A Reform Bill of the Spanish Companies Act to improve corporate governance (the “Reform”) was passed on November 27, 2014. On the date of this legal update, the Bill is pending publication in the Official Gazette of the Spanish State (“BOE”), which we expect to take place in the next few days.

The Act will come into force 20 days after its publication in the BOE, although transitional law rules have been established for some relevant provisions, including those referring to directors’ remuneration and the configuration and duties of the boards of listed companies.

The Reform affects both listed and non-listed companies, including  public limited liability companies (sociedades anónimas SAs”) and private limited companies (sociedades limitadas SLs”).

The Spanish Securities and Exchange Commission is currently working with a committee of experts on revising the Unified Code of Good Governance of Listed Companies, which is expected to be published shortly.


I. Scope of application

The  Reform  changes  substantial  aspects  of  Spanish  corporate  law.  The  most relevant changes affect all companies and not just listed companies.

II. General Meetings and Shareholder Rights

  • Strengthening the role of partners and shareholders: Powers of the general meeting are increased, and the SL rule allowing the general meeting to participate in management issues by providing direct instructions to the Management Body is extended to SAs.
  • New regulation of conflicts of interest of partners or shareholders: Partners in SLs and shareholders in SAs are forbidden from voting their shares for the most serious conflicts of interest. Until now this voting prohibition had only been applicable to SLs. In all other cases, the partner or shareholder may vote, but there is a reversal of the burden of proof. If the resolution is challenged, the partners or shareholders must prove that they have acted in accordance with the company’s interest.
  • Streamlining information rights and their possible breach as grounds for challenging company resolutions: If a partner’s or shareholder’s right to request information before the general meeting is breached, the resolutions adopted may only be challenged if the information requested is essential to exercise the voting rights. In an SA, any breach of information rights during the general meeting will not be a valid ground to challenge the resolutions adopted. Provisions have been added to prevent the abuse of this right and to guarantee its bona fide exercise.
  • Majority to adopt resolutions at general meeting of an SA expressly defined1: Majority is defined as “simple majority” (more votes for than against the resolution among the share capital present or represented at the general shareholders’ meeting).
  • New system for challenging company resolutions: This right has been reinforced by removing traditional differences between resolutions that are null and void and those that are voidable, and establishing a single one-year statute of limitations (except for resolutions contrary to public policy, which will not be time-barred). In listed companies, the opposition period is reduced to three months.

When defining the concept of “harm to company’s interest,” the Reform has added a specific reference to resolutions adopted abusively by the majority.

To avoid abusive challenges to resolutions, restrictions are introduced affecting active legal capacity and resolutions subject to challenge.

  • Regarding listed companies, we highlight (i) the new definition of minority for the purposes of exercising certain rights (reduced from 5% to 3%), (ii) certain shareholders and shareholder associations’ right to access information about the identity of the other shareholders, (iii) the new regulation on shareholder associations, and (iv) the current regulation on financial intermediaries is amended.

III. Directors Statute and Board of Directors

  • Clarifications to the duty of diligence: The Reform describes the implications of the duty of diligence (for example, sufficient commitment or the duty of being informed and right to information) and states that diligence in performing the post should be valued based on the duties assigned to each director. For the first time under Spanish law, the business judgment rule is contemplated by law, establishing criteria that enable strategic business decisions, regardless of the end result for the company, to be considered correctly adopted in accordance with the diligence required of the directors.
  • Reinforcement of the duty of loyalty: The Reform reinforces directors' duty of loyalty, expressly stating its obligatory nature. The technique of establishing a general clause is maintained, and improved, providing further details to the list of basic obligations arising from this duty (including the traditional duty of secrecy, abstaining from voting in situations of conflicts of interest and independent actions without third-party interference) and the duty to avoid situations of conflicts of interest (for example, the use of corporate assets, taking advantage of business opportunities, obtaining third-party advantages and performing competing activities). The general meeting or the board or directors, depending  on  the specific situation, can grant an exemption to the director  when  certain requirements are met.
  • Duties and liabilities extended subjectively: From a liability perspective, shadow directors2 are equated with de facto directors (as already interpreted by case law). Liability is also extended to (i) the individual that represents the company that acts as director, and (ii) to the most senior executive, only when the board has not delegated its powers.
  • Procedural remedies relating to directors are extended: Any director breaching the duty of loyalty must not only compensate the company for damages, but is also subject to the disgorgement of any unfair enrichment that he may have received. The Reform also clarifies that any action for liability must be compatible with actions for challenge, cessation, removal of effects and the annulment of any acts or agreements executed by the directors that are contrary to their duty of loyalty.
  • Statutes of limitations affecting individual and corporate actions for liability are amended: The deadline for any action for responsibility against the directors will now expire after four years “from the day on which it could have been brought” (compared to the current system where the four years start “when for any reason, they cease to carry out the administration”).
  • New rules on remuneration: One of the most significant changes is the recognition of two different types of remuneration: (i) remuneration of the directors “in their capacity as such,” subject to the principle of statutory reserve (i.e., the remuneration system must be included in the by-laws) and approval by the general meeting; and (ii) remuneration for the directors’ performance of executive duties, which should be recorded in an agreement signed by the particular  director affected and the board.
  • Regarding listed companies: The main changes worthy of being highlighted are: (i) new rules affecting directors remuneration and the effects of the advisory vote of the Annual Remuneration Report; (ii) a reduction in the maximum term of directors’ appointment (from six to four years, with the right to be re-elected); (iii) amendments to the rules governing appointments through co-option (a system enabling the board of an SA to appoint a director when a vacancy occurs until the next shareholders’ meeting is held); and (iv) new developments relating to the structure of the auditing committee, and the remuneration and appointment committee (two of their members must be independent and both committees must be presided by an independent director).