In several decisions, the Department of Legal Affairs has outlined the limits of the free-will principle for shareholders when setting the procedure and requirements for the preferential rights for purchasing shares in attachment cases.

On 23 November 2020 the Department of Legal Affairs ruled in a decision concerning a bylaw relating to the applicable regime for transfers arising from the seizure of a company's shares, which allows for reflection on the true scope of the free-will principle for shareholders with respect to the compulsory transfer of shares.


In the case at hand, the Department of Legal Affairs considered a bylaw article that had been unanimously passed at a shareholders' meeting which acknowledged the preferential purchase right of a company, and subsequently the rest of the shareholders, when there was a compulsory transfer of shares from one of them. The article stated that:

  • "the Company could acquire part or all of the attached shares, having a maximum three month period to exercise this right, counting from the date in which the company is notified of the seizure"; and
  • "the transfer price will correspond to the fair value of the share, understanding the fair value to be that of the book value of the shares shown on the last balance sheet to have been approved by the Board; accepting the payment of the same in a staged manner over a maximum of five years".


The Department of Legal Affairs confirmed the position held by the registrar who refused to include this article for two reasons:

  • First, the provision that the company or the shareholders could preferentially acquire part of the attached shares is null and void as a shareholder cannot be obliged to transfer a number other than offered, as outlined in Article 108 of the Corporate Enterprises Act.
  • Second, the article referred to a possible staged payment of the fair value of the shares over a maximum period of five years (without prejudice to the fact that, as the decision highlights, a mandatory payment in full is solely established with respect to transfers on death and not in relation to compulsory transfer of share provisions). Further, the shares under a compulsory transfer provision must be subject to a system that is consistent with the right to subrogation by the acquirer in place of the awardee or, if the case may be, of the creditor, through the express acceptance of all the conditions applicable to the sale by auction and the full allocation of the auction price or, if the case may be, its adjudication to the creditor and all the costs incurred. Given that, in the eyes of the Department of Legal Affairs, there is an analogy between the compulsory transfer of shares and the exclusion of shareholders, the five-year staged payment of the price for the seized shares is also incompatible with the period established in Article 356.1 of the Corporate Enterprises Act for excluded shareholders to be reimbursed for the fair value of their shares, without delay in carrying out the valuation of the shares.


In the context of this decision, it is useful to draw attention to the fact that there are other items which deviate from the procedures and conditions established in Article 109 of the Corporate Enterprises Act that are supported by the free-will principle, as understood by the Department of Legal Affairs (in decisions dated 9 May 2019, 23 May 2019, 6 February 2020 and 27 February 2020), as these items neither break the law nor contradict the principal elements of limited liability companies.

The first item relates to the procedure to follow in the case of a compulsory transfer of shares. Article 109 of the Corporate Enterprises Act establishes that the auction or adjudication of seized stakes must be suspended, as well as the right of the shareholders and, if the bylaws establish a right of pre-emption in its name, the company, to be subrogated to the rights of the awardee or creditor, in accordance with the abovementioned conditions. The Legal Affairs Department's decision states that the procedure envisioned by the Corporate Enterprises Act is of a restricted character and, therefore, is compatible with alternative procedural rules. In the bylaw article analysed, it can be seen how the shareholders create an alternative procedure to that which is outlined in law, stating that the company should exercise its preferential right to purchase "in a three month period counting from the notification of the seizure to the company". As a consequence of this alternative procedure, the company should exercise the right at the beginning of the seizure procedure (ie, in the phase prior to the suspension of the auction or adjudication).

The second item that should be mentioned is the bylaw's stipulation that the reference for the transfer price be "the book value on the balance sheet last approved by the Board" as a fair value for these types of transfer. The Corporate Enterprises Act or accounting rules set no specifications concerning the fair value of shares, expect for referring to a price set by an independent expert that can be appointed by the company itself (Article 107.2.d of the Corporate Enterprises Act) or the registrar (Article 353 of the Corporate Enterprises Act). Given the lack of criteria and bearing in mind that the accounting rules state that when companies are being valued "only approximations or reasonable judgments can be discussed", the Legal Affairs Department's decision considers that no rule prohibits it from agreeing that the value of the shares under the preferential purchase right should be the book value approved by the board.