A recent decision from the Spanish Companies House Directorate (DGRN) has made clear to investors that no amendment of the articles of association to introduce a ‘drag along’ provision will be valid unless expressly accepted by the unanimously shareholders.
The decision, issued on 4 December 2017, clearly is bad news for majority shareholders and private equity investors alike.
The Spanish Companies House was concerned with the insertion of drag along provision into the company's articles of an SL based in Barcelona, without the consent of the minority shareholders. The clause was drafted so as to give majority shareholders wishing to sell all or a substantial portion of their shares in the company to an unrelated third party the right to force the remaining shareholders to also sell all or a portion of their shares to such third party.
The decision from the Spanish Companies House Directorate now clearly sets out that any drag along clause must be expressly agreed and accepted by each of the shareholders to be valid. Otherwise, the article´s amendment will be rendered as invalid and null.
The regime for the insertion of drag along provisions under English law are not as tight as in Spain, being theoretically possible for a majority of shareholders to insert them without the consent of the minority. However, following the ruling of the Court of Appeal in Arbuthnott v Bonnyman, there is always a risk that the process will be open to challenge under the Companies Act 2006 which provides protection against the unfair prejudice of minorities.