Law 11/2018, of December 28, has once again modified the right of separation in case of lack of distribution of dividends. The previous wording of article 348 bis LSC, whose ‘raison d’être’ was to reduce the possible pressure produced by the majority shareholders over the minority by not distributing profits, endowed minority shareholders, on the contrary, an undesired capacity to pressure, such as we discussed in a post about the matter, on January 8, 2018.
With the recent reform, this imbalance has been reduced by tightening the necessary requirements for these minority shareholders to exercise the right contained into this legal provision.
At first, the partners may exercise the right of separation after the fifth year from the recording of the company into the Commercial Registry if, having the company obtained benefits during the three previous years, the General Meeting of the company did not agree, at least, the distribution of 25% of the legally distributable profits of the previous exercise; in accordance with the previous wording, the right of separation could be exercised from the fifth exercise without regarding the current benefit requirement in the previous three years, and instead of setting the minimum in 1/4 of the benefits, it was fixed in 1/3 of it. This is a real readjustment of the right of separation of minority shareholders towards a more stringent separation procedure.
Furthermore, in the previous wording of the aforementioned article, the vote of the member in favor of the distribution of dividends was required to be recorded in the Proxies of the Ordinary General Meeting, in order to be later able to exercise the right, while the new wording establishes that, additionally, the vote for the distribution shall be recorded beside the protest for the insufficiency of distribution. This is another turn of the screw.
Furthermore, another requirement is added: the separation right will be exercisable as long as the total of the dividends distributed during the last five years are not equal at least to 25% of the legally distributable benefits registered during the previous exercise.
Therefore, the new reality is drawn as follows: five years after recording the company in the Commercial Register, the company must have registered profits during the last three years and no dividends should have been distributed equivalent to, at least, 25% of the profits of the previous year during the last five years; and the proxies must have recorded the partner’s willingness to distribute dividends and his protest for the lack or insufficient distribution.
With regard to the term of the exercise of the right, it is maintained within one month from the date on which the ordinary general meeting of shareholders was held.
On the other hand, the new wording of the article ends with the discussion about whether the right of separation for lack of distribution of dividends is a dispositive or an imperative right; Now we can answer this question, because the new article, in its second section, establishes that the right in question can be suppressed or modified by agreement of the partners, provided the consent of all the partners is given, or the recognition of the right of separation to those who vote against the deletion or modification.
The new article also regulates -before it did not-, the right of separation with respect to the companies with consolidated accounts, but with certain differences with respect to the requirements discussed in this post.
Lastly, article 348 bis, which consisted of three sections, is extended by two additional sections, in which, together with listed companies, states that companies in insolvency proceedings, companies in negotiations for refinancing agreements, companies having reached refinancing agreements and Sports Companies, are subjects to which the right of separation is not applicable.
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Marc Baró – Lawyer