Transactions February 2017
By Tania Otero
By Florencia Arrébola
Non-distribution of dividends reopens the exit door of non-controlling partners in unlisted companies
Article 348 Bis LSC regulating the resignation right of partners or shareholders due to non-distribution of dividends of an unlisted company has become effective again on 1 January 2017.
Such precept was incorporated by means of Act 25/2011, of 1 August, of partial reform of the Capital Companies Act, and from its very begging it raised controversies since it was adopted during the economic crisis when companies were dealing with difficulties in distributing dividends. Such Act established the resignation right in cases of oppression as a right of partners to obtain dividends, which would not depend on the general meeting’s resolution and whose violation would be compensated with a resignation right.
In view of the prevailing economic crisis situation, the government introduced two moratoria in the application of such precept, the first one until 2014 and the second one until 31 December 2016, thus the act becoming finally in force again on 1 January 2017.
It is worth mentioning that the suspension of such article must be understood as a material suspension, i.e., such suspension may not have retroactive effects, thus protecting the rights acquired during the suspension.
Article 348 Bis LSC allows such non-controlling partners who may have voted in favour of the distribution of the corporate profits (…)
Article 348 Bis LSC allows such non-controlling partners who may have voted in favour of the distribution of the corporate profits from the operation of the corporate purpose in the resolution to approve the profit for the year, to exercise their resignation right, provided that certain requirements are also fulfilled:
i. It is not a listed company.
ii. The company has been, at least, 5 years registered with the Companies Registry, date that shall be calculated as of the registration date rather than the incorporation date of the company. Therefore, the decision of distribution shall be taken in the sixth year.
iii. The general meeting has agreed upon the distribution of dividends of at least a third of the profits from the operation of the corporate purpose obtained during the previous year.
iv. Such dividends are legally distributable.
v. The right is exercised within a term of one month as of the date of the meeting to approve the annual accounts and the distribution of results.
Therefore, article 348 Bis LSC obliges companies of more than 5 years of existence to distribute all legally possible dividends or otherwise the non-controlling partners could require the company the purchase of its stakes by exercising its resignation right.
In respect to the exercise of the resignation right, the common proceeding of resignation and exclusion of partners shall apply, whereby the partner exercising its resignation right shall be entitled to obtain the fair value of its shares or stakes as the price for the ones acquired by the company or as reimbursement of those amortized. The fair value of shares/stakes shall be determined, in the absence of agreement between the partners and the company on the value thereof or on the person to assess it, by an independent expert designated by the Companies Registrar of the registered offices of the company. Within a maximum term of two months, the independent expert shall issue a report, which shall be notified by notarial means to the company and the partners affected. Remuneration of the independent expert shall be borne by the company. Then, after two months as of the receipt of the assessment report, the affected partners shall be entitled to obtain at the registered offices the fair value of their shares/stakes.
(…) the partner exercising its resignation right shall be entitled to obtain the fair value of its shares or stakes (…)
The origin of this precept is to prevent the controlling majorities of a company from imposing a zero distribution of dividends policy in the company, thus disadvantaging the non-controlling partners while the controlling partners would obtain profits from other revenues resulting from holding positions as executives or directors in the company or other related contracts.
However, we must also take into account that such article could damage such companies undergoing financial or cash hardship when allowing a capital depletion under the distribution of dividends, which could contravene the company interest in some cases and damage the company creditors in the benefit of recognizing an individual right of partners to such dividends.
Article 93 of the LSC recognises the right to share the company profits but also article 273 LSC assigns the general meeting the authority to decide on the distribution of the result obtained. Consequently, partners have an abstract right to dividends and only upon the general meeting approving their distribution, the specific right arises as a credit right of partners to receive a specified amount.
We should think about whether article 348 Bis LSC is a waivable right or not, i.e., if such right could be removed or modified under the by-laws. A segment of the doctrine understands that such right, as a right of minorities, cannot be abstractly waived, since any regulation of the right to leave the company due to oppression should be imperative. However, another segment understands that such right cannot be established as a foundation principle of capital companies, since there is no oppression in all resolutions to reinvest profits, but some of them are however justified by other particular economic circumstances of the company. Consequently, the removal or modulation of the resignation right of non-controlling partners under the by-laws is an issue that raises, at least, doubts about its practical application.
As a consequence thereof, resurrection of the disputed article 348 Bis LSC has raised discussions within the legal sector, some experts arguing that it could lead to an increase in the purchase of non-controlling stakes in unlisted companies and others that litigation between partners would be aggravated. To be able to analyse these effects, we will have to wait for the results of the next general shareholders’ meetings with the consequent possibility that non-controlling shareholders may claim the distribution of dividends.
Unfair terms in contracts between entrepreneurs or professionals
Several judgments have recently clarified an issue that had been differently resolved up to date and which created legal uncertainty on whether the transparency control could be applied to contracts entered into by entrepreneurs or professionals. Finally, it has been established that such control is only applicable to contracts entered into with consumers and that the nullity declaration of a clause signed with entrepreneurs or professionals shall be subject to the incorporation control of general terms of contracting.
On the one side, the Supreme Court (TS) in its Judgment dated 3 June 2016 develops the general doctrine on the control of the general contracting terms in contracts entered into with entrepreneurs or professionals. Then, to determine the existence of any unfair term in contracts with entrepreneurs or professionals, we shall resort to the principles of good faith and fair balance of provisions. The requirement of the contractual good faith as a way to determine the unfair nature of a clause between entrepreneurs or professionals is founded on articles 1258 of the Civil Code and 57 of the Code of Commerce, which establish that such terms implying an unbalance of the contractual position of the adhering party must be considered contrary to law, i.e., such clauses that covertly modify the contents of the contract which the adhering party could have implied considering the nature and functionality thereof.
Moreover, the TS in its judgment of 9 May 2013, clarifies that the incorporation control of general terms of contracting encompasses any contractual clause, regardless of whether the adhering party is the consumer or the entrepreneur. Under such control, the wording of clauses must adjust to criteria of transparency, clarity, accuracy and simplicity.
The requirement of the contractual good faith as a way to determine the unfair nature of a clause (…)
Additionally, the control aimed at evaluating the grammatical understanding and perceptibility or legibility of the clause in question under articles 5.5 and 7 of the Act on General Terms of Contracting, is also applicable both to contracting with consumers and with entrepreneurs or professionals.
On the other side, contrary to the aforementioned controls, the TS clarifies that the control of unfair terms must be limited to contracting with consumers, since such control goes a step further when requiring that clauses must not unexpectedly imply an alteration of the purpose of the contract or the economic balance on the price and the provision may pass unnoticed by the average adhering party. The adhering party must know the legal and economic charge of the clause. This lack of transparency could imply the unfairness of the clause to the extent it prevents the consumer from comparing between the market offers and avoids a real representation of the economic impact implied by a clause.
Such control is limited to contracts entered into with consumers and not entrepreneurs or professionals, which are only applicable the control of ordinary incorporation of grammatical clarity and legibility. The TS upholds that the approach between transparency and unfairness is the one that prevents the transparency control in contracts where the adhering party is not the consumer in legal terms.
We should remind the circumstances where a tribunal may consider lack of transparency in a clause:
i. Lack of sufficient information that it is a defining element of the contract.
ii. They are inserted pretending to be reciprocal.
iii. There are no simulations of different scenarios.
iv. There is no prior and clear information comparing other modalities of loan of the entity.
v. They are located among many other details which make them unnoticeable.
There are also bank clauses, such as floor clauses, which could be understand as unfair. In this sense, the Supreme Court in its recent judgment on 3 February 2017 has clarified that the surprising nature of a floor clause could be determined in a mortgage-secured loan agreement, such clauses being as those that considering the circumstances and nature of the contract are so unusual that the adhering party could have not reasonably noticed them, linked to the abuse of a dominant position given the easiness to include as a general term of the contract clauses that alter the nature and contents thereof. Pursuant to the TS, a clause may be established to be surprising when the information provided has not been correct and also the diligence of the adhering party to know the economic and legal consequences of the contract must be evaluated, considering the circumstances of the entrepreneur or professional, the turnover, structure, experience and specific knowledge on the purpose of the contract. Although the TS does not apply in this Judgment the surprising clauses criterion, such consideration could be estimated in other cases when contracting with entrepreneurs or professionals.
Pursuant to the TS, a clause may be established to be surprising when the information provided has not been correct (…)
Such Judgment has also a dissenting vote of one of the senior judges, who dissents this case law doctrine and understands that the legal concept of transparency, as a general legal principle, also applies to contracting between entrepreneurs, since such control must be understood as the reaction of the legal regulations against unfair terms. For this reason, the condition of consumer or entrepreneur should irrelevant, provided that it has acted as a mere adhering party without the possibility to have negotiated the clause considered as unfair.
After the analysis of the court rulings and particularly the study of judgment of 3 February 2017, we understand that the position of Judgment of 9 May 2013 is confirmed when deciding that the transparency control and unfairness is reserved to contracts in which the adhering party acts as consumer, such control not being applicable to contracts where the adhering party acts as entrepreneur or professional.