transferred business, using their knowledge to attract both former and new customers.
In this context, the Supreme Court has ruled in a recent judgment (STS 13/2026) on the interpretation of a non-compete included in an agreement for the sale of shares and equity interests and, consequently, on its potential breach by the seller.
I. Background
The case resolved by the Supreme Court stems from a common business situation: in 2006, a buyer (“Buyer”) and a seller (“Seller”) entered into an agreement for the sale of shares and equity interests (“SPA”), with deferred payment, in several companies (“Companies”) engaged in the manufacture and sale of clothing and uniforms.
The SPA contained a non-compete that affected the Seller and which, over time, became the subject of controversy.
The non-compete established a commitment by the Seller not to engage in activities that would constitute competition with respect to the Companies’ customers who:
i. would have been, or
ii. were,
customers during the period from 2004 to 2006 (until the signing of the SPA).
This non-compete was assumed both personally and through any intermediary companies or individuals. As the sole exception, the Seller was allowed to continue managing certain customers.
In the event of a breach of the non- compete, the Buyer would not be obligated to make the remaining payments corresponding to the deferred price, and the SPA would be terminated.
In 2013, the Buyer ceased to fulfill its obligation to pay the deferred price, alleging that the Seller had breached the non-compete by providing services to one of the Companies’ former customers.
In 2018, the Seller filed a lawsuit against the Buyer seeking full payment of the outstanding deferred price, arguing that the alleged breach of the non-compete (i.e., 2015) had occurred after the non-payment (i.e., 2013). In turn, the Buyer filed a counterclaim and sued the Seller for a breach of the non-compete, seeking termination of the SPA.
Both the trial court and the appellate court ruled in favor of the Seller, finding that there had been no breach of the non-compete for the reasons explained below.
II. Key Points
The Buyer argued that the appellate court’s ruling interpreted the non-compete illogically by holding that it applied only to customers with whom the Companies had maintained business relationships in 2004, 2005, and 2006, and furthermore, only if such a relationship remained in effect at the time the SPA was signed, that is, on May 2nd, 2006.
The Supreme Court upheld the interpretation made at the lower court level, reiterating that the customers to whom the non-compete applied were those who had been customers and, cumulatively, remained customers during the period between 2004 and 2006 (until the signing of the SPA), since it interpreted that the wording of the clause in question clearly expressed the requirement that both conditions be met.
The Buyer, along the same lines, argued that the appellate court’s ruling interpreted the non-compete illogically, in that it understood the agreement to apply only to customers who had maintained business relationships with the Companies during the aforementioned period, and not to the corporate groups to which those customers belonged.
In this regard, the Buyer alleged that the Seller had maintained business relations with the holding company of one of the Companies’ former customers, which, in its view, constituted a breach of the non- competition.
The Supreme Court upheld the lower court’s interpretation for the reasons set forth above 1(i.e., the subjective scope of the non- compete), as well as the finding that the agreement did not apply because the third party had never been a customer of the Companies.
III. Conclusions
i. Non-compete agreements are an essential tool in M&A transactions, the primary purpose of which is to protect the buyer against the seller potentially attracting customers once the business has been transferred, thereby preventing the seller from using the knowledge acquired to compete directly or indirectly with the transferred business.
ii. Defining the scope of non-compete agreements is crucial for its correct interpretation, and strict adherence to the contractual wording is required, especially when its application is contingent upon the cumulative fulfillment of certain requirements.
iii. Although the subject of the dispute concerned the subjective scope of the non-compete, the drafting of such clauses requires consideration of aspects such as their temporal and territorial scope. In this regard, it is advisable to define both the term and the territory affected by the non- compete in an appropriate and reasonable manner, since its term cannot be indefinite or excessively broad, and the geographic scope should be limited to those territories in which the buyer has commercial interests linked to the acquired business.
