On 13 December 2008 the official Spanish government gazette, “Boletín Oficial del Estado” published the Spanish “Real Decreto- Ley 10/2008” of 12 December, which sets out financial measures intended to improve the liquidity of small and medium sized enterprises, and other complementary economic measures.
Of particular note is the “disposición adicional única” of the above law that affects the Spanish Corporate Regulations. This rule provides for a temporary exceptional regime for the compulsory reduction of capital and the dissolution of public limited companies, “sociedades anónimas”, and private limited companies, “sociedades limitadas”, following financial losses.
In accordance with paragraph 2 of Article 163.1 of the Spanish “Ley de Sociedades Anónimas” (LSA), the reduction of the capital of a public limited company will be mandatory when losses have reduced its net assets below two thirds of the amount of share capital and a business year has elapsed without the net assets having recovered above this threshold.
Under the provisions of Article 260.1.4 of the LSA and Article 104.1.e) of the Spanish “Ley de Sociedades de Responsibilidad Limitada” (LSRL), both public limited companies and private limited companies will be dissolved if financial losses reduce net assets below 50% of the company’s share capital. This will occur unless the share capital is increased or reduced sufficiently to ensure that net assets comprise 50% of the company’s share capital.
This is only possible if it is not appropriate to petition for winding-up in accordance with Real Decreto-Ley 22/2003 of 9 July.
In accordance with the above, the financial losses caused by worsening company performance, significant in certain companies, when included in the profit and loss account, should be taken into account in order to determine the loss of Net Assets in cases of aforementioned capital reduction and company dissolution. However, the recent performance of the international economy places us in an extraordinary situation which, in accordance with Spanish Real Decreto-Ley 10/2008, requires the application of an extraordinary regime. This regime provides that the losses caused by worsening company performance not be recognised in the annual accounts relating to tangible assets, real estate investments or stock. This regime will not be taken into account in order to determine the losses in relation to the aforementioned capital reduction and dissolution. This exceptional regime will have effect until the end of the second business year after 14 December 2008 (the date on which this Real Decreto-Ley enters into force).
Finally, we must note that if a company changes its business year whilst taking advantage of the benefits of the special regime, it may reduce the benefits available to it. In order to amend its business year, the business year in which the year-end date is altered will necessarily be less than one calendar year. As the special regime is available for only two business years the period in which the company can benefit from it will necessarily be shortened.