Article 160 f) of the Corporations Act (Ley de Sociedades de Capital –LSC), introduced by Law 31/2014, of 3 December, amending the Law on Corporations for the enhancement of corporate governance, expressly gives the general meetings of corporations exclusive power to deliberate on and approve the acquisition, disposal and transfer of critical assets to other companies. This provision becomes applicable upon establishing the presumption of the critical nature of the asset when the transaction amounts to more than 25% of the value of the assets included in the company’s last approved balance sheet.

The reform also introduced a similar rule for listed companies in Article 511 bis LSC, which, in addition to the transactions mentioned in Article 160 f) LSC, gives the general meeting exclusive power over the transfer to subsidiaries of critical assets held until that time by the company itself, even when the company retains full ownership of them; transactions which effectively represent the liquidation of the company; and the remuneration policy for directors pursuant to the terms established by law. In this case as well, the critical nature of the activities and of the operational assets is presumed when the transaction involves an amount greater than 25% of total balance sheet assets.

It seems to be generally agreed that the presumption contained in both articles is a rebuttable presumption, and, as such, is deemed true unless proven otherwise. Similarly, it is an increasingly accepted view that, except for the terms related to the remuneration policy, listed companies are not a special case; rather, Article 511 bis LSC, points a) and b), includes typical examples of transactions involving critical assets covered in general by 160 f) LSC, suggesting that the two laws should be interpreted jointly.

However, these articles are arousing numerous doubts with respect to the scope of their application, the legal framework to which certain transactions are subject, and the consequences in the event of non-compliance. There is thus debate among the authors who have addressed this issue, mainly regarding which transactions require a general meeting resolution, what kinds of majority are necessary for the adoption of such a resolution, and what effects the absence of a resolution has on third parties who enter into contracts with the directors in good faith.

The doctrine of the Directorate General of Registries and Notaries

In this context, the Directorate General of Registries and Notaries has already had to rule on the scope of Article 160 f) LSC, and specifically on the role to be played by notaries and registrars in monitoring compliance with it. Examples can be found in the resolutions by this authority on 11 and 26 June (on the second date there are three resolutions); on 8, 10 and 27 July (on the last date there are two resolutions); and on 28 and 29 July 2015.

In all cases the registrar had denied registrations of assignments or transfers of assets, and in one case of the establishment of a mortgage, because there was no record of authorisation by the general meeting or, otherwise, of a statement by the directors that the assets subject to the transactions were not critical. In all these cases, however, the Directorate General admitted the appeal filed by the notaries that had publicly registered the transaction.

The arguments put forward by the notaries varied from case to case: that the new regulation does not represent the assignment of a new substantive responsibility upon the general meeting, as the change would only have internal effects; that the transaction fell fully within the sphere of the corporate purpose; that the transactions concerned were ordinary administrative actions of the company; or that the other party to the transaction was not a different company.

The Directorate General, however, gave practically the same legal grounds in all cases. And although it understood that the notary could require the certification of the resolution of the general meeting or the directors’ declaration on the non-critical nature of the assets, it asserted that this declaration could not be deemed an essential requirement for registration of the transaction.

In fact, all but the first of the resolutions cited above include a paragraph by way of summary which reads exactly as follows: there is no obligation to provide a certificate or an express declaration by the director that the asset subject to the undocumented transaction is not critical.’

Other considerations made by the Directorate General 

Although it was not strictly necessary to resolve the issue, the Directorate General also gave the following opinion with respect to the transactions that would require a general meeting resolution:

“The aim of the provision of Article 160 f), as may be deduced from the systematic location thereof (in Article 160, among cases of by-law amendments and structural modifications), is to ensure the regulatory provisions include cases of ‘subsidiarisation’ and indirect pursuit of corporate purpose, transactions resulting in the dissolution and liquidation of the company, and transactions that in fact amount to a substantial amendment to or a replacement of the corporate purpose. But it should be borne in mind that the breadth of the literal terms used in the precept (“acquisition, disposal or transfer of critical assets”) raises reasonable doubts as to whether or not it may include other cases which, without having the consequences of those noted above, also fall within the competence of the general meeting due to their exceeding the scope of ordinary administration of the company.”

In other words, it is suggested that other transactions distinct from those that entail a de facto amendment to the corporate purpose or the way it is pursued may also require a general meeting resolution, including those that necessarily result in the dissolution of the company, although it is not specified what type of transactions these might be. 

On the other hand, although the issue here is related to the fact that the directors are not required to provide a declaration on the non-critical nature of the asset, the Directorate General also gives an opinion on the effects on third parties of the absence of a general meeting resolution. Thus, it proposes the possible analogy that might exist between the case described in Article 160 f) LSC and the case of acts performed by directors that fall beyond the scope of the registered corporate purpose, against which third parties acting in good faith and without gross negligence are protected under Article 234.2 LSC.

In this respect, it is worth noting that the Supreme Court ruling of 17 April 2008, declaring that chief executive officers of public limited companies do not have sufficient authority to execute a public deed of transfer of all of the company’s assets (in the case being heard, its public transport concessions, transport passes and buses, leaving the company with no corporate activity) without the knowledge and consent of the general meeting. But at the same time it evaded reversing the court ruling being appealed on the basis of the priority of ‘the protection of third parties acting in good faith and without gross negligence against the excessive abuse of power of chief executive officers (Article 129.2 LSA [now 234.2 LSC], clearly applicable by analogy).’

And once again, all but one of the resolutions cited above, in the paragraph summarising the legal grounds, stated that “Article 160 of the revised text of the Law on Corporations has not repealed Article 234.2 of the same law, wherefore the company is bound to third parties that have acted in good faith and without gross negligence.”