May 2026
INTERNATIONAL
New European framework for the control of foreign investment: key changes
MANUEL ARMADA
Associate
Analysis of the agreement reached in December 2025 between the EU institutions to replace Regulation (EU) 2019/452
On 11 December 2025, the European institutions reached a political agreement to update the foreign direct investment control regime that has been in force since the adoption of Regulation (EU) 2019/452. The new text — still pending formal approval by the Council and the European Parliament — will enter into force with a transitional period of eighteen months from its publication in the Official Journal of the European Union, making it effective, as expected, between late 2027 and early 2028
The new regulation has three key objectives: to broaden the scope of the legislation to identify investments that have so far escaped regulation, to harmonise national authorisation procedures, and to strengthen cooperation mechanisms between Member States and the European Commission.
Expansion of the subjective scope: indirect investments and effectual beneficiary
One of the most frequently cited shortcomings of Regulation 2019/452 was its failure to identify so-called indirect investments: those made through subsidiaries established in the European Union but ultimately controlled by an investor based outside it. The Court of Justice confirmed this limitation in the Xella case "C-106/22", ruling that the regulation applied only to investments made directly by third-country investors, leaving intermediary structures outside its scope.
The new regulations close this loophole by introducing the concept of beneficial owner, so as to include natural persons who, directly or indirectly, own or control the foreign investor, ultimately benefit from the investment, or on whose behalf control over the investment is exercised. In practice, this extension means that the analysis of the investor’s control structure must be traced back to identify the natural persons or entities exercising decisive influence over the transaction, irrespective of the complexity of the vehicle employed.
The text expressly clarifies that certain internal group restructurings, including certain intra-group mergers, as well as purely financial investments—known as portfolio investments—made without the intention of influencing management, fall outside the scope of the new regulation. Similarly, certain transactions in which effective control over the target company is not acquired are excluded. However, the proposal does not provide for a specific exclusion for transactions carried out within the framework of bank or insurance resolution mechanisms, a sector which is, in fact, affected by the new supervisory obligations.
Sectors subject to mandatory supervision
Unlike the 2019 sectoral list, which was merely indicative, the new regulation establishes a list of sectors subject to mandatory notification for all Member States. Jurisdictions that already have established prior authorisation regimes — such as Spain, whose framework is regulated by Royal Decree 571/2023 on foreign investment — should not, in principle, experience any substantial changes with regard to the scope of control. The most significant change stems from the greater detail with which the new text defines certain critical technologies in its annexes.
As an example, in the field of artificial intelligence, not all applications are subject to prior control without distinction, but only those activities involving the production, research or development of models with applications in the space or defence sectors, as well as models that present a systemic risk. This greater precision helps to reduce the interpretative uncertainty that the broad scope of the concept of ‘critical technology’ had generated in practice for investors and advisers.
Harmonisation of procedures and the law of call-in
The new regulation introduces a two-stage procedural framework, similar to that used for merger control: an initial phase of up to 45 calendar days for the preliminary analysis, followed by an in-depth investigation, the development and duration of which will be subject to the applicable national legislation. This change will have a direct impact on the Spanish procedure, which currently provides for a single three-month preliminary investigation phase.
However, the change that will have the greatest practical impact on the legal security of transactions is the obligation to establish a call-in mechanism: the faculty of the competent authority to review, on an ex post basis, investments that have already been made but were not subject to prior notification. According to the draft text currently available, the time limit for exercising this power may not be less than fifteen months nor more than five years from the closing of the transaction. Given this scenario, it is likely that market participants will increasingly opt for voluntary notification as a precautionary measure, in order to obtain an authorisation decision — or a decision of non-applicability —to bring the review period to a close.
Although the full implementation of this new framework is subject to a transitional period of 15–18 months following its final adoption, its future implementation will mark a paradigm shift in the regulation of transactions within the European Union’s internal market. With a mandatory authorisation system for key sectors and substantially stricter ex-post review mechanisms, regulatory foresight becomes a strategic imperative. Anyone designing an investment transaction in the European Union today must do so with this new scenario in mind, ensuring that current transactions are fully compatible with the future European control framework.
May 2026
*These articles do not constitute legal advice